-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V3Eqcc9LcuuwDkLjQ/ZxuRVMkdZaA29c9A4cGt4cLxR/VuHFx+V27wCQ3pQURSRv UI8ZTKu6+xo2IDbfL3P6VA== 0000950124-97-003331.txt : 19970617 0000950124-97-003331.hdr.sgml : 19970617 ACCESSION NUMBER: 0000950124-97-003331 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970609 DATE AS OF CHANGE: 19970616 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STIFEL FINANCIAL CORP CENTRAL INDEX KEY: 0000720672 STANDARD INDUSTRIAL CLASSIFICATION: 6211 IRS NUMBER: 431273600 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28871 FILM NUMBER: 97621761 BUSINESS ADDRESS: STREET 1: 500 N. BROADWAY STREET 2: 14TH FLOOR CITY: ST LOUIS STATE: MO ZIP: 63102-2188 BUSINESS PHONE: 3143422000 MAIL ADDRESS: STREET 1: 500 N BROADWAY CITY: ST LOUIS STATE: MO ZIP: 63102-2188 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STIFEL FINANCIAL CAPITAL TRUST CENTRAL INDEX KEY: 0001040627 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 436769015 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28871-01 FILM NUMBER: 97621762 BUSINESS ADDRESS: STREET 1: 500 NORTH BROADWAY CITY: ST LOUIS STATE: MO ZIP: 63102 BUSINESS PHONE: 3143422000 MAIL ADDRESS: STREET 1: 500 NORTH BROADWAY CITY: ST LOUIS STATE: MO ZIP: 63102 S-2 1 S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997 REGISTRATION NO. 333- REGISTRATION NO. 333- -01 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ STIFEL FINANCIAL CORP. STIFEL FINANCIAL CAPITAL TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER) CHARTER) DELAWARE DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) ORGANIZATION) 43-1273600 43-6769015 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
------------------------ 500 NORTH BROADWAY ST. LOUIS, MO 63102 (314) 342-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ CHARLES R. HARTMAN, ESQ. VICE PRESIDENT AND SECRETARY STIFEL FINANCIAL CORP. 500 NORTH BROADWAY ST. LOUIS, MO 63102 (314) 342-2000 FAX: (314) 342-2097 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: JAMES L. NOUSS, JR., ESQ. BRYAN CAVE LLP 211 NORTH BROADWAY, SUITE 3600 ST. LOUIS, MO 63102 (314) 259-2000 FAX: (314) 259-2020 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this form, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- - ---------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE REGISTRATION FEE - - ---------------------------------------------------------------------------------------------------------------------- Preferred Securities of Stifel Financial Capital Trust(1)......................................... 2,875,000 $10.00 $28,750,000 $8,713 - - ---------------------------------------------------------------------------------------------------------------------- Subordinated Debentures of Stifel Financial Corp.(2)......................................... (2) -- -- -- - - ---------------------------------------------------------------------------------------------------------------------- Guarantee of Stifel Financial Corp., with respect to Preferred Securities(3)....................... (3) -- -- -- ======================================================================================================================
(1) Includes 375,000 Preferred Securities which may be sold by Stifel Financial Capital Trust to cover over-allotments. (2) The Subordinated Debentures will be purchased by Stifel Financial Capital Trust with the proceeds of the sale of the Preferred Securities. Such securities may later be distributed for no additional consideration to the holders of the Preferred Securities of Stifel Financial Capital Trust upon its dissolution and the distribution of its assets. (3) This Registration Statement is deemed to cover the Subordinated Debentures of Stifel Financial Corp., the rights of holders of Subordinated Debentures of Stifel Financial Corp. under the Indenture, and the rights of holders of the Preferred Securities under the Trust Agreement, the Guarantee and the Expense Agreement entered into by Stifel Financial Corp. No separate consideration will be received for the Guarantee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED JUNE 9, 1997 PROSPECTUS 2,500,000 PREFERRED SECURITIES STIFEL FINANCIAL CAPITAL TRUST % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY) GUARANTEED, AS DESCRIBED HEREIN, BY ------------------------------------ STIFEL FINANCIAL CORP. $25,000,000 % SUBORDINATED DEBENTURES OF ------------------------------------ STIFEL FINANCIAL CORP. The % Cumulative Trust Preferred Securities (the "Preferred Securities") offered hereby represent preferred undivided beneficial interests in the assets of Stifel Financial Capital Trust, a statutory business trust created under the laws of the State of Delaware ("Stifel Capital"). Stifel Financial Corp., a Delaware corporation ("Stifel Financial" or the "Company"), will own all the common securities (the "Common Securities" and, together with the Preferred Securities, the "Trust Securities") representing undivided beneficial interests in the assets of Stifel Capital. (continued on next page) An application will be made to have the Preferred Securities approved for listing on the New York Stock Exchange (the "NYSE"), subject to official notice of issuance, under the symbol "SFPr." ------------------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================================= UNDERWRITING PRICE TO DISCOUNT AND PROCEEDS TO PUBLIC COMMISSIONS(1) STIFEL CAPITAL(2)(3) - - ------------------------------------------------------------------------------------------------------------- Per Preferred Security........... $10.00 (2) $ - - ------------------------------------------------------------------------------------------------------------- Total(4)......................... $25,000,000 (2) $ =============================================================================================================
(1) Stifel Financial and Stifel Capital have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) In view of the fact that the proceeds of the sale of the Preferred Securities will be invested in the Subordinated Debentures, Stifel Financial has agreed to pay the Underwriters as compensation for its arranging the investment therein of such proceeds, $ per Preferred Security, or $ in the aggregate ($ if the over-allotment option is exercised in full). See "Underwriting." (3) Before deducting offering expenses estimated at $ . (4) The Company has granted to the Underwriters an option exercisable within 30 days from the date of this Prospectus to purchase up to 375,000 additional Preferred Securities on the same terms and conditions set forth above to cover over-allotments, if any. If all such Preferred Securities are purchased, the total Price to Public and Proceeds to Stifel Capital will be $28,750,000 and $ , respectively. See "Underwriting." ------------------------------------ The Preferred Securities are being offered by the Underwriters subject to receipt and acceptance by them, prior sale and the Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of certificates for the Preferred Securities will be made on or about , 1997. STIFEL, NICOLAUS & COMPANY INCORPORATED June , 1997 3 is the Property Trustee (as defined herein) of Stifel Capital. Stifel Capital exists for the purpose of issuing the Preferred Securities and investing the proceeds thereof in an equivalent amount of % Subordinated Debentures (the "Subordinated Debentures") of Stifel Financial. The Subordinated Debentures will mature on June 30, 2027, which date may be (i) shortened to a date not earlier than June 30, 2002, or (ii) extended to a date not later than June 30, 2036, in each case if certain conditions are met. The Preferred Securities will have a preference under certain circumstances with respect to cash distributions and amounts payable on liquidation, redemption or otherwise over the Common Securities. See "Description of the Preferred Securities -- Subordination of Common Securities." Holders of Preferred Securities are entitled to receive preferential cumulative cash distributions, at the annual rate of % of the liquidation amount of $10 per Preferred Security (the "Liquidation Amount"), accruing from , 1997, the date of original issuance, and payable quarterly in arrears on the last day of March, June, September and December of each year, commencing September 30, 1997 (the "Distributions"). Stifel Financial has the right, so long as no Debenture Event of Default (as defined herein) has occurred and is continuing, to defer payment of interest on the Subordinated Debentures at any time or from time to time for a period not to exceed 20 consecutive quarters with respect to each deferral period (each, an "Extension Period"); provided that no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all amounts then due, Stifel Financial may elect to begin a new Extension Period subject to the requirements set forth herein. If interest payments on the Subordinated Debentures are so deferred, Distributions on the Preferred Securities will also be deferred, and Stifel Financial will not be permitted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to its capital stock or debt securities that rank pari passu with or junior to the Subordinated Debentures. DURING AN EXTENSION PERIOD, INTEREST ON THE SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE AMOUNT OF DISTRIBUTIONS TO WHICH HOLDERS OF THE PREFERRED SECURITIES ARE ENTITLED WILL ACCUMULATE) AT THE RATE OF % PER ANNUM, COMPOUNDED QUARTERLY, AND HOLDERS OF THE PREFERRED SECURITIES WILL BE REQUIRED TO INCLUDE INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH RESPECT TO SUCH DEFERRED INTEREST PAYMENTS. UPON THE OCCURRENCE OF AN EXTENSION PERIOD, A HOLDER OF PREFERRED SECURITIES THAT DISPOSES OF ITS PREFERRED SECURITIES BETWEEN RECORD DATES FOR PAYMENTS OF DISTRIBUTIONS (AND CONSEQUENTLY DOES NOT RECEIVE A DISTRIBUTION FROM STIFEL CAPITAL FOR THE PERIOD PRIOR TO SUCH DISPOSITION) WILL NEVERTHELESS BE REQUIRED TO INCLUDE ACCRUED BUT UNPAID INTEREST ON THE SUBORDINATED DEBENTURES THROUGH THE DATE OF DISPOSITION IN INCOME AS ORDINARY INCOME AND TO ADD SUCH AMOUNT TO ITS ADJUSTED TAX BASIS IN ITS PRO RATA SHARE OF THE UNDERLYING SUBORDINATED DEBENTURES DEEMED DISPOSED OF. See "Description of the Subordinated Debentures -- Option to Extend Interest Payment Period," "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount" and "-- Disposition of Preferred Securities." Stifel Financial and Stifel Capital believe that, taken together, the obligations of Stifel Financial under the Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and the Expense Agreement (each as defined herein) provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of Stifel Capital under the Preferred Securities. See "Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee of Stifel Financial guarantees the payment of Distributions and payments on liquidation or redemption of the Preferred Securities, but only in each case to the extent of funds held by Stifel Capital, as described herein. See "Description of the Guarantee -- General." If Stifel Financial does not make interest payments on the Subordinated Debentures held by Stifel Capital, Stifel Capital will have insufficient funds to pay Distributions on the Preferred Securities. The Guarantee does not cover payments of Distributions when Stifel Capital does not have sufficient funds to pay such Distributions. In such event, a holder of Preferred Securities may institute a legal proceeding directly against Stifel Financial 2 4 pursuant to the terms of the Indenture to enforce payments of amounts equal to such Distributions to such holder. See "Description of the Subordinated Debentures -- Enforcement of Certain Rights by Holders of the Preferred Securities." The obligations of Stifel Financial under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations (each as defined herein) of Stifel Financial. The Subordinated Debentures are unsecured obligations of Stifel Financial and are subordinated to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial. The Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures at maturity or their earlier redemption. The Subordinated Debentures are redeemable prior to maturity at the option of Stifel Financial (i) on or after June 30, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event (each as defined herein), in each case at a redemption price equal to the accrued and unpaid interest on the Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. See "Description of the Preferred Securities -- Redemption or Exchange." Stifel Financial has the right at any time to dissolve Stifel Capital. In the event of the voluntary or involuntary dissolution of Stifel Capital, after satisfaction of liabilities to creditors of Stifel Capital as required by applicable law, the holders of Preferred Securities will be entitled to receive a Liquidation Amount of $10 per Preferred Security, plus accumulated and unpaid Distributions thereon to the date of payment, which may be in the form of a Subordinated Debenture having an aggregate principal amount equal to the Liquidation Amount of such Preferred Securities (and carrying with it accumulated interest in an amount equal to the accumulated and unpaid Distributions then due on such Preferred Securities), subject to certain exceptions. See "Description of the Preferred Securities -- Redemption or Exchange" and "-- Liquidation Distribution Upon Dissolution." ------------------------ Stifel Financial will provide to the holders of Preferred Securities quarterly reports containing unaudited financial statements and annual reports containing financial statements audited by Stifel Financial's independent auditors. Stifel Financial will also furnish annual reports on Form 10-K and quarterly reports on Form 10-Q free of charge to holders of Preferred Securities who so request in writing addressed to the Secretary of Stifel Financial. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTING THE PREFERRED SECURITIES AND BIDDING FOR AND PURCHASING SUCH PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements (including notes thereto) appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment will not be exercised. Prospective investors should carefully consider the information set forth under the heading "Risk Factors." STIFEL FINANCIAL Stifel Financial, through its wholly owned subsidiaries, principally Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus"), is principally engaged in retail brokerage, securities trading, investment banking, investment advisory, and related financial services throughout the United States. Although the Company has offices and customers throughout the United States, its geographic concentration is in the Midwest. Stifel, Nicolaus has a branch office system located in 13 states, and the Company has a total of 43 locations in 14 states. Stifel, Nicolaus employs approximately 275 registered representatives. The Company's customers include individual investors, corporations, municipalities and institutions. In 1996, the Company had revenues of approximately $109.8 million and net income of approximately $3.4 million and as of March 31, 1997, the Company had total assets of approximately $343.2 million and stockholders' equity of approximately $39.5 million. The principal executive office of Stifel Financial is 500 North Broadway, St. Louis, Missouri 63102, and its telephone number is (314) 342-2000. Stifel, Nicolaus trades as a principal in the over-the-counter market and acts as both principal and agent to facilitate the execution of customers' orders. Stifel, Nicolaus "makes a market" in various securities of interest maintaining an inventory of such securities but does not engage in a significant amount of trading for its own account. It also buys corporate and municipal bonds for its own account in the secondary market, maintains an inventory and resells from inventory to other dealers and institutional and retail customers. Stifel, Nicolaus manages the underwriting of both corporate and municipal securities and participates as an underwriter in syndicates of issues managed by other firms. The corporate and public finance departments of Stifel, Nicolaus are responsible for originating underwritings, mergers and acquisitions, placements, valuations, financial advisory work and other investment banking matters. Stifel, Nicolaus acts as an underwriter and dealer in bonds issued by states, cities and other political subdivisions and may act as manager or participant in offerings managed by other firms. In 1996 and 1995, the majority of the Stifel, Nicolaus' investment banking revenues were generated by the corporate finance department. The growth in the revenue is due to the department's focus on providing research, financial advisory services and consulting services for mergers and acquisitions and serving as a manager or co-manager for underwriting issuances of corporate debt and equity securities primarily for financial institutions and Real Estate Investment Trusts (REITs). The Company has a wholly owned subsidiary, Century Securities Associates, Inc. ("CSA"), an introducing broker-dealer which clears its transactions through Stifel, Nicolaus. CSA contracts with independent licensed brokers to sell securities and other investment products to retail (individual) investor accounts. CSA is licensed in 50 states and conducts business with approximately 100 independent registered representatives. The Company's wholly owned subsidiary, Stifel Asset Management Corp. ("SAM"), acts as a holding company for two investment advisory firms, Pin Oak Capital, Ltd. ("Pin Oak"), and Todd Investment Advisors, Inc. ("Todd"). Both Pin Oak and Todd provide investment advice and services to individual, fiduciary and corporate clients. Combined assets under management for the two firms at December 31, 1996 was approximately $2.6 billion. Pin Oak is registered as an investment advisor in six states, and Todd is registered as an investment advisor in fourteen states. The Company will continue to follow its mission to serve retail customers emphasizing its regional knowledge and expertise while expanding its capital markets and investment banking activities in niche areas of expertise. The Company's strategy will stress its ability to provide sound judgment to clients in an electronic age where information is increasingly treated as a commodity. The focus on niche practices in corporate and public finance is a key factor in our strategic plan. 4 6 STIFEL CAPITAL Stifel Capital is a statutory business trust formed under Delaware law pursuant to (i) a trust agreement, dated as of June 6, 1997, executed by Stifel Financial, as depositor, and the trustees of Stifel Capital (together with the Property Trustee, the "Trustees"), and (ii) a certificate of trust filed with the Secretary of State of the State of Delaware on June 6, 1997. The initial trust agreement will be amended and restated in its entirety (as so amended and restated, the "Trust Agreement") substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred Securities, the purchasers thereof will own all of the Preferred Securities. Stifel Financial will acquire all of the Common Securities which will represent an aggregate liquidation amount equal to at least 3% of the total capital of Stifel Capital. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Preferred Securities, except that upon the occurrence and during the continuance of an Event of Default (as defined herein) under the Trust Agreement resulting from a Debenture Event of Default, the rights of Stifel Financial as holder of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Preferred Securities. See "Description of the Preferred Securities -- Subordination of Common Securities." Stifel Capital exists for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of Stifel Capital, (ii) investing the gross proceeds of the Trust Securities in the Subordinated Debentures issued by Stifel Financial and (iii) engaging in only those other activities necessary, advisable, or incidental thereto. The Subordinated Debentures and payments thereunder will be the only assets of Stifel Capital, and payments under the Subordinated Debentures will be the only revenue of Stifel Capital. Stifel Capital has a term of 55 years but may terminate earlier as provided in the Trust Agreement. The principal executive office of Stifel Capital is 500 North Broadway, St. Louis, Missouri 63102, and its telephone number is (314) 342-2000. The number of Trustees will, pursuant to the Trust Agreement, initially be five. Three of the Trustees (the "Administrative Trustees") will be persons who are employees or officers of, or who are affiliated with, Stifel Financial. The fourth trustee will be an entity that maintains its principal place of business in the State of Delaware (the "Delaware Trustee"). Wilmington Trust Company, a Delaware chartered trust company, will act as Delaware Trustee. A fifth trustee will be added and will be a financial institution that is unaffiliated with Stifel Financial, which trustee will serve as institutional trustee under the Trust Agreement and as indenture trustee for the purposes of compliance with the provisions of the Trust Indenture Act (the "Property Trustee"). will be the Property Trustee until removed or replaced by the holder of the Common Securities. For purposes of compliance with the provisions of the Trust Indenture Act, will also act as trustee (the "Guarantee Trustee") under the Guarantee and as Debenture Trustee (as defined herein) under the Indenture. The Property Trustee will hold title to the Subordinated Debentures for the benefit of the holders of the Trust Securities and in such capacity will have the power to exercise all rights, powers and privileges under the Indenture. The Property Trustee will also maintain exclusive control of a segregated non-interest-bearing bank account (the "Property Account") to hold all payments made in respect of the Subordinated Debentures for the benefit of the holders of the Trust Securities. The Property Trustee will make payments of Distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. Stifel Financial, as the holder of all the Common Securities, will have the right to appoint, remove or replace any Trustee and to increase or decrease the number of Trustees. Stifel Financial will pay all fees and expenses related to Stifel Capital and the offering of the Trust Securities. The rights of the holders of the Preferred Securities, including economic rights, rights to information and voting rights, are set forth in the Trust Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the Preferred Securities." 5 7 THE OFFERING Securities Offered............ 2,500,000 Preferred Securities having a Liquidation Amount of $10 per Preferred Security. The Preferred Securities represent preferred undivided beneficial interests in the assets of Stifel Capital, which will consist solely of the Subordinated Debentures and payments thereunder. Stifel Capital has granted the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional 375,000 Preferred Securities at the initial offering price, solely to cover over-allotments, if any. Distributions................. The Distributions payable on each Preferred Security will be fixed at a rate per annum of % of the Liquidation Amount of $10 per Preferred Security, will be cumulative, will accrue from , 1997, the date of original issuance of the Preferred Securities, and will be payable quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year, commencing September 30, 1997. See "Description of the Preferred Securities -- Distributions -- Payment of Distributions." Option to Extend Interest Payment Period................ Stifel Financial has the right, at any time, so long as no Debenture Event of Default has occurred and is continuing, to defer payments of interest on the Subordinated Debentures for a period not exceeding 20 consecutive quarters; provided, that no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of the extension by Stifel Financial of the interest payment period, quarterly Distributions on the Preferred Securities will be deferred (though such Distributions would continue to accrue with interest thereon compounded quarterly, since interest will continue to accrue and compound on the Subordinated Debentures) during any such Extension Period. During an Extension Period, Stifel Financial will be prohibited, subject to certain exceptions described herein, from declaring or paying any cash distributions with respect to its capital stock or debt securities that rank pari passu with or junior to the Subordinated Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, Stifel Financial may commence a new Extension Period, subject to the foregoing requirements. See "Description of the Preferred Securities -- Distributions -- Extension Period" and "Description of the Subordinated Debentures -- Option to Extend Interest Payment Period." Should an Extension Period occur, holders of Preferred Securities will be required to include deferred interest income in their gross income for United States federal income tax purposes in advance of receipt of the cash distributions with respect to such deferred interest payments. See "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount." Optional Redemption........... The Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures at maturity or their earlier redemption. The Subordinated Debentures are redeemable prior to maturity at the option of Stifel Financial (i) on or after June 30, 2002, in whole at any time or in 6 8 part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event, in each case at the redemption price equal to 100% of the principal amount of the Subordinated Debenture, together with any accrued but unpaid interest to the date fixed for redemption. See "Description of the Subordinated Debentures -- Redemption or Exchange." Distribution of Subordinated Debentures.................. Stifel Financial has the right at any time to terminate the Preferred Securities and cause the Subordinated Debentures, after satisfaction of liabilities to creditors of Stifel Capital as required by applicable law, to be distributed to holders of Preferred Securities in dissolution of Stifel Capital. See "Description of the Preferred Securities -- Redemption or Exchange" and "Description of the Preferred Securities -- Liquidation Distribution Upon Dissolution." Guarantee..................... Stifel Financial has guaranteed the payment of Distributions and payments on liquidation or redemption of the Preferred Securities, but only in each case to the extent of funds held by Stifel Capital, as described herein. Stifel Financial and Stifel Capital believe that, taken together, the obligations of Stifel Financial under the Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and the Agreement as to Expenses and Liabilities ("Expense Agreement") provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of Stifel Capital under the Preferred Securities. The obligations of Stifel Financial under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial. If Stifel Financial does not make principal or interest payments on the Subordinated Debentures, Stifel Capital will not have sufficient funds to make distributions on the Preferred Securities; in which event, the Guarantee will not apply to such Distributions until Stifel Capital has sufficient funds available therefor. See "Description of the Guarantee." Voting Rights................. The holders of the Preferred Securities will have no voting rights except in limited circumstances. See "Description of the Preferred Securities -- Voting Rights; Amendment of Trust Agreement." Use of Proceeds............... The proceeds from the sale of the Preferred Securities offered hereby will be used by Stifel Capital to purchase the Subordinated Debentures issued by Stifel Financial. Stifel Financial intends to use the net proceeds from the sale of the Subordinated Debentures for general corporate purposes, which may include, among other things, the repayment of long-term debt, expansion of the Company's business and the repurchase of the Company's common stock. See "Use of Proceeds." Listing....................... An application will be made to have the Preferred Securities approved for listing on the NYSE, subject to official notice of issuance, under the symbol "SFPr." 7 9 SUMMARY CONSOLIDATED FINANCIAL DATA(1)
AT OR FOR THREE MONTHS ENDED AT OR FOR YEAR ENDED DECEMBER 31, MARCH 27, ------------------------------------------ 1997 1996 1995 1994 ------------ ---- ---- ---- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA) Revenues..................................... $ 31,845 $109,813 $ 95,360 $ 93,926 Income (loss) before income taxes and extraordinary credit....................... 2,752 5,602 1,307 (9,221) Extraordinary credit......................... -- -- -- -- Net Income (loss)............................ 1,647 3,393 644 (5,503) Earnings (loss) per share: Primary.................................... $0.34 $0.71 $0.14 $(1.17) Fully diluted.............................. 0.28 0.64 0.14 (1.17) Average common shares and share equivalents outstanding: Primary.................................... 4,852 4,780 4,674 4,689 Fully diluted.............................. 6,270 6,281 6,105 6,107 Total assets................................. $343,196 $301,049 $226,775 $ 222,208 Long-term obligations........................ 10,000 10,000 10,760 11,520 Stockholders' equity......................... 39,516 37,752 34,795 34,226 Ratio of Earnings to Fixed Charges(2)........ 2.15 1.67 1.15 nm AT OR FOR FIVE MONTHS ENDED AT OR FOR YEAR ENDED DECEMBER 31, ----------------------------- 1993 JULY 30, 1993 JULY 31, 1992 ------------ ------------- ------------- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA) Revenues..................................... $ 46,455 $113,471 $108,009 Income (loss) before income taxes and extraordinary credit....................... 3,060 11,270 9,068 Extraordinary credit......................... -- -- 648 Net Income (loss)............................ 1,915 7,038 6,353 Earnings (loss) per share: Primary.................................... $0.40 $1.52 $1.44 Fully diluted.............................. 0.36 1.27 1.21 Average common shares and share equivalents outstanding: Primary.................................... 4,748 4,626 4,399 Fully diluted.............................. 6,165 6,106 5,817 Total assets................................. $288,203 $196,539 $191,059 Long-term obligations........................ 11,520 10,000 10,000 Stockholders' equity......................... 40,609 38,995 31,597 Ratio of Earnings to Fixed Charges(2)........ 2.66 3.24 2.59
- - ------------ (1) The summary consolidated financial data set forth herein does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information contained in the consolidated financial statements of the Company and selected notes included in Appendix A and Appendix B included herein and the discussion under "Management's Financial Discussion" included in Appendix A included herein and the discussion under "Management's Discussion and Analysis of Results of Operations and Financial Condition" included in Appendix B included herein. (2) For purposes of calculating the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income before taxes plus interest and the portion of rent expense deemed to be interest. Fixed charges consist of interest and the portion of rent expense deemed to be interest. For the year ended December 31, 1994 earnings as defined were inadequate to cover fixed charges. The amounts by which fixed charges exceeded earnings as defined for the year ended December 31, 1994 was $9,221,000. 8 10 RISK FACTORS Prospective investors should carefully consider, together with the other information contained and incorporated by reference in this Prospectus, the following risk factors in evaluating Stifel Financial and its business and Stifel Capital before purchasing the Preferred Securities offered hereby. Prospective investors should note, in particular, that this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Act of 1934, as amended (the "Exchange Act"), and that actual results could differ materially from those contemplated by such statements. The considerations listed below represent certain important factors Stifel Financial believes could cause such results to differ. These considerations are not intended to represent a complete list of the general or specific risks that may affect Stifel Financial and Stifel Capital. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect Stifel Financial and Stifel Capital to a greater extent than indicated. RISK FACTORS RELATING TO THE PREFERRED SECURITIES RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED DEBENTURES The obligations of Stifel Financial under the Guarantee issued for the benefit of the holders of Preferred Securities and under the Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial, whether now existing or hereafter incurred. At March 27, 1997, the aggregate outstanding Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial was approximately $176.4 million. Because Stifel Financial is a holding company, the right of Stifel Financial to participate in any distribution of assets of any of its subsidiaries, including Stifel, Nicolaus, upon its liquidation or reorganization or otherwise (and thus the ability of holders of the Preferred Securities to benefit indirectly from such distribution) is subject to the prior claims of creditors of the subsidiary, except to the extent that Stifel Financial may itself be recognized as a creditor of such subsidiary. The Subordinated Debentures, therefore, will be effectively subordinated to all existing and future liabilities of any of Stifel Financial's subsidiaries, and holders of Subordinated Debentures and Preferred Securities should look only to the assets of Stifel Financial for payments on the Subordinated Debentures. Neither the Indenture, the Guarantee nor the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior Debt, Subordinated Debt and Additional Senior Obligations, that may be incurred by Stifel Financial. See "Description of the Guarantee -- Status of the Guarantee" and "Description of the Subordinated Debentures -- Subordination." The ability of Stifel Capital to pay amounts due on the Preferred Securities is solely dependent upon Stifel Financial making payments on the Subordinated Debentures as and when required. Moreover, Stifel Financial is a holding company which derives substantially all of its revenues from its subsidiaries, particularly Stifel, Nicolaus. As such, the Company is dependent to some extent upon dividends and other payments from its subsidiaries to generate the funds necessary to meet its cash obligations. OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES Stifel Financial has the right under the Indenture, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest on the Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each Extension Period; provided that no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of any such deferral, quarterly Distributions on the Preferred Securities by Stifel Capital will be deferred (and the amount of Distributions to which holders of the Preferred Securities are entitled will accumulate additional Distributions thereon at the rate of % per annum, compounded quarterly from the relevant payment date for such Distributions) during any such Extension Period. During any such Extension Period, Stifel Financial may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of Stifel Financial capital stock, (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Stifel Financial that rank pari passu with or junior in interest to the Subordinated Debentures or make any 9 11 guarantee payments with respect to any guarantee by Stifel Financial of the debt securities of any subsidiary of Stifel Financial if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Prior to the termination of any such Extension Period, Stifel Financial may further defer the payment of interest; provided that no Extension Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any Extension Period and the payment of all interest then accrued and unpaid (together with interest thereon at the annual rate of % compounded quarterly, to the extent permitted by applicable law), Stifel Financial may elect to begin a new Extension Period, subject to the above requirements. Subject to the foregoing, there is no limitation on the number of times that Stifel Financial may elect to begin an Extension Period. See "Description of the Preferred Securities -- Distributions -- Extension Period" and "Description of the Subordinated Debentures -- Option to Extend Interest Payment Period." Should an Extension Period occur, each holder of Preferred Securities will be required to accrue and recognize income (in the form of original issue discount ("OID")) in respect of its pro rata share of the interest accruing on the Subordinated Debentures held by Stifel Capital for United States federal income tax purposes. A holder of Preferred Securities must, as a result, include such income in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash related to such income from Stifel Capital if the holder disposes of the Preferred Securities prior to the record date for the payment of the related Distributions. See "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount." Stifel Financial has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. Should Stifel Financial elect, however, to exercise such right in the future, the market price of the Preferred Securities is likely to be adversely affected. A holder that disposes of its Preferred Securities during an Extension Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. As a result of the existence of Stifel Financial's right to defer interest payments, the market price of the Preferred Securities may be more volatile than the market prices of other securities on which original issue discount accrues that are not subject to such optional deferrals. TAX EVENT OR INVESTMENT COMPANY EVENT; REDEMPTION Stifel Financial has the right to redeem the Subordinated Debentures in whole (but not in part) within 180 days following the occurrence of a Tax Event or an Investment Company Event (whether occurring before or after June 30, 2002), and, therefore, cause a mandatory redemption of the Preferred Securities. "Tax Event" means the receipt by Stifel Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) Stifel Capital is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Subordinated Debentures, (ii) interest payable by Stifel Financial on the Subordinated Debentures is not, or, within 90 days of such opinion, will not be, deductible by Stifel Financial, in whole or in part, for United States federal income tax purposes, or (iii) Stifel Capital is, or will be within 90 days of the date of the opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. Stifel Financial must request and receive an opinion with regard to such matters within a reasonable period of time after it becomes aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. "Investment Company Event" means the receipt by Stifel Capital of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in 10 12 interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, Stifel Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), which change becomes effective on or after the date of original issuance of the Preferred Securities. See " -- Risk Factors Relating to the Preferred Securities - - -- Proposed Tax Legislation" for a discussion of certain legislative proposals that, if adopted, could give rise to a Tax Event, which may permit Stifel Financial to cause a redemption of the Preferred Securities prior to June 30, 2002. SHORTENING OR EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES Stifel Financial has the right, at any time, to shorten the maturity of the Subordinated Debentures to a date not earlier than June 30, 2002. Stifel Financial also has the right to extend the maturity of the Subordinated Debentures (whether or not Stifel Capital is terminated and the Subordinated Debentures are distributed to holders of the Preferred Securities) to a date no later than June 30, 2036, the 39th anniversary of the initial issuance of the Preferred Securities. Such right may only be exercised, however, if at the time such election is made and at the time of such extension (i) Stifel Financial is not in bankruptcy, otherwise insolvent or in liquidation, (ii) Stifel Financial is not in default in the payment of any interest or principal on the Subordinated Debentures, (iii) Stifel Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated and (iv) Stifel Financial has a Senior Debt rating of investment grade. See "Description of the Subordinated Debentures -- General." RIGHTS UNDER THE GUARANTEE The Guarantee guarantees to the holders of the Preferred Securities, to the extent not paid by Stifel Capital, (i) any accrued and unpaid Distributions required to be paid on the Preferred Securities, to the extent that Stifel Capital has funds available therefor at such time, (ii) the Redemption Price (as defined herein) with respect to any Preferred Securities called for redemption, to the extent that Stifel Capital has funds available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of Stifel Capital (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all of the Preferred Securities), the lesser of (a) the amount of the Liquidation Distribution (as defined herein), to the extent Stifel Capital has funds available therefor at such time, or (b) the amount of assets of Stifel Capital remaining available for distribution to holders of the Preferred Securities in liquidation of Stifel Capital. The holders of not less than a majority in Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred Securities may institute a legal proceeding directly against Stifel Financial to enforce its rights under the Guarantee without first instituting a legal proceeding against Stifel Capital, the Guarantee Trustee or any other Person (as defined in the Guarantee). If Stifel Financial were to default on its obligation to pay amounts payable under the Subordinated Debentures, Stifel Capital would lack funds for the payment of Distributions or amounts payable on redemption of the Preferred Securities or otherwise, and, in such event, holders of Preferred Securities would not be able to rely upon the Guarantee for such amounts. In the event, however, that a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of Stifel Financial to pay interest on or principal of the Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Preferred Securities may institute a legal proceeding directly against Stifel Financial for enforcement of payment to such holder of the principal of or interest on such Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such holder (a "Direct Action"). The exercise by Stifel Financial of its right, as described herein, to defer the payment of interest on the Subordinated Debentures does not constitute a Debenture Event of Default. In connection with such Direct Action, Stifel Financial will have a right of set-off under the Indenture to the extent of any payment made by Stifel Financial to such holder of Preferred Securities in the Direct Action. Except as described herein, holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Subordinated Debentures or assert directly any other rights in respect of the Subordinated Debentures. See "Description of the Subordinated Debentures 11 13 - - -- Enforcement of Certain Rights by Holders of Preferred Securities," "Description of the Subordinated Debentures -- Debenture Events of Default" and "Description of the Guarantee." The Trust Agreement provides that each holder of Preferred Securities by acceptance thereof agrees to the provisions of the Guarantee and the Indenture. NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES Holders of Preferred Securities will have no voting rights except in limited circumstances relating only to the modification of the Preferred Securities and the exercise of the rights of Stifel Capital as holder of the Subordinated Debentures and the Guarantee. Holders of Preferred Securities will not be entitled to vote to appoint, remove or replace the Property Trustee or the Delaware Trustee, as such voting rights are vested exclusively in the holder of the Common Securities (except upon the occurrence of certain events described herein). The Property Trustee, the Administrative Trustees and Stifel Financial may amend the Trust Agreement without the consent of holders of Preferred Securities to ensure that Stifel Capital will be classified for United States federal income tax purposes as a grantor trust even if such action adversely affects the interests of such holders. See "Description of the Preferred Securities -- Voting Rights; Amendment of Trust Agreement" and "Description of the Preferred Securities -- Removal of Stifel Capital Trustees." PROPOSED TAX LEGISLATION On March 19, 1996, President Clinton proposed certain tax law changes that would, among other things, generally deny corporate issuers a deduction for interest in respect of certain debt obligations issued on or after December 7, 1995 (the "1996 Proposed Legislation") if such debt obligations have a maximum term in excess of 20 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint statement (the "Joint Statement") indicating their intent that certain legislative proposals initiated by the Clinton administration, including the 1996 Proposed Legislation, that may be adopted by either of the tax-writing committees of Congress would have an effective date that is no earlier than the date of "appropriate Congressional action." In addition, subsequent to the publication of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials concurring with the views expressed in the Joint Statement. Neither the 1996 Proposed Legislation nor similar legislation was enacted during the 104th Congress. On February 6, 1997, President Clinton proposed in the administration's fiscal year 1998 budget certain tax law changes (the "1997 Proposed Legislation") that would, among other things, generally deny corporate issuers a deduction for interest or OID in respect of certain debt obligations if such debt obligations have a maximum term in excess of 15 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. The 1997 Proposed Legislation also contains a provision that would deny a deduction to corporate issuers for interest or OID with respect to debt instruments that have a maximum term of more than 40 years (including rights to extend, renew or relend), or are payable in stock of the issuer or a related party. The U.S. Treasury Department's summary of the 1997 Proposed Legislation states that the above provisions regarding the deduction of interest would generally be effective for instruments issued on or after the date of first Congressional committee action with respect to the 1997 Proposed Legislation. The Ways and Means Committee began a full committee hearing on the President's fiscal 1998 budget on February 11, 1997. There can be no assurance that the effective date guidance in the 1997 Proposed Legislation will be adopted if the proposed change to the tax law is enacted, or that other legislation enacted after the date hereof will not otherwise adversely affect the ability of the Company to deduct the interest payable on the Subordinated Debentures. Consequently, there can be no assurance that a Tax Event will not occur. A Tax Event would permit the Company to cause a redemption of the Preferred Securities before, as well as after, June 30, 2002. See "Description of the Subordinated Debentures -- Redemption or Exchange" and "Description of the Preferred Securities -- Redemption or Exchange -- Tax Event Redemption or Investment Company Event Redemption" and "Certain Federal Income Tax Consequences -- Effect of Proposed Changes in Tax Laws." 12 14 REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES Stifel Financial has the right at any time to dissolve Stifel Capital and cause the Subordinated Debentures, after satisfaction of liabilities to creditors of Stifel Capital, to be distributed to the holders of the Preferred Securities in exchange therefor in liquidation of Stifel Capital. Stifel Financial will have the right, in certain circumstances, to redeem the Subordinated Debentures in whole or in part, in lieu of a distribution of the Subordinated Debentures by Stifel Capital, in which event Stifel Capital will redeem the Trust Securities on a pro rata basis to the same extent as the Subordinated Debentures are redeemed by Stifel Financial. See "Description of the Preferred Securities -- Redemption or Exchange -- Tax Event Redemption or Investment Company Event Redemption." Under current United States federal income tax law, a distribution of Subordinated Debentures upon the dissolution of Stifel Capital would not be a taxable event to holders of the Preferred Securities. If, however, Stifel Capital is characterized as an association taxable as a corporation at the time of the dissolution of Stifel Capital, the distribution of the Subordinated Debentures may constitute a taxable event to holders of Preferred Securities. Moreover, upon occurrence of a Tax Event, a dissolution of Stifel Capital in which holders of the Preferred Securities receive cash may be a taxable event to such holders. See "Certain Federal Income Tax Consequences -- Receipt of Subordinated Debentures or Cash Upon Liquidation of Stifel Capital." There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities upon a dissolution or liquidation of Stifel Capital. The Preferred Securities or the Subordinated Debentures, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Subordinated Debentures, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debentures and should carefully review all the information regarding the Subordinated Debentures contained herein. If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of Stifel Capital, Stifel Financial will use its best efforts to list the Subordinated Debentures on the NYSE, The Nasdaq Stock Market's National Market or such stock exchanges, if any, on which the Preferred Securities are then listed. TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES The Preferred Securities may trade at prices that do not fully reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder of Preferred Securities that disposes of its Preferred Securities between record dates for payments of Distributions (and consequently does not receive a Distribution from Stifel Capital for the period prior to such disposition) will nevertheless be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income and to add such amount to its adjusted tax basis in its pro rata share of the underlying Subordinated Debentures deemed disposed of. Such holder will recognize a capital loss to the extent the selling price (which may not fully reflect the value of accrued but unpaid interest) is less than its adjusted tax basis (which will include all accrued but unpaid interest). Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences -- Disposition of Preferred Securities." There is no current public market for the Preferred Securities and there can be no assurance that an active public market will develop for the Preferred Securities or that, if such market develops, the market price will equal or exceed the public offering price set forth on the cover page of this Prospectus. The public offering price for the Preferred Securities has been determined through negotiations between Stifel Financial and the Underwriters. Prices for the Preferred Securities will be determined in the marketplace and may be influenced by many factors, including prevailing interest rates, the liquidity of the market for the Preferred Securities, investor perceptions of Stifel Financial and general industry and economic conditions. 13 15 RISK FACTORS RELATING TO STIFEL FINANCIAL VOLATILE NATURE OF SECURITIES BUSINESS The securities business is, by its nature, subject to significant risks, particularly in volatile or illiquid markets, including the risk of trading losses, losses resulting from the ownership or underwriting of securities, counterparty failure to meet commitments, customer fraud, employee fraud, issuer fraud, errors and misconduct, failures in connection with the processing of securities transactions and litigation. The Company's principal business activity, retail broker-dealer operations, as well as its investment banking, institutional sales, investment advisory, clearing and other services, are highly competitive and subject to various risks, volatile trading markets and fluctuations in the volume of market activity. The securities business is directly affected by many factors, including economic and political conditions, broad trends in business and finance, legislation and regulation affecting the national and international business and financial communities, currency values, inflation, market conditions, the availability and cost of short-term or long-term funding and capital, the credit capacity or perceived creditworthiness of the securities industry in the marketplace and the level and volatility of interest rates. These and other factors can contribute to lower price levels for securities and illiquid markets. Lower price levels of securities may result in (i) reduced volumes of securities, options and futures transactions, with a consequent reduction in commission revenues, (ii) losses from declines in the market value of securities held in trading, investment and underwriting positions and (iii) reduced management fees calculated as a percentage of assets managed. In periods of low volume, levels of profitability are further adversely affected because certain expenses remain relatively fixed. Sudden sharp declines in market values of securities and the failure of issuers and counterparties to perform their obligations can result in illiquid markets which, in turn, may result in the Company having difficulty selling securities, hedging its securities positions and investing funds under its management. Such negative market conditions, if prolonged, may also lower the Company's revenues from investment banking and other activities. As a result of the varied risks associated with the securities business, which are beyond the Company's control, the Company's commission and other revenues could be adversely affected. A reduction in revenues or a loss resulting from the underwriting or ownership of securities could have a material adverse effect on the Company's results of operations and financial condition. In addition, as a result of such risks, the Company's revenues and operating results may be subject to significant fluctuations from quarter to quarter and from year to year. See "-- Significant Fluctuations in Quarterly Operating Results Due to Level of Business Activity and Timing or Transactions." SIGNIFICANT COMPETITION All aspects of the Company's business are highly competitive. The Company competes directly with national and regional full service broker-dealers and, to a lesser extent, with discount brokers, dealers, investment banking firms, investment advisors and certain commercial banks and, indirectly for investment assets, with insurance companies and others. The financial services industry has become considerably more concentrated as numerous securities firms have either ceased operations or have been acquired by or merged into other firms. Such mergers and acquisitions have increased competition from these firms, many of which have significantly greater equity capital, financial and other resources than the Company. With respect to retail brokerage activities, certain of the regional firms with which the Company competes have operated in certain markets longer than has the Company and have established long-standing client relationships. In addition, the Company expects competition from commercial banks to increase as a result of recent and anticipated legislative and regulatory initiatives in the United States to remove or relieve certain restrictions on commercial banks relating to the sale of securities. Finally, the Company competes with others in the financial services industry with respect to the recruiting of new employees and the retention of current employees. See "-- Competition for Professional Employees." 14 16 SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS DUE TO LEVEL OF BUSINESS ACTIVITY AND TIMING OF TRANSACTIONS The Company's revenues and operating results may fluctuate from quarter to quarter and from year to year due to a combination of factors. These factors include the level of institutional and retail brokerage transactions, the number of underwriting and merger and acquisition transactions completed by the Company's clients, access to public markets for companies in which the Company has invested as a principal, valuations of the Company's inventories, variations in expenditures for personnel, litigation expenses, and the expenses of establishing new business units. The Company's revenues from an underwriting transaction are recorded only when the underwritten securities commence trading, and revenues from a merger or acquisition transaction are recorded only when retainer fees are received or the transaction closes. Accordingly, the timing of the Company's recognition of revenue from a significant transaction can materially affect the Company's quarterly operating results. The Company's cost structure currently is oriented to meeting the level of demand for corporate finance transactions experienced during fiscal 1996. As a result, despite the variability of professional incentive compensation, the Company could experience losses if demand for these transactions declines more quickly than the Company's ability to change its cost structure. There can be no assurance that the Company will be able to sustain profitability on a quarterly or annual basis. COMPETITION FOR PROFESSIONAL EMPLOYEES The Company's business is dependent on the highly skilled, and often highly specialized, individuals it employs. Retention of sales and trading, research, investment banking, money management and administrative professionals is particularly important to the Company's prospects. Research professionals contribute significantly to the Company's ability to secure a role in managing public offerings. From time to time, the Company has experienced losses of sales and trading, research and investment banking professionals. The level of competition for key personnel has increased recently, particularly due to the market entry efforts of certain commercial banks and other participants in the financial services industry into retail brokerage activities. There can be no assurance that losses of key personnel due to such competition or otherwise will not occur in the future. The loss of a sales and trading, investment banking or research professional, particularly a senior professional with a broad range of contacts in an industry, or a senior could materially and adversely affect the Company's operating results. The Company generally does not have employment agreements with its employees or a senior executive officer. It attempts to retain its employees with incentives such as long-term deferred compensation plans, the issuance of Company stock subject to continued employment and the grant of options to buy Company stock that vest over a number of years of employment. These incentives, however, may be insufficient in light of the increasing competition for experienced professionals in the securities industry, particularly if the Company's stock price declines or fails to appreciate sufficiently to be a competitive source of a portion of professional compensation. COMPETITION ASSOCIATED WITH ELECTRONIC SECURITIES TRANSACTIONS The Company also faces competition from companies offering electronic brokerage services, a rapidly developing industry. These competitors may have lower costs or provide fewer services and may offer their customers more attractive pricing or other terms, than the Company offers. The Company also anticipates competition from underwriters who attempt to effect public offerings for emerging growth companies through new means of distribution, including transactions effected using electronic media such as the Internet. In addition, disintermediation may occur as issuers attempt to sell their securities directly to purchasers, including sales using electronic media such as the Internet. To the extent that issuers and purchasers of securities transact business without the assistance of financial intermediaries such as the Company, the Company's operating results and financial condition could be adversely affected. 15 17 BUSINESS SUBJECT TO EXTENSIVE FEDERAL AND STATE REGULATION The securities industry and the business of the Company are subject to extensive regulation in the United States by the Securities and Exchange Commission (the "Commission"), state securities regulators and other governmental regulatory authorities. The business of the Company also is regulated in the United States by industry self-regulatory organizations ("SROs"), including the National Association of Securities Dealers, Inc. ("NASD"), the NYSE and other exchanges. Certain of the Company's subsidiaries are registered as investment advisers with the Commission and in several states, and as such are subject to the requirements of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the Commission's regulations thereunder. LIMITS ON OPERATIONS DUE TO NET CAPITAL REQUIREMENTS As a registered broker-dealer and member of the NYSE, Stifel, Nicolaus is subject to the net capital rules administered by the Commission, NYSE and NASD. These rules, which specify minimum net capital requirements for registered broker-dealers and NYSE and NASD members, are designed to assure that broker-dealers maintain adequate regulatory capital in relation to their liabilities and the size of their customer business. These requirements have the effect of requiring that at least a substantial portion of a broker-dealer's assets be kept in cash or highly liquid investments. Compliance with the net capital requirements could limit those operations that require the intensive use of capital, such as underwriting and trading activities. These rules also could restrict the Company's ability to withdraw capital from Stifel, Nicolaus even in circumstances where Stifel, Nicolaus has more than the minimum amount of required capital. PENALTIES DUE TO NONCOMPLIANCE Compliance with many of the regulations applicable to the Company involves a number of risks, particularly in areas where applicable regulations may be subject to varying interpretation. In the event of non-compliance by the Company or Stifel, Nicolaus with an applicable regulation, governmental regulators and SROs may institute administrative or judicial proceedings that may result in censure, fine, civil penalties (including treble damages in the case of insider trading violations), the issuance of cease-and-desist orders, the deregistration or suspension of the non-compliant broker-dealer or investment adviser, the suspension or disqualification of the broker-dealer's officers or employees or other adverse consequences. The imposition of any future penalties or orders on the Company or its affiliates could have a material adverse effect on the Company's operating results and financial condition. CHANGING REGULATORY ENVIRONMENT The regulatory environment in which the Company operates is subject to change. The Company may be adversely affected as a result of new or revised legislation or regulations imposed by the Commission, other governmental regulatory authorities or SROs. The Company also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and SROs. RISK OF LOSSES FROM UNDERWRITING AND TRADING The Company's underwriting, securities trading and market-making activities are conducted by the Company as principal and subject the Company's capital to significant risks, including market, credit, counterparty and liquidity risks. These activities often involve the purchase, sale or short sale of securities as principal in markets that may be characterized by relative illiquidity or that may be particularly susceptible to rapid fluctuations in liquidity. The Company from time to time has large position concentrations in securities of, or commitments to, a single issuer, or issuers engaged in a specific industry, particularly as a result of the Company's underwriting activities. The Company tends to concentrate its trading positions and underwriting activities in a more limited number of industry sectors and portfolio companies than many other investment banks, which might result in higher trading losses than would occur if the Company's positions and activities were less concentrated. In addition, the trend in all major capital markets, for competitive and other reasons, 16 18 toward larger commitments on the part of lead underwriters means that, from time to time, an underwriter (including a co-manager) may retain significant position concentrations in individual securities. LITIGATION AND POTENTIAL LIABILITY UNDER SECURITIES LAWS; UNCERTAIN LEGAL ENVIRONMENT Many aspects of the Company's business involve substantial risks of liability. An underwriter is exposed to substantial liability under federal and state securities laws, other federal and state laws and court decisions, including decisions with respect to underwriters' liability and limitations on indemnification of underwriters by issuers. For example, a firm that acts as an underwriter may be held liable for material misstatements or omissions of fact in a prospectus used in connection with the securities being offered or for statements made by its securities analysts or other personnel. In recent years, there has been an increasing incidence of litigation involving the securities industry, including class actions that seek substantial damages. As is common in the securities industry, the Company does not carry insurance that would cover any such payments. In addition, the Company's charter documents allow indemnification of the Company's officers, directors and agents to the maximum extent permitted under Delaware law. The Company has entered into indemnification agreements with these persons. The Company has been and in the future may be the subject of indemnification assertions under these charter documents or agreements by officers, directors or agents of the Company who are or may become defendants in litigation. In the normal course of business, the Company is also a defendant in various civil actions and arbitrations arising out of its activities as a broker-dealer in securities, as an underwriter, as an employer and as a result of other business activities. The Company has in the past made substantial payments in connection with the resolution of disputed claims, and there can be no assurance that substantial payments in connection with the resolution of disputed claims will not occur in the future. An adverse resolution of any pending or future lawsuits against Stifel, Nicolaus or the Company could materially affect the Company's operating results and financial condition. In addition to the foregoing financial costs and risks, the defense of litigation has, to a certain extent, diverted, and is expected to divert in the future, the efforts and attention of the Company's management and staff. The amount of time that management and other employees are required to devote in connection with the defense of litigation could be substantial and might materially divert their attention from other responsibilities within the Company. Securities class action litigation in particular is highly complex and can extend for a protracted period of time, thereby consuming substantial time and effort of the Company's management and substantially increasing the cost of such litigation. The laws relating to securities class actions are currently in a state of flux. The eventual impact of the Private Securities Litigation Reform Act of 1995 on securities class action litigation is not known. CHANGES IN OTHER BUSINESS REGULATIONS The Company's businesses may be materially affected not only by regulations applicable to it as a financial market intermediary, but also by regulations of general application. For example, the volume of the Company's underwriting, merger and acquisition and principal investment businesses in a given time period could be affected by, among other things, existing and proposed tax legislation, antitrust policy and other governmental regulations and policies (including the interest rate policies of the Federal Reserve Board) and changes in interpretation or enforcement of existing laws and rules that affect the business and financial communities. The level of business and financing activity in each of the industries on which the Company focuses can be affected not only by such legislation or regulations of general applicability, but also by industry-specific legislation or regulations. RISK OF SYSTEMS FAILURE The Company's business is highly dependent on communications and information systems. Any failure or interruption of the Company's systems, or of the systems of the Company's clearing broker, could cause delays in the Company's securities trading activities, which could have a material adverse effect on the Company's operating results. There can be no assurance that the Company or its clearing broker will not suffer any such 17 19 systems failure or interruption, whether caused by an earthquake, fire, other natural disaster, power or telecommunications failure, act of God, act of war or otherwise, or that the Company's back-up procedures and capabilities in the event of any such failure or interruption will be adequate. USE OF PROCEEDS Stifel Capital will use the gross proceeds received from the sale of the Preferred Securities to purchase Subordinated Debentures from Stifel Financial. Stifel Financial intends to use the net proceeds from the sale of the Subordinated Debentures for general corporate purposes, which may include, among other things, the repayment of long-term debt, expansion of the Company's business and the repurchase of the Company's common stock. Stifel Financial may, from time to time, engage in additional capital financings of a character and in amounts to be determined by Stifel Financial in light of its needs at such time or times and in light of prevailing market conditions. MARKET FOR THE PREFERRED SECURITIES An application will be made to have the Preferred Securities approved for listing on the NYSE. There can be no assurance that an active and liquid trading market will develop or, if developed, that such a market will continue. The offering price and distribution rate have been determined by negotiations among representatives of Stifel Financial and the Underwriters, and the offering price of the Preferred Securities may not be indicative of the market price following the offering. See "Underwriting." ACCOUNTING TREATMENT Stifel Capital will be treated, for financial reporting purposes, as a subsidiary of Stifel Financial and, accordingly, the accounts of Stifel Capital will be included in the consolidated financial statements of Stifel Financial. The Preferred Securities will be presented as a separate category of long-term debt in the consolidated balance sheet of Stifel Financial under the caption "Guaranteed preferred beneficial interests in the Company's subordinated debentures," and appropriate disclosures about the Preferred Securities, the Guarantee and the Subordinated Debentures will be included in the notes to consolidated financial statements. Stifel Financial will record Distributions payable on the Preferred Securities as an expense in the consolidated statements of operations for financial reporting purposes. All future reports of Stifel Financial filed under the Exchange Act will (a) present the Trust Securities issued by Stifel Capital on the balance sheet as a separate category of long-term debt item entitled "Guaranteed preferred beneficial interests in the Company's subordinated debentures," (b) include in a footnote to the financial statements disclosure that the sole assets of Stifel Capital are the Subordinated Debentures (including the outstanding principal amount, interest rate and maturity date of such Subordinated Debentures), and (c) include in an audited footnote to the financial statements disclosure that Stifel Financial owns all of the Common Securities of Stifel Capital, the sole assets of Stifel Capital are the Subordinated Debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by Stifel Financial of the obligations of Stifel Capital under the Preferred Securities. 18 20 CAPITALIZATION The following table sets forth (i) the consolidated capitalization of Stifel Financial at March 27, 1997 and (ii) the consolidated capitalization of Stifel Financial giving effect to the issuance of the Preferred Securities hereby offered by Stifel Capital and receipt by Stifel Financial of the net proceeds from the corresponding sale of the Subordinated Debentures to Stifel Capital, as if the sale of the Preferred Securities had been consummated on March 27, 1997, and assuming the Underwriters' over-allotment option was not exercised.
AS OF MARCH 27, 1997 ----------------------- ACTUAL AS ADJUSTED ------ ----------- (DOLLARS IN THOUSANDS) LONG TERM DEBT: 11.25% Senior Convertible Notes due September 1, 1997 through September 1, 2000, in equal installments....... $ 10,000 $ 10,000 -------- --------- Guaranteed preferred beneficial interests in the Company's subordinated debentures................................ -- 25,000(1) -------- --------- STOCKHOLDERS' EQUITY: Common Stock, $0.15 par value, 10,000,000 shares authorized, 4,767,715 issued and 4,722,491 outstanding............................................ 715 715 Series A Junior Participating Preferred Stock, $1.00 par value, 3,000,000 shares authorized, none issued or outstanding............................................ -- -- Additional paid-in capital................................ 21,119 21,119 Retained earnings......................................... 18,238 18,238 Less treasury stock, at cost, 45,224 shares............... 374 374 Less unamortized expense of restricted awards............. 182 182 -------- --------- TOTAL STOCKHOLDERS' EQUITY........................... 39,516 39,516 -------- --------- TOTAL CAPITALIZATION................................. $343,196 $ 368,196 ======== =========
- - ------------ (1) In connection with the issuance of the guaranteed preferred beneficial interests in the Company's Subordinated Debentures, the Company estimates it will incur expenses of $ (including Underwriters' compensation of $ ). The Subordinated Debentures will mature on June 30, 2027, which date may be, if certain conditions are met, (a) shortened to a date not earlier than June 30, 2002, or (b) extended to a date not later than June 30, 2036. 19 21 DESCRIPTION OF THE PREFERRED SECURITIES The Preferred Securities will be issued pursuant to the terms of the Trust Agreement. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act. The Property Trustee, State Street Bank and Trust Company, will act as indenture trustee for the Preferred Securities under the Trust Agreement for purposes of complying with the provisions of the Trust Indenture Act. The terms of the Preferred Securities will include those stated in the Trust Agreement and those made part of the Trust Agreement by the Trust Indenture Act. The following summary of the material terms and provisions of the Preferred Securities and the Trust Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Agreement, the Trust Act, and the Trust Indenture Act. Wherever particular defined terms of the Trust Agreement are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Trust Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of Stifel Capital, will issue the Trust Securities. All of the Common Securities will be owned by Stifel Financial. The Preferred Securities will represent preferred undivided beneficial interests in the assets of Stifel Capital and the holders thereof will be entitled to a preference in certain circumstances with respect to Distributions and amounts payable on redemption or liquidation over the Common Securities, as well as other benefits as described in the Trust Agreement. The Trust Agreement does not permit the issuance by Stifel Capital of any securities other than the Trust Securities or the incurrence of any indebtedness by Stifel Capital. The Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Common Securities, except as described under "-- Subordination of Common Securities." Legal title to the Subordinated Debentures will be held by the Property Trustee in trust for the benefit of the holders of the Trust Securities. The Guarantee executed by Stifel Financial for the benefit of the holders of the Preferred Securities will be a guarantee on a subordinated basis with respect to the Preferred Securities, but will not guarantee payment of Distributions or amounts payable on redemption or liquidation of such Preferred Securities when Stifel Capital does not have funds on hand available to make such payments. State Street Bank and Trust Company, as Guarantee Trustee, will hold the Guarantee for the benefit of the holders of the Preferred Securities. See "Description of the Guarantee." DISTRIBUTIONS PAYMENT OF DISTRIBUTIONS. Distributions on each Preferred Security will be payable at the annual rate of % of the stated Liquidation Amount of $10, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, to the holders of the Preferred Securities on the relevant record dates (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). The record date will be the 15th day of the month in which the relevant Distribution Date occurs. Distributions will accumulate from , 1997, the date of original issuance. The first Distribution Date for the Preferred Securities will be September 30, 1997. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distributions payable on such date will be made on the next succeeding day that is a Business Day (and without any additional Distributions, interest or other payment in respect of any such delay) with the same force and effect as if made on the date such payment was originally due and payable. "Business Day" means any day other than a Saturday or a Sunday, a day on which banking institutions in the City of New York are authorized or required by law or executive order to remain closed or a day on which the corporate trust office of the Property Trustee or the Debenture Trustee is closed for business. EXTENSION PERIOD. Stifel Financial has the right under the Indenture, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest on the Subordinated Debentures at any time, or from time to time (each, an "Extension Period"), which, if exercised, would defer quarterly 20 22 Distributions on the Preferred Securities during any such Extension Period. Distributions to which holders of the Preferred Securities are entitled will accumulate additional Distributions thereon at the rate per annum of % thereof, compounded quarterly from the relevant Distribution Date. "Distributions," as used herein, includes any such additional Distributions. The right to defer the payment of interest on the Subordinated Debentures is limited, however, to a period, in each instance, not exceeding 20 consecutive quarters and no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. During any such Extension Period, Stifel Financial may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of Stifel Financial capital stock, (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Stifel Financial that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by Stifel Financial of the debt securities of any subsidiary of Stifel Financial if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Prior to the termination of any such Extension Period, Stifel Financial may further defer the payment of interest; provided that such Extension Period may not exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all amounts then due, Stifel Financial may elect to begin a new Extension Period, subject to the above requirements. Subject to the foregoing, there is no limitation on the number of times that Stifel Financial may elect to begin an Extension Period. Stifel Financial has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. SOURCE OF DISTRIBUTIONS. The funds of Stifel Capital available for distribution to holders of its Preferred Securities will be limited to payments under the Subordinated Debentures in which Stifel Capital will invest the proceeds from the issuance and sale of its Trust Securities. See "Description of the Subordinated Debentures." Distributions will be paid through the Property Trustee who will hold amounts received in respect of the Subordinated Debentures in the Property Account for the benefit of the holders of the Trust Securities. If Stifel Financial does not make interest payments on the Subordinated Debentures, the Property Trustee will not have funds available to pay Distributions on the Preferred Securities. The payment of Distributions (if and to the extent Stifel Capital has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed by Stifel Financial. See "Description of the Guarantee." Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the register of holders of the Preferred Securities on the relevant record dates, which will be the 15th day of the month in which the relevant Distribution Date occurs. REDEMPTION OR EXCHANGE GENERAL. The Subordinated Debentures will mature on June 30, 2027. Stifel Financial will have the right to redeem the Subordinated Debentures (i) on or after June 30, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event. Stifel Financial will not have the right to purchase the Subordinated Debentures, in whole or in part, from Stifel Capital until after June 30, 2002. See "Description of the Subordinated Debentures -- General." MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in part, of any Subordinated Debentures, whether at Stated Maturity or upon earlier redemption as provided in the Indenture, the proceeds from such repayment or redemption will be applied by the Property Trustee to redeem a Like Amount (as defined herein) of the Trust Securities, upon not less than 30 nor more than 60 days notice, at a redemption price (the "Redemption Price") equal to the aggregate Liquidation Amount of such Trust Securities plus accumulated but unpaid Distributions thereon to the date of redemption (the "Redemption Date"). See "Description of the Subordinated Debentures -- Redemption or Exchange." If less than all of the Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds from such repayment or redemption will be allocated to the redemption of the Trust Securities pro rata. 21 23 DISTRIBUTION OF SUBORDINATED DEBENTURES. Stifel Financial will have the right at any time to dissolve Stifel Capital and, after satisfaction of the liabilities of creditors of Stifel Capital as provided by applicable law, cause the Subordinated Debentures to be distributed to the holders of Trust Securities in liquidation of Stifel Capital. See "-- Liquidation Distribution Upon Termination." TAX EVENT REDEMPTION OR INVESTMENT COMPANY EVENT REDEMPTION. If a Tax Event or an Investment Company Event in respect of the Trust Securities occurs and is continuing, Stifel Financial has the right to redeem the Subordinated Debentures in whole (but not in part) and thereby cause a mandatory redemption of such Trust Securities in whole (but not in part) at the Redemption Price within 180 days following the occurrence of such Tax Event or Investment Company Event. In the event a Tax Event or an Investment Company Event in respect of the Trust Securities has occurred and Stifel Financial does not elect to redeem the Subordinated Debentures and thereby cause a mandatory redemption of such Trust Securities or to liquidate Stifel Capital and cause the Subordinated Debentures to be distributed to holders of such Trust Securities in liquidation of Stifel Capital as described below under "-- Liquidation Distribution Upon Termination," such Preferred Securities will remain outstanding and Additional Interest (as defined herein) may be payable on the Subordinated Debentures. "Additional Interest" means the additional amounts as may be necessary in order that the amount of Distributions then due and payable by Stifel Capital on the outstanding Trust Securities will not be reduced as a result of any additional taxes, duties and other governmental charges to which Stifel Capital has become subject as a result of a Tax Event. "Like Amount" means (i) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to that portion of the principal amount of Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture, which will be used to pay the Redemption Price of such Trust Securities, and (ii) with respect to a distribution of Subordinated Debentures to holders of Trust Securities in connection with a dissolution or liquidation of Stifel Capital, Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Subordinated Debentures are distributed. Each Subordinated Debenture distributed pursuant to clause (ii) above will carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Subordinated Debentures. "Liquidation Amount" means the stated amount of $10 per Trust Security. After the liquidation date fixed for any distribution of Subordinated Debentures for Preferred Securities (i) such Preferred Securities will no longer be deemed to be outstanding, and (ii) any certificates representing Preferred Securities will be deemed to represent the Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Preferred Securities, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on the Preferred Securities until such certificates are presented to the Administrative Trustees or their agent for transfer or reissuance. There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities if a dissolution and liquidation of Stifel Capital were to occur. The Preferred Securities that an investor may purchase, or the Subordinated Debentures that an investor may receive on dissolution and liquidation of Stifel Capital, may, therefore, trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. REDEMPTION PROCEDURES Preferred Securities redeemed on each Redemption Date will be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of the Subordinated Debentures. Redemptions of the Preferred Securities will be made and the Redemption Price will be payable on each Redemption Date only to the extent that Stifel Capital has funds on hand available for the payment of such Redemption Price. See "-- Subordination of Common Securities." If Stifel Capital gives a notice of redemption in respect of its Preferred Securities, then, by 12:00 noon, eastern standard time, on the Redemption Date, to the extent funds are available, the Property Trustee will irrevocably deposit with the paying agent for the Preferred Securities funds sufficient to pay the aggregate 22 24 Redemption Price and will give the paying agent for the Preferred Securities irrevocable instructions and authority to pay the Redemption Price to the holders thereof upon surrender of their certificates evidencing such Preferred Securities. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Preferred Securities called for redemption will be payable to the holders of such Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption will have been given and funds deposited as required, then upon the date of such deposit, all rights of the holders of such Preferred Securities so called for redemption will cease, except the right of the holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price, and such Preferred Securities will cease to be outstanding. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any additional Distribution, interest or other payment in respect of any such delay) with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of Preferred Securities called for redemption is improperly withheld or refused and not paid either by Stifel Capital, or by Stifel Financial pursuant to the Guarantee, Distributions on such Preferred Securities will continue to accrue at the then applicable rate, from the Redemption Date originally established by Stifel Capital for such Preferred Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. See "Description of the Guarantee." Subject to applicable law (including, without limitation, United States federal securities law), and, further provided that Stifel Financial does not and is not continuing to exercise its right to defer interest payments, Stifel Financial or its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. Payment of the Redemption Price on the Preferred Securities and any distribution of Subordinated Debentures to holders of Preferred Securities will be made to the applicable recordholders thereof as they appear on the register for the Preferred Securities on the relevant record date, which date will be the date 15 days prior to the Redemption Date or liquidation date, as applicable. If less than all of the Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such Trust Securities to be redeemed will be allocated pro rata to the Trust Securities based upon the relative Liquidation Amounts of such classes. The particular Preferred Securities to be redeemed will be selected by the Property Trustee from the outstanding Preferred Securities not previously called for redemption, by such method as the Property Trustee deems fair and appropriate and which may provide for the selection for redemption of portions (equal to $10 or an integral multiple of $10 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $10. The Property Trustee will promptly notify the registrar for the Preferred Securities in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of the Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities will relate to the portion of the aggregate Liquidation Amount of Preferred Securities which has been or is to be redeemed. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each holder of Trust Securities to be redeemed at its registered address. Unless Stifel Financial defaults in payment of the redemption price on the Subordinated Debentures, on and after the Redemption Date interest will cease to accrue on such Subordinated Debentures or portions thereof (and Distributions will cease to accrue on the related Preferred Securities or portions thereof) called for redemption. SUBORDINATION OF COMMON SECURITIES Payment of Distributions on, and the Redemption Price of, the Preferred Securities and Common Securities, as applicable, will be made pro rata based on the Liquidation Amount of the Preferred Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture Event of Default has occurred and is continuing, no payment of any Distribution on, or 23 25 Redemption Price of, any of the Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of such Common Securities, will be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all of the outstanding Preferred Securities then called for redemption, will have been made or provided for, and all funds available to the Property Trustee will first be applied to the payment in full in cash of all Distributions on, or Redemption Price of, the Preferred Securities then due and payable. In the case of any Event of Default resulting from a Debenture Event of Default, Stifel Financial as holder of the Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under the Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Events of Default under the Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee will act solely on behalf of the holders of the Preferred Securities and not on behalf of Stifel Financial, as holder of the Common Securities, and only the holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf. LIQUIDATION DISTRIBUTION UPON DISSOLUTION Stifel Financial will have the right at any time to dissolve, Stifel Capital and cause the Subordinated Debentures, after satisfaction of liabilities to creditors or Stifel Capital, to be distributed to the holders of the Preferred Securities. Pursuant to the Trust Agreement, Stifel Capital will automatically dissolve upon expiration of its term and will dissolve earlier on the first to occur of (i) certain events of bankruptcy, dissolution or liquidation of Stifel Financial, (ii) Stifel Financial, as depositor, giving written direction to the Property Trustee to terminate Stifel Capital (which direction is optional and wholly within the discretion of Stifel Financial, as depositor), (iii) redemption of all of the Preferred Securities as described under "Description of the Preferred Securities -- Redemption or Exchange -- Mandatory Redemption" or (iv) the entry of an order for the dissolution of Stifel Capital by a court of competent jurisdiction. If an early dissolution occurs as described in clause (i), (ii) or (iv) of the preceding paragraph, Stifel Capital will be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of Stifel Capital as provided by applicable law, to the holders of such Trust Securities a Like Amount of the Subordinated Debentures, unless such distribution is determined by the Property Trustee not to be practical, in which event such holders will be entitled to receive out of the assets of Stifel Capital available for distribution to holders, after satisfaction of liabilities to creditors of Stifel Capital as provided by applicable law, an amount equal to, in the case of holders of Preferred Securities, the aggregate of the Liquidation Amount plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If such Liquidation Distribution can be paid only in part because Stifel Capital has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by Stifel Capital on the Preferred Securities will be paid on a pro rata basis. Stifel Financial, as the holder of the Common Securities, will be entitled to receive distributions upon any such liquidation pro rata with the holders of the Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities. See "-- Subordination of Common Securities." Under current United States federal income tax law and interpretations and assuming, as expected, that Stifel Capital is treated as a grantor trust, a distribution of the Subordinated Debentures should not be a taxable event to holders of the Preferred Securities. Should there be a change in law, a change in legal interpretation, a Tax Event or other circumstances, however, the distribution could be a taxable event to holders of the Preferred Securities. See "Certain Federal Income Tax Consequences -- Receipt of Subordinated Debentures or Cash Upon Liquidation of Stifel Capital." If Stifel Financial elects neither to redeem the Subordinated Debentures prior to maturity nor to liquidate Stifel Capital and distribute the Subordinated 24 26 Debentures to holders of the Preferred Securities, the Preferred Securities will remain outstanding until the repayment of the Subordinated Debentures. If Stifel Financial elects to dissolve Stifel Capital and thereby causes the Subordinated Debentures to be distributed to holders of the Preferred Securities in liquidation of Stifel Capital, Stifel Financial will continue to have the right to shorten or extend the maturity of such Subordinated Debentures, subject to certain conditions. See "Description of the Subordinated Debentures -- General." LIQUIDATION VALUE The amount of the Liquidation Distribution payable on the Preferred Securities in the event of any liquidation of Stifel Capital is $10 per Preferred Security plus accrued and unpaid Distributions thereon to the date of payment, which may be in the form of a distribution of such amount in Subordinated Debentures, subject to certain exceptions. See "-- Liquidation Distribution Upon Termination." EVENTS OF DEFAULT; NOTICE Any one of the following events constitutes an event of default under the Trust Agreement (an "Event of Default") with respect to the Preferred Securities (whatever the reason for such Event of Default and whether voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the occurrence of a Debenture Event of Default (see "Description of the Subordinated Debentures -- Debenture Events of Default"); or (ii) default by Stifel Capital in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days (subject to the deferral of any due date in the case of an Extension Period); or (iii) default by Stifel Capital in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (iv) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in the Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clauses (ii) or (iii) above), and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Trustee(s) by the holders of at least 25% in aggregate Liquidation Amount of the outstanding Preferred Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" under the Trust Agreement; or (v) the occurrence of certain events of bankruptcy or insolvency with respect to the Property Trustee and the failure by Stifel Financial to appoint a successor Property Trustee within 60 days thereof. Within five Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee will transmit notice of such Event of Default to the holders of the Preferred Securities, the Administrative Trustees and Stifel Financial, as depositor, unless such Event of Default has been cured or waived. Stifel Financial, as depositor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a Debenture Event of Default has occurred and is continuing, the Preferred Securities will have a preference over the Common Securities upon termination of Stifel Capital. See "-- Liquidation Distribution Upon Termination." The existence of an Event of Default does not entitle the holders of Preferred Securities to accelerate the maturity thereof. 25 27 REMOVAL OF STIFEL CAPITAL TRUSTEES Unless a Debenture Event of Default has occurred and is continuing, any Trustee may be removed at any time by the holder of the Common Securities. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Preferred Securities. In no event, however, will the holders of the Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in Stifel Financial as the holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee will be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement. CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE Unless an Event of Default has occurred and is continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property (as defined in the Trust Agreement) may at the time be located, Stifel Financial, as the holder of the Common Securities, will have power to appoint one or more Persons (as defined in the Trust Agreement) either to act as a co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to act as separate trustee of any such Trust Property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of the Trust Agreement. In case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone will have power to make such appointment. MERGER OR CONSOLIDATION OF TRUSTEES Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Trustee is a party, or any Person succeeding to all or substantially all the corporate trust business of such Trustee, will be the successor of such Trustee under the Trust Agreement, provided such Person is otherwise qualified and eligible. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF STIFEL CAPITAL Stifel Capital may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described below. Stifel Capital may, at the request of Stifel Financial, with the consent of the Administrative Trustees and without the consent of the holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of Stifel Capital with respect to the Preferred Securities, or (b) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) Stifel Financial expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee in its capacity as the holder of the Subordinated Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed (including, if applicable, The Nasdaq Stock Market's National Market), if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, (v) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, Stifel Financial has received an opinion from independent counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any 26 28 Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither Stifel Capital nor such successor entity will be required to register as an "investment company" under the Investment Company Act, and (vi) Stifel Financial owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee, the Indenture, the Subordinated Debentures, the Trust Agreement and the Expense Agreement. Notwithstanding the foregoing, Stifel Capital will not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause Stifel Capital or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT Except as provided below and under "Description of the Guarantee -- Amendments and Assignment" and as otherwise required by the Trust Act and the Trust Agreement, the holders of the Preferred Securities will have no voting rights. The Trust Agreement may be amended from time to time by Stifel Financial, the Property Trustee and the Administrative Trustees, without the consent of the holders of the Preferred Securities (i) with respect to acceptance of appointment by a successor trustee, (ii) to cure any ambiguity, correct or supplement any provisions in such Trust Agreement that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement (provided such amendment is not inconsistent with the other provisions of the Trust Agreement), or (iii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as is necessary to ensure that Stifel Capital will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that Stifel Capital will not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (ii), such action may not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments of such Trust Agreement will become effective when notice thereof is given to the holders of Trust Securities. The Trust Agreement may be amended by the Trustees and Stifel Financial with (i) the consent of holders representing not less than a majority in the aggregate Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect Stifel Capital's status as a grantor trust for United States federal income tax purposes or Stifel Capital's exemption from status as an "investment company" under the Investment Company Act. Notwithstanding anything in this paragraph to the contrary, without the consent of each holder of Trust Securities, the Trust Agreement may not be amended to (a) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date, or (b) restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. The Trustees will not, so long as any Subordinated Debentures are held by the Property Trustee, (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Property Trustee with respect to the Subordinated Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures will be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Debentures, where such consent is required, without, in each case, obtaining the prior approval of the holders of a majority in aggregate Liquidation Amount of all outstanding Preferred Securities; provided, however, that where a consent under the Indenture requires the consent of each holder of Subordinated Debentures affected thereby, no such consent will be given by the Property Trustee without the prior consent of each holder of the Preferred Securities. The Trustees may not revoke any action previously authorized or approved by a vote of 27 29 the holders of the Preferred Securities except by subsequent vote of the holders of the Preferred Securities. The Property Trustee will notify each holder of Preferred Securities of any notice of default with respect to the Subordinated Debentures. In addition to obtaining the foregoing approvals of the holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees must obtain an opinion of counsel experienced in such matters to the effect that Stifel Capital will not be classified as an association taxable as a corporation for United States federal income tax purposes on account of such action. Any required approval of holders of Preferred Securities may be given at a meeting of holders of Preferred Securities convened for such purpose or pursuant to written consent. The Property Trustee will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of Preferred Securities in the manner set forth in the Trust Agreement. No vote or consent of the holders of Preferred Securities will be required for Stifel Capital to redeem and cancel its Preferred Securities in accordance with the Trust Agreement. Notwithstanding the fact that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by Stifel Financial, the Trustees or any affiliate of Stifel Financial or any Trustee, will, for purposes of such vote or consent, be treated as if they were not outstanding. PAYMENT AND PAYING AGENCY Payments in respect of the Preferred Securities will be made by check mailed to the address of the holder entitled thereto as such address will appear on the register of holders of the Preferred Securities. The paying agent for the Preferred Securities will initially be the Property Trustee and any co-paying agent chosen by the Property Trustee and acceptable to the Administrative Trustees and Stifel Financial. The paying agent for the Preferred Securities may resign as paying agent upon 30 days' written notice to the Property Trustee and Stifel Financial. In the event that the Property Trustee no longer is the paying agent for the Preferred Securities, the Administrative Trustees will appoint a successor (which must be a bank or trust company acceptable to the Administrative Trustees and Stifel Financial) to act as paying agent. REGISTRAR AND TRANSFER AGENT The Property Trustee will act as the registrar and the transfer agent for the Preferred Securities. Registration of transfers of Preferred Securities will be effected without charge by or on behalf of Stifel Capital, but upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. Stifel Capital will not be required to register or cause to be registered the transfer of Preferred Securities after such Preferred Securities have been called for redemption. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, other than upon the occurrence and during the continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in the Trust Agreement and, upon the occurrence and during the continuance of an Event of Default, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no Event of Default has occurred and is continuing and the Property Trustee is required to decide between alternative causes of action, construe ambiguous provisions in the Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of Preferred Securities are entitled under the Trust Agreement to vote, then the Property Trustee will take such action as is directed by Stifel Financial and if not so directed, will take such action as it deems advisable and in the best interests of the holders of the Trust Securities and will have no liability except for its own bad faith, negligence or willful misconduct. 28 30 MISCELLANEOUS The Administrative Trustees are authorized and directed to conduct the affairs of and to operate Stifel Capital in such a way that Stifel Capital will not be deemed to be an "investment company" required to be registered under the Investment Company Act or classified as an association taxable as a corporation for United States federal income tax purposes and so that the Subordinated Debentures will be treated as indebtedness of Stifel Financial for United States federal income tax purposes. Stifel Financial and the Administrative Trustees are authorized, in this connection, to take any action, not inconsistent with applicable law, the certificate of trust of Stifel Capital or the Trust Agreement, that Stifel Financial and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes. Holders of the Preferred Securities have no preemptive or similar rights. The Trust Agreement and the Preferred Securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware. DESCRIPTION OF THE SUBORDINATED DEBENTURES Concurrently with the issuance of the Preferred Securities, Stifel Capital will invest the proceeds thereof, together with the consideration paid by Stifel Financial for the Common Securities, in the Subordinated Debentures issued by Stifel Financial. The Subordinated Debentures will be issued as unsecured debt under the Indenture, to be dated as of , 1997 (the "Indenture"), between Stifel Financial and State Street Bank and Trust Company, as trustee (the "Debenture Trustee"). The Indenture will be qualified as an indenture under the Trust Indenture Act. The following summary of the material terms and provisions of the Subordinated Debentures and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture and to the Trust Indenture Act. Wherever particular defined terms of the Indenture are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL The Subordinated Debentures will be limited in aggregate principal amount to approximately $25,773,195 (or $29,639,175 if the option described under the heading "Underwriting" is exercised by the Underwriters), such amount being the sum of the aggregate stated Liquidation Amount of the Trust Securities. The Subordinated Debentures will bear interest at the annual rate of % of the principal amount thereof, payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year (each, an "Interest Payment Date") beginning September 30, 1997, to the Person (as defined in the Indenture) in whose name each Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the fifteenth day of the last month of the calendar quarter. It is anticipated that, until the liquidation, of Stifel Capital, the Subordinated Debentures will be held in the name of the Property Trustee in trust for the benefit of the holders of the Preferred Securities. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date such payment was originally payable. Accrued interest that is not paid on the applicable Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at the rate per annum of % thereof, compounded quarterly. The term "interest," as used herein, includes quarterly interest payments, interest on quarterly interest payments not paid on the applicable Interest Payment Date and Additional Interest, as applicable. The Subordinated Debentures will mature on June 30, 2027 (such date, as it may be shortened or extended as hereinafter described, the "Stated Maturity"). Such date may be shortened at any time by Stifel Financial to any date not earlier than June 30, 2002. Such date may also be extended at any time at the 29 31 election of Stifel Financial but in no event to a date later than June 30, 2036, provided that at the time such election is made and at the time of extension (i) Stifel Financial is not in bankruptcy, otherwise insolvent or in liquidation, (ii) Stifel Financial is not in default in the payment of any interest or principal on the Subordinated Debentures, and (iii) Stifel Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated. In the event that Stifel Financial elects to shorten or extend the Stated Maturity of the Subordinated Debentures, it will give notice thereof to the Debenture Trustee, Stifel Capital and to the holders of the Subordinated Debentures no more than 180 days and no less than 90 days prior to the effectiveness thereof. Stifel Financial will not have the right to purchase the Subordinated Debentures, in whole or in part, from Stifel Capital until after June 30, 2002, except if a Tax Event or an Investment Company Event has occurred and is continuing. The Subordinated Debentures will be unsecured and will rank junior and be subordinate in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial. Because Stifel Financial is a holding company, the right of Stifel Financial to participate in any distribution of assets of any Subsidiary Bank, upon any such Subsidiary Bank's liquidation or reorganization or otherwise (and thus the ability of holders of the Subordinated Debentures to benefit indirectly from such distribution), is subject to the prior claim of creditors of such Subsidiary Bank, except to the extent that Stifel Financial may itself be recognized as a creditor of such Subsidiary Bank. The Subordinated Debentures will, therefore, be effectively subordinated to all existing and future liabilities of the Subsidiary Banks, and holders of Subordinated Debentures should look only to the assets of Stifel Financial for payments on the Subordinated Debentures. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of Stifel Financial, including Senior Debt, Subordinated Debt and Additional Senior Obligations, whether under the Indenture or any existing indenture or other indenture that Stifel Financial may enter into in the future or otherwise. See "-- Subordination." The Indenture does not contain provisions that afford holders of the Subordinated Debentures protection in the event of a highly leveraged transaction or other similar transaction involving Stifel Financial that may adversely affect such holders. OPTION TO EXTEND INTEREST PAYMENT PERIOD Stifel Financial has the right under the Indenture at any time during the term of the Subordinated Debentures, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest at any time, or from time to time (each, an "Extension Period"). The right to defer the payment of interest on the Subordinated Debentures is limited, however, to a period, in each instance, not exceeding 20 consecutive quarters and no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. At the end of each Extension Period, Stifel Financial must pay all interest then accrued and unpaid (together with interest thereon at the annual rate of %, compounded quarterly, to the extent permitted by applicable law). During an Extension Period, interest will continue to accrue and holders of Subordinated Debentures (or the holders of Preferred Securities if such securities are then outstanding) will be required to accrue and recognize income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount." During any such Extension Period, Stifel Financial may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of Stifel Financial capital stock, (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Stifel Financial that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by Stifel Financial of the debt securities of any subsidiary of Stifel Financial if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Prior to the termination of any such Extension Period, Stifel Financial may further defer the payment of interest; provided that no Extension Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all 30 32 amounts then due on any Interest Payment Date, Stifel Financial may elect to begin a new Extension Period subject to the above requirements. No interest will be due and payable during an Extension Period, except at the end thereof. Stifel Financial has no present intention of exercising its rights to defer payments of interest on the Subordinated Debentures. Stifel Financial must give the Property Trustee, the Administrative Trustees and the Debenture Trustee notice of its election of such Extension Period at least two Business Days prior to the earlier of (i) the next succeeding date on which Distributions on the Trust Securities would have been payable except for the election to begin such Extension Period, or (ii) the date the Trust is required to give notice of the record date, or the date such Distributions are payable, to The Nasdaq Stock Market's National Market (or other applicable self-regulatory organization) or to holders of the Preferred Securities, but in any event at least one Business Day before such record date. Subject to the foregoing, there is no limitation on the number of times that Stifel Financial may elect to begin an Extension Period. ADDITIONAL SUMS If Stifel Capital or the Property Trustee is required to pay any additional taxes, duties or other governmental charges as a result of the occurrence of a Tax Event, Stifel Financial will pay as additional amounts (referred to herein as "Additional Interest") on the Subordinated Debentures such additional amounts as may be required so that the net amounts received and retained by Stifel Capital after paying any such additional taxes, duties or other governmental charges will not be less than the amounts Stifel Capital would have received had such additional taxes, duties or other governmental charges not been imposed. REDEMPTION OR EXCHANGE Stifel Financial will have the right to redeem the Subordinated Debentures prior to maturity (i) on or after June 30, 2002, in whole at any time or in part from time to time, or (ii) at any time in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event, in each case at a redemption price equal to the accrued and unpaid interest on the Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. "Tax Event" means the receipt by Stifel Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) interest payable by Stifel Financial on the Subordinated Debentures is not, or within 90 days of the date of such opinion will not be, deductible by Stifel Financial, in whole or in part, for United States federal income tax purposes, (ii) Stifel Capital is, or will be within 90 days after the date of such opinion of counsel, subject to United States federal income tax with respect to income received or accrued on the Subordinated Debentures, or (iii) Stifel Capital is, or will be within 90 days after the date of such opinion of counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. Stifel Financial must request and receive an opinion with regard to such matters within a reasonable period of time after it becomes aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. "Investment Company Event" means the receipt by Stifel Capital of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, Stifel Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act, which change becomes effective on or after the date of original issuance of the Preferred Securities. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Subordinated Debentures to be redeemed at its registered address. Unless Stifel Financial defaults in payment of the redemption price for the Subordinated Debentures, on and after the 31 33 redemption date interest ceases to accrue on such Subordinated Debentures or portions thereof called for redemption. The Subordinated Debentures will not be subject to any sinking fund. DISTRIBUTION UPON LIQUIDATION As described under "Description of the Preferred Securities -- Liquidation Distribution Upon Termination," under certain circumstances involving the dissolution of Stifel Capital, the Subordinated Debentures may be distributed to the holders of the Preferred Securities in liquidation of Stifel Capital after satisfaction of liabilities to creditors of Stifel Capital as provided by applicable law. If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of Stifel Capital, Stifel Financial will use its best efforts to list the Subordinated Debentures on The Nasdaq Stock Market's National Market or such stock exchanges, if any, on which the Preferred Securities are then listed. There can be no assurance as to the market price of any Subordinated Debentures that may be distributed to the holders of Preferred Securities. RESTRICTIONS ON CERTAIN PAYMENTS If at any time (i) there has occurred a Debenture Event of Default, (ii) Stifel Financial is in default with respect to its obligations under the Guarantee, or (iii) Stifel Financial has given notice of its election of an Extension Period as provided in the Indenture with respect to the Subordinated Debentures and has not rescinded such notice, or such Extension Period, or any extension thereof, is continuing, Stifel Financial will not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of Stifel Financial capital stock, (2) make any payment of principal, interest or premium, if any, on or repay or repurchase or redeem any debt securities of Stifel Financial that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by Stifel Financial of the debt securities of any subsidiary of Stifel Financial if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (3) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. SUBORDINATION The Indenture provides that the Subordinated Debentures issued thereunder are subordinated and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceedings of Stifel Financial, the holders of Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial will first be entitled to receive payment in full of principal of (and premium, if any) and interest, if any, on such Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial before the holders of Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest on the Subordinated Debentures. In the event of the acceleration of the maturity of any Subordinated Debentures, the holders of all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial outstanding at the time of such acceleration will first be entitled to receive payment in full of all amounts due thereon (including any amounts due upon acceleration) before the holders of the Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest on the Subordinated Debentures. No payments on account of principal or interest in respect of the Subordinated Debentures may be made if there has occurred and is continuing a default in any payment with respect to Senior Debt, Subordinated Debt or Additional Senior Obligations of Stifel Financial or an event of default with respect to any Senior Debt, Subordinated Debt or Additional Senior Obligations of Stifel Financial resulting in the acceleration of the maturity thereof, or if any judicial proceeding is pending with respect to any such default. 32 34 "Debt" means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (v) every capital lease obligation of such Person, and (vi) and every obligation of the type referred to in clauses (i) through (v) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "Senior Debt" means, with respect to Stifel Financial, the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Stifel Financial whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of the Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Subordinated Debentures or to other Debt which is pari passu with, or subordinated to, the Subordinated Debentures; provided, however, that Senior Debt will not be deemed to include (i) any Debt of Stifel Financial which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to Stifel Financial, (ii) any Debt of Stifel Financial to any of its subsidiaries, (iii) any Debt to any employee of Stifel Financial, (iv) any Debt which by its terms is subordinated to trade accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made to the holders of such Debt by the holders of the Subordinated Debentures as a result of the subordination provisions of the Indenture would be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such Debt is subject, and (v) Debt which constitutes Subordinated Debt. "Subordinated Debt" means, with respect to Stifel Financial, the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Stifel Financial whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of the Indenture or thereafter incurred, which is by its terms expressly provided to be junior and subordinate to other Debt of Stifel Financial (other than the Subordinated Debentures). "Additional Senior Obligations" means, with respect to Stifel Financial, all indebtedness, whether incurred on or prior to the date of the Indenture or thereafter incurred, for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity contracts and similar arrangements; provided, however, that Additional Senior Obligations do not include claims in respect of Senior Debt or Subordinated Debt or obligations which, by their terms, are expressly stated to be not superior in right of payment to the Subordinated Debentures or to rank pari passu in right of payment with the Subordinated Debentures. "Claim," as used herein, has the meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978, as amended. The Indenture places no limitation on the amount of additional Senior Debt, Subordinated Debt or Additional Senior Obligations that may be incurred by Stifel Financial. Stifel Financial expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. As of March 27, 1997, Stifel Financial had aggregate Senior Debt, Subordinated Debt and Additional Senior Obligations of approximately $176.4 million. Because Stifel Financial is a holding company, the Subordinated Debentures are effectively subordinated to all existing and future liabilities of Stifel Financial subsidiaries, including obligations to depositors of the Subsidiary Banks. 33 35 PAYMENT AND PAYING AGENTS Payment of principal of and any interest on the Subordinated Debentures will be made at the office of the Debenture Trustee in New York, New York, except that, at the option of Stifel Financial, payment of any interest may be made (i) by check mailed to the address of the Person entitled thereto as such address appears in the register of holders of the Subordinated Debentures, or (ii) by transfer to an account maintained by the Person entitled thereto as specified in the register of holders of the Subordinated Debentures, provided that proper transfer instructions have been received by the regular record date. Payment of any interest on Subordinated Debentures will be made to the Person in whose name such Subordinated Debenture is registered at the close of business on the regular record date for such interest, except in the case of defaulted interest. Stifel Financial may at any time designate additional paying agents for the Subordinated Debentures or rescind the designation of any paying agent for the Subordinated Debentures; however, Stifel Financial will at all times be required to maintain a paying agent in New York, New York and each place of payment for the Subordinated Debentures. Any moneys deposited with the Debenture Trustee or any paying agent for the Subordinated Debentures, or then held by Stifel Financial in trust, for the payment of the principal of or interest on the Subordinated Debentures and remaining unclaimed for two years after such principal or interest has become due and payable will be repaid to Stifel Financial on May 31 of each year or (if then held in trust by Stifel Financial) will be discharged from such trust and the holder of such Subordinated Debenture will thereafter look, as a general unsecured creditor, only to Stifel Financial for payment thereof. REGISTRAR AND TRANSFER AGENT The Debenture Trustee will act as the registrar and the transfer agent for the Subordinated Debentures. Subordinated Debentures may be presented for registration of transfer (with the form of transfer endorsed thereon, or a satisfactory written instrument of transfer, duly executed), in New York, New York or at the office of the registrar in Boston, Massachusetts. Stifel Financial may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts; provided that Stifel Financial maintains a transfer agent in New York, New York. Stifel Financial may at any time designate additional transfer agents with respect to the Subordinated Debentures. In the event of any redemption, neither Stifel Financial nor the Debenture Trustee will be required to (i) issue, register the transfer of or exchange Subordinated Debentures during a period beginning at the opening of business 15 days before the day of selection for redemption of Subordinated Debentures and ending at the close of business on the day of mailing of the relevant notice of redemption, or (ii) transfer or exchange any Subordinated Debentures so selected for redemption, except, in the case of any Subordinated Debentures being redeemed in part, any portion thereof not to be redeemed. MODIFICATION OF INDENTURE Stifel Financial and the Debenture Trustee may, from time to time without the consent of the holders of the Subordinated Debentures, amend, waive or supplement the Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting Stifel Financial and the Debenture Trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding Subordinated Debentures, to modify the Indenture; provided, that no such modification may, without the consent of the holder of each outstanding Subordinated Debenture affected by such proposed modification, (i) extend the fixed maturity of the Subordinated Debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or (ii) reduce the percentage of principal amount of Subordinated Debentures, the holders of which are required to consent to any such modification of the Indenture; provided that so long as any of the Preferred Securities remain outstanding, no such modification may be made that requires the consent of the holders of the Subordinated Debentures, and no termination of the Indenture may occur, and no waiver of any Debenture Event of Default may be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount of the Preferred Securities and that if the consent of the holder of each 34 36 Subordinated Debenture is required, such modification will not be effective until each holder of Trust Securities has consented thereto. DEBENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events with respect to the Subordinated Debentures that has occurred and is continuing constitutes an event of default (each, a "Debenture Event of Default") with respect to the Subordinated Debentures: (i) failure for 30 days to pay any interest on the Subordinated Debentures, when due (subject to the deferral of any due date in the case of an Extension Period); or (ii) failure to pay any principal on the Subordinated Debentures when due whether at maturity, upon redemption by declaration or otherwise; or (iii) failure to observe or perform in any material respect certain other covenants contained in the Indenture for 90 days after written notice to Stifel Financial from the Debenture Trustee or the holders of at least 25% in aggregate outstanding principal amount of the Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of Stifel Financial. The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee. The Debenture Trustee, or the holders of not less than 25% in aggregate outstanding principal amount of the Subordinated Debentures, may declare the principal due and payable immediately upon a Debenture Event of Default. The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures may annul such declaration and waive the default if the default (other than the non-payment of the principal of the Subordinated Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee. Should the holders of the Subordinated Debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities will have such right. Stifel Financial is required to file annually with the Debenture Trustee a certificate as to whether or not Stifel Financial is in compliance with all the conditions and covenants applicable to it under the Indenture. If a Debenture Event of Default has occurred and is continuing, the Property Trustee will have the right to declare the principal of and the interest on such Subordinated Debentures, and any other amounts payable under the Indenture, to be forthwith due and payable and to enforce its other rights as a creditor with respect to such Subordinated Debentures. ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES If a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of Stifel Financial to pay interest on or principal of the Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Preferred Securities may institute a legal proceeding directly against Stifel Financial for enforcement of payment to such holder of the principal of or interest on such Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such holder (a "Direct Action"). In connection with such Direct Action, Stifel Financial will have a right of set-off under the Indenture to the extent of any payment made by Stifel Financial to such holder of Preferred Securities in the Direct Action. Stifel Financial may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Preferred Securities. If the right to bring a Direct Action is removed, Stifel Capital may become subject to the reporting obligations under the Exchange Act. Stifel Financial has the right under the Indenture to set-off any payment made to such holder of Preferred Securities by Stifel Financial in connection with a Direct Action. 35 37 The holders of the Preferred Securities will not be able to exercise directly any remedies, other than those set forth in the preceding paragraph, available to the holders of the Subordinated Debentures unless there has been an Event of Default under the Trust Agreement. See "Description of the Preferred Securities--Events of Default; Notice." CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS Stifel Financial may not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, and any Person may not consolidate with or merge into Stifel Financial or sell, convey, transfer or otherwise dispose of its properties and assets substantially as an entirety to Stifel Financial, unless (i) in the event Stifel Financial consolidates with or merges into another Person or conveys or transfers its properties and assets substantially as an entirety to any Person, the successor Person is organized under the laws of the United States or any State or the District of Columbia, and such successor Person expressly assumes by supplemental indenture Stifel Financial obligations on the Subordinated Debentures issued under the Indenture, (ii) immediately after giving effect thereto, no Debenture Event of Default, and no event which, after notice or lapse of time or both, would become a Debenture Event of Default, has occurred and is continuing, and (iii) certain other conditions as prescribed in the Indenture are met. SATISFACTION AND DISCHARGE The Indenture will cease to be of further effect (except as to Stifel Financial obligations to pay certain sums due pursuant to the Indenture and to provide certain officers' certificates and opinions of counsel described therein) and Stifel Financial will be deemed to have satisfied and discharged the Indenture when, among other things, all Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year or are to be called for redemption within one year, and Stifel Financial deposits or causes to be deposited with the Debenture Trustee funds, in trust, for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on the Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation, for the principal and interest to the date of the deposit or to the Stated Maturity or redemption date, as the case may be. GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by and construed in accordance with the laws of the State of Missouri. INFORMATION CONCERNING THE DEBENTURE TRUSTEE The Debenture Trustee has and is subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Debenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Debenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. MISCELLANEOUS Stifel Financial has agreed, pursuant to the Indenture, for so long as Trust Securities remain outstanding, (i) to maintain directly or indirectly 100% ownership of the Common Securities of Stifel Capital (provided that certain successors which are permitted pursuant to the Indenture may succeed to Stifel Financial ownership of the Common Securities), (ii) not to voluntarily terminate, wind up or liquidate Stifel Capital, and (a) in connection with a distribution of Subordinated Debentures to the holders of the Preferred Securities in liquidation of Stifel Capital, or (b) in connection with certain mergers, consolidations or 36 38 amalgamations permitted by the Trust Agreement, and (iii) to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause Stifel Capital to remain classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. DESCRIPTION OF THE GUARANTEE The Preferred Securities Guarantee Agreement (the "Guarantee") will be executed and delivered by Stifel Financial concurrently with the issuance of the Preferred Securities for the benefit of the holders of the Preferred Securities. The Guarantee will be qualified as an indenture under the Trust Indenture Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for purposes of complying with the provisions of the Trust Indenture Act. The Guarantee Trustee, State Street Bank and Trust Company, will hold the Guarantee for the benefit of the holders of the Preferred Securities. The following summary of the material terms and provisions of the Guarantee does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Guarantee and the Trust Indenture Act. Wherever particular defined terms of the Guarantee are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Guarantee has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL Stifel Financial will, pursuant to the Guarantee, irrevocably agree to pay in full on a subordinated basis, to the extent set forth therein, the Guarantee Payments (as defined below) to the holders of the Preferred Securities, as and when due, regardless of any defense, right of set-off or counterclaim that Stifel Capital may have or assert other than the defense of payment. The following payments with respect to the Preferred Securities, to the extent not paid by or on behalf of Stifel Capital (the "Guarantee Payments"), will be subject to the Guarantee: (i) any accrued and unpaid Distributions required to be paid on the Preferred Securities, to the extent that Stifel Capital has funds available therefor at such time, (ii) the Redemption Price with respect to any Preferred Securities called for redemption to the extent that Stifel Capital has funds available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of Stifel Capital (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all of the Preferred Securities), the lesser of (a) the amount of the Liquidation Distribution, to the extent Stifel Capital has funds available therefor at such time, and (b) the amount of assets of Stifel Capital remaining available for distribution to holders of Preferred Securities in liquidation of Stifel Capital. The obligation of Stifel Financial to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Stifel Financial to the holders of the Preferred Securities or by causing Stifel Capital to pay such amounts to such holders. The Guarantee will not apply to any payment of Distributions except to the extent Stifel Capital has funds available therefor. If Stifel Financial does not make interest payments on the Subordinated Debentures held by Stifel Capital, Stifel Capital will not pay Distributions on the Preferred Securities and will not have funds legally available therefor. STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of Stifel Financial and will rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial in the same manner as the Subordinated Debentures. The Guarantee does not place a limitation on the amount of additional Senior Debt, Subordinated Debt or Additional Senior Obligations that may be incurred by Stifel Financial. Stifel Financial expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. The Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against Stifel Financial to enforce its rights under the Guarantee without first instituting a legal proceeding against any other Person). The Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by Stifel Capital or upon 37 39 distribution of the Subordinated Debentures to the holders of the Preferred Securities. Because Stifel Financial is a holding company, the right of Stifel Financial to participate in any distribution of assets of any Subsidiary Bank upon such Subsidiary Bank's liquidation or reorganization or otherwise is subject to the prior claims of creditors of that Subsidiary Bank, except to the extent Stifel Financial may itself be recognized as a creditor of that Subsidiary Bank. Stifel Financial obligations under the Guarantee, therefore, will be effectively subordinated to all existing and future liabilities of Stifel Financial subsidiaries, and claimants should look only to the assets of Stifel Financial for payments thereunder. AMENDMENTS AND ASSIGNMENT Except with respect to any changes which do not materially adversely affect the rights of holders of the Preferred Securities (in which case no vote will be required), the Guarantee may not be amended without the prior approval of the holders of not less than a majority of the aggregate Liquidation Amount of the outstanding Preferred Securities. See "Description of the Preferred Securities - - -- Voting Rights; Amendment of Trust Agreement." All guarantees and agreements contained in the Guarantee will bind the successors, assigns, receivers, trustees and representatives of Stifel Financial and will inure to the benefit of the holders of the Preferred Securities then outstanding. EVENTS OF DEFAULT An event of default under the Guarantee will occur upon the failure of Stifel Financial to perform any of its payment or other obligations thereunder. The holders of not less than a majority in aggregate Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. Any holder of Preferred Securities may institute a legal proceeding directly against Stifel Financial to enforce its rights under the Guarantee without first instituting a legal proceeding against Stifel Capital, the Guarantee Trustee or any other Person. Stifel Financial, as guarantor, is required to file annually with the Guarantee Trustee a certificate as to whether or not Stifel Financial is in compliance with all the conditions and covenants applicable to it under the Guarantee. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, other than during the occurrence and continuance of a default by Stifel Financial in performance of the Guarantee, undertakes to perform only such duties as are specifically set forth in the Guarantee and, after default with respect to the Guarantee, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to such provisions, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee at the request of any holder of any Preferred Securities, unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. TERMINATION OF THE GUARANTEE The Guarantee will terminate and be of no further force and effect upon (a) full payment of the Redemption Price of the Preferred Securities, (b) full payment of the amounts payable upon liquidation of Stifel Capital, or (c) distribution of the Subordinated Debentures to the holders of the Preferred Securities. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Preferred Securities must restore payment of any sums paid under such Preferred Securities or the Guarantee. GOVERNING LAW The Guarantee will be governed by and construed in accordance with the laws of the State of Missouri. 38 40 EXPENSE AGREEMENT Stifel Financial will, pursuant to the Agreement as to Expenses and Liabilities entered into by it under the Trust Agreement (the "Expense Agreement"), irrevocably and unconditionally guarantee to each person or entity to whom Stifel Capital becomes indebted or liable, the full payment of any costs, expenses or liabilities of Stifel Capital, other than obligations of Stifel Capital to pay to the holders of the Preferred Securities or other similar interests in Stifel Capital of the amounts due such holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be. Third party creditors of Stifel Capital may proceed directly against Stifel Financial under the Expense Agreement, regardless of whether such creditors had notice of the Expense Agreement. RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE SUBORDINATED DEBENTURES AND THE GUARANTEE FULL AND UNCONDITIONAL GUARANTEE Payments of Distributions and other amounts due on the Preferred Securities (to the extent Stifel Capital has funds available for the payment of such Distributions) are irrevocably guaranteed by Stifel Financial as and to the extent set forth under "Description of the Guarantee." Stifel Financial and Stifel Capital believe that, taken together, the obligations of Stifel Financial under the Subordinated Debentures, the Indenture, the Trust Agreement, the Expense Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of payment of Distributions and other amounts due on the Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the obligations of Stifel Capital under the Preferred Securities. If and to the extent that Stifel Financial does not make payments on the Subordinated Debentures, Stifel Capital will not pay Distributions or other amounts due on the Preferred Securities. The Guarantee does not cover payment of Distributions when Stifel Capital does not have sufficient funds to pay such Distributions. In such event, the remedy of a holder of Preferred Securities is to institute a legal proceeding directly against Stifel Financial for enforcement of payment of such Distributions to such holder. The obligations of Stifel Financial under the Guarantee are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial. SUFFICIENCY OF PAYMENTS As long as payments of interest and other payments are made when due on the Subordinated Debentures, such payments will be sufficient to cover Distributions and other payments due on the Preferred Securities, primarily because (i) the aggregate principal amount of the Subordinated Debentures will be equal to the sum of the aggregate stated Liquidation Amount of the Trust Securities, (ii) the interest rate and interest and other payment dates on the Subordinated Debentures will match the Distribution rate and Distribution and other payment dates for the Preferred Securities, (iii) Stifel Financial will pay for all and any costs, expenses and liabilities of Stifel Capital (except the obligations of Stifel Capital to holders of the Preferred Securities), and (iv) the Trust Agreement further provides that Stifel Capital will not engage in any activity that is not consistent with the limited purposes of Stifel Capital. ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES A holder of any Preferred Security may institute a legal proceeding directly against Stifel Financial to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee, Stifel Capital or any other Person. A default or event of default under any Senior Debt, Subordinated Debt or Additional Senior Obligations of Stifel Financial would not constitute a default or Event of Default. In the event, however, of payment defaults under, or acceleration of, Senior Debt, Subordinated Debt or Additional Senior Obligations of Stifel Financial, the subordination provisions of the Indenture provide that no payments may be made in respect of the Subordinated Debentures until such Senior Debt, Subordinated Debt 39 41 or Additional Senior Obligations has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on the Subordinated Debentures would constitute an Event of Default. LIMITED PURPOSE OF STIFEL CAPITAL The Preferred Securities evidence a preferred undivided beneficial interest in the assets of Stifel Capital. Stifel Capital exists for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of Stifel Capital, (ii) investing the gross proceeds of the Trust Securities in the Subordinated Debentures issued by Stifel Financial, and (iii) engaging in only those other activities necessary, advisable, or incidental thereto. A principal difference between the rights of a holder of a Preferred Security and the rights of a holder of a Subordinated Debenture is that a holder of a Subordinated Debenture is entitled to receive from Stifel Financial the principal amount of and interest accrued on Subordinated Debentures held, while a holder of Preferred Securities is entitled to receive Distributions from Stifel Capital (or from Stifel Financial under the Guarantee) if and to the extent Stifel Capital has funds available for the payment of such Distributions. RIGHTS UPON TERMINATION Upon any voluntary or involuntary termination, winding-up or liquidation of Stifel Capital involving the liquidation of the Subordinated Debentures, the holders of the Preferred Securities will be entitled to receive, out of assets held by Stifel Capital, the Liquidation Distribution in cash. See "Description of the Preferred Securities -- Liquidation Distribution Upon Termination." Upon any voluntary or involuntary liquidation or bankruptcy of Stifel Financial, the Property Trustee, as holder of the Subordinated Debentures, would be a subordinated creditor of Stifel Financial, subordinated in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of Stifel Financial (as set forth in the Indenture), but entitled to receive payment in full of principal and interest before any shareholders of Stifel Financial receive payments or distributions. Since Stifel Financial is the guarantor under the Guarantee and has agreed to pay for all costs, expenses and liabilities of Stifel Capital (other than the obligations of Stifel Capital to the holders of its Preferred Securities), the positions of a holder of the Preferred Securities and a holder of the Subordinated Debentures relative to other creditors and to shareholders of Stifel Financial in the event of liquidation or bankruptcy of Stifel Financial are expected to be substantially the same. CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following is a summary of the material United States federal income tax considerations that may be relevant to the purchasers of Preferred Securities which has been passed upon by Bryan Cave LLP, counsel to Stifel Financial and Stifel Capital insofar as it relates to matters of law and legal conclusions. The conclusions expressed herein are based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), regulations thereunder and current administrative rulings and court decisions, all of which are subject to change at any time, with possible retroactive effect. Subsequent changes may cause tax consequences to vary substantially from the consequences described below. Furthermore, the authorities on which the following summary is based are subject to various interpretations, and it is therefore possible that the United States federal income tax treatment of the purchase, ownership, and disposition of Preferred Securities may differ from the treatment described below. No attempt has been made in the following discussion to comment on all United States federal income tax matters affecting purchasers of Preferred Securities. Moreover, the discussion generally focuses on holders of Preferred Securities who are individual citizens or residents of the United States and who acquire Preferred Securities on their original issue at their offering price and hold Preferred Securities as capital assets. The discussion has only limited application to dealers in securities, corporations, estates, trusts or nonresident aliens and does not address all the tax consequences that may be relevant to holders who may be subject to 40 42 special tax treatment, such as, for example, banks, thrifts, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that will hold the Preferred Securities as a position in a "straddle," as part of a "synthetic security" or "hedge," as part of a "conversion transaction" or other integrated investment, or as other than a capital asset. The following summary also does not address the tax consequences to persons that have a functional currency other than the U.S. dollar or the tax consequences to shareholders, partners or beneficiaries of a holder of Preferred Securities. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Preferred Securities. Accordingly, each prospective investor should consult, and should rely exclusively on, such investor's own tax advisors in analyzing the federal, state, local and foreign tax consequences of the purchase, ownership or disposition of Preferred Securities. CLASSIFICATION OF THE SUBORDINATED DEBENTURES Stifel Financial intends to take the position that the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of Stifel Financial under current law, and, by acceptance of a Preferred Security, each holder covenants to treat the Subordinated Debentures as indebtedness and the Preferred Securities as evidence of an indirect beneficial ownership interest in the Subordinated Debentures. No assurance can be given, however, that such position of Stifel Financial will not be challenged by the Internal Revenue Service or, if challenged, that such a challenge will not be successful. The remainder of this discussion assumes that the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of Stifel Financial. CLASSIFICATION OF STIFEL CAPITAL Under current law and assuming full compliance with the terms of the Trust Agreement and Indenture (and certain other documents described herein), Stifel Capital will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Preferred Securities generally will be treated as owning an undivided beneficial interest in the Subordinated Debentures, and upon the occurrence of an Extension Period each holder will be required to include in his gross income any original issue discount ("OID") accrued with respect to its allocable share of the Subordinated Debentures whether or not cash is actually distributed to such holder. POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT Under recently issued Treasury regulations (the "Regulations"), a debt instrument will be deemed to be issued with OID if there is more than a "remote" contingency that periodic stated interest payments due on the instrument will not be timely paid. Because the exercise by Stifel Financial of its option to defer the payment of stated interest on the Subordinated Debentures would prevent Stifel Financial from declaring dividends on any class of equity, Stifel Financial believes that the likelihood of its exercising the option is "remote" within the meaning of the Regulations. As a result, Stifel Financial intends to take the position that the Subordinated Debentures will not be deemed to be issued with OID. Accordingly, based on this position, stated interest payments on the Subordinated Debentures will be includible in the ordinary income of a holder at the time that such payments are paid or accrued in accordance with the holder's regular method of accounting. Because the Regulations have not yet been addressed in any published rulings or other published interpretations issued by the Internal Revenue Service, it is possible that the Internal Revenue Service could take a position contrary to the position taken by Stifel Financial. If the Company were to exercise its option to defer the payment of stated interest on the Subordinated Debentures, the Subordinated Debentures would be treated, solely for purpose of the OID rules, as being "re-issued" at such time with OID. Under these rules, a holder of the Subordinated Debentures would be required to include OID in ordinary income, on a current basis, over the period that the instrument is held even though the Company would not be making any actual cash payments during the extended interest payment period. The amount of interest income includible in the taxable income of a holder of the 41 43 Subordinated Debentures would be determined on the basis of a constant yield method over the remaining term of the instrument and the actual receipt of future payments of stated interest on the Subordinated Debentures would no longer be separately reported as taxable income. The amount of OID that would accrue, in the aggregate, during the extended interest payment period would be approximately equal to the amount of the cash payment due at the end of such period. Any OID included in income would increase the holder's adjusted tax basis in the Subordinated Debentures and the holder's actual receipt of interest payments would reduce such basis. Because income on the Preferred Securities will constitute interest income for United States federal income tax purposes, corporate holders of Preferred Securities will not be entitled to claim a dividends received deduction in respect of such income. MARKET DISCOUNT AND ACQUISITION PREMIUM Holders of Preferred Securities other than a holder who purchased the Preferred Securities upon original issuance may be considered to have acquired their undivided interests in the Subordinated Debentures with "market discount" or "acquisition premium" as such phrases are defined for United States federal income tax purposes. Such holders are advised to consult their tax advisors as to the income tax consequences of the acquisition, ownership and disposition of the Preferred Securities. RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF STIFEL CAPITAL Under certain circumstances, as described under "Description of the Preferred Securities -- Redemption or Exchange" and "-- Liquidation Distribution Upon Termination," the Subordinated Debentures may be distributed to holders of Preferred Securities upon a liquidation of Stifel Capital. Under current United States federal income tax law, such a distribution would be treated as a nontaxable event to each such holder and would result in such holder having an adjusted tax basis in the Subordinated Debentures received in the liquidation equal to such holder's adjusted tax basis in the Preferred Securities immediately before the distribution. A holder's holding period in the Subordinated Debentures so received in liquidation of Stifel Capital would include the period for which such holder held the Preferred Securities. If, however, a Tax Event occurs which results in Stifel Capital being treated as an association taxable as a corporation, the distribution would likely constitute a taxable event to holders of the Preferred Securities. Under certain circumstances described herein, the Subordinated Debentures may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Preferred Securities. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed Preferred Securities, and a holder would recognize gain or loss as if the holder sold such Preferred Securities for cash. See "Description of the Preferred Securities -- Redemption or Exchange" and "-- Liquidation Distribution Upon Termination." DISPOSITION OF PREFERRED SECURITIES Upon the sale of the Preferred Securities, a holder will recognize gain or loss in an amount equal to the difference between his adjusted tax basis in the Preferred Securities and the amount realized in the sale (except to the extent of any amount received in respect of accrued but unpaid interest not previously included in income). A holder's adjusted tax basis in the Preferred Securities generally will be its initial purchase price increased by OID (if any) previously includible in the holder's gross income to the date of disposition and decreased by payments (if any) received on the Preferred Securities in respect of OID (if any) to the date of disposition. Such gain or loss generally will be a capital gain or loss and will be a long-term capital gain or loss if the Preferred Securities have been held for more than one year at the time of sale. The Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest (or OID if the Subordinated Debentures are treated as having been issued, or reissued, with OID) with respect to the underlying Subordinated Debentures. A holder who disposes of his Preferred Securities will be required to include in ordinary income (i) any portion of the amount realized that is attributable to such accrued but unpaid interest to the extent not previously included in income, or (ii) any 42 44 amount of OID, in either case, that has accrued on his pro rata share of the underlying Subordinated Debentures during the taxable year of sale through the date of disposition. Any such income inclusion will increase the holder's adjusted tax basis in his Preferred Securities disposed of. To the extent that the amount realized in the sale is less than the holder's adjusted tax basis, a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. EFFECT OF PROPOSED CHANGES IN TAX LAWS On March 19, 1996, President Clinton proposed certain tax law changes that would, among other things, generally deny corporate issuers a deduction for interest in respect of certain debt obligations issued on or after December 7, 1995 (the "1996 Proposed Legislation") if such debt obligations have a maximum term in excess of 20 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint statement (the "Joint Statement") indicating their intent that certain legislative proposals initiated by the Clinton administration, including the 1996 Proposed Legislation, that may be adopted by either of the tax-writing committees of Congress would have an effective date that is no earlier than the date of "appropriate Congressional action." In addition, subsequent to the publication of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam. M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials concurring with the views expressed in the Joint Statement. Neither the 1996 Proposed Legislation nor similar legislation was enacted during the 104th Congress. On February 6, 1997, President Clinton proposed in the administration's fiscal year 1998 budget certain tax law changes (the "1997 Proposed Legislation") that would, among other things, generally deny corporate issuers a deduction for interest or OID in respect of certain debt obligations if such debt obligations have a maximum term in excess of 15 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. The 1997 Proposed Legislation also contains a provision that would deny a deduction to corporate issuers for interest or OID with respect to debt instruments that have a maximum term of more than 40 years (including rights to extend, renew or relend), or are payable in stock of the issuer or a related party. The U.S. Treasury Department's summary of the 1997 Proposed Legislation states that the above provisions regarding the deduction of interest would generally be effective for instruments issued on or after the date of first Congressional committee action with respect to the 1997 Proposed Legislation. The Ways and Means Committee began a full committee hearing on the President's fiscal 1998 budget on February 11, 1997. There can be no assurance that the effective date guidance in the 1997 Proposed Legislation will be adopted if the proposed change to the tax law is enacted, or that other legislation enacted after the date hereof will not otherwise adversely affect the ability of the Company to deduct the interest payable on the Subordinated Debentures. Consequently, there can be no assurance that a Tax Event will not occur. A Tax Event would permit the Company to cause a redemption of the Preferred Securities before, as well as after, June 30, 2002. See "Description of the Subordinated Debentures -- Redemption or Exchange" and "Description of the Preferred Securities -- Redemption or Exchange -- Tax Event Redemption or Investment Company Event Redemption." BACKUP WITHHOLDING AND INFORMATION REPORTING The amount of OID accrued on the Preferred Securities held of record by individual citizens or residents of the United States, or certain trusts, estates, and partnerships, will be reported to the Internal Revenue Service on Forms 1099, which forms should be mailed to such holders of Preferred Securities by January 31 following each calendar year. Payments made on, and proceeds from the sale of, the Preferred Securities may be subject to a "backup" withholding tax (currently at 31%) unless the holder complies with certain identification and other requirements. Any amounts withheld under the backup withholding rules will be allowed as a credit against the holder's United States federal income tax liability, provided the required information is provided to the Internal Revenue Service. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE 43 45 DEPENDING UPON THE PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. ERISA CONSIDERATIONS Employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code ("Plans"), generally may purchase Preferred Securities, subject to the investing fiduciary's determination that the investment in Preferred Securities satisfies ERISA's fiduciary standards and other requirements applicable to investments by the Plan. In any case, Stifel Financial and/or any of its affiliates may be considered a "party in interest" (within the meaning of ERISA) or a "disqualified person" (within the meaning of Section 4975 of the Code) with respect to certain plans (generally, Plans maintained or sponsored by, or contributed to by, any such persons with respect to which Stifel Financial or an affiliate is a fiduciary or Plans for which Stifel Financial or an affiliate provides services). The acquisition and ownership of Preferred Securities by a Plan (or by an individual retirement arrangement or other Plans described in Section 4975(e)(1) of the Code) with respect to which Stifel Financial or any of its affiliates is considered a party in interest or a disqualified person may constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code, unless such Preferred Securities are acquired pursuant to and in accordance with an applicable exemption. As a result, Plans with respect to which Stifel Financial or any of its affiliates is a party in interest or a disqualified person should not acquire Preferred Securities unless such Preferred Securities are acquired pursuant to and in accordance with an applicable exemption. Any other Plans or other entities whose assets include Plan assets subject to ERISA or Section 4975 of the Code proposing to acquire Preferred Securities should consult with their own counsel. 44 46 UNDERWRITING The Underwriters named below, represented by (the "Representative"), have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement, the form of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, to purchase from Stifel Capital the number of Preferred Securities set forth opposite their respective names below. The several Underwriters have agreed in the Underwriting Agreement, subject to the terms and conditions set forth therein, to purchase all the Preferred Securities offered hereby if any of the Preferred Securities are purchased. In the event of default by an Underwriter, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated.
UNDERWRITER NUMBER OF PREFERRED SECURITIES ----------- ------------------------------ Stifel, Nicolaus & Company, Incorporated.................... ------------ Total.................................................. $ ============
The Representative has advised Stifel Capital that it proposes initially to offer the Preferred Securities to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per Preferred Security. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per Preferred Security to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. In view of the fact that the proceeds of the sale of the Preferred Securities will be used to purchase the Subordinated Debentures of Stifel Financial, the Underwriting Agreement provides that Stifel Financial will pay as compensation to the Underwriters arranging the investment therein of such proceeds, an amount in immediately available funds of $ per Preferred Security (or $ in the aggregate) for the accounts of the several Underwriters. Stifel Capital has granted the Underwriters an option to purchase up to an additional 375,000 Preferred Securities at the initial public offering price. Such option, which expires 30 days from the date of this Prospectus, may be exercised solely to cover over-allotments. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of the additional Preferred Securities that the number of Preferred Securities to be purchased initially by the Underwriter is of the 2,500,000 Preferred Securities initially purchased by the Underwriters. To the extent that the Underwriters exercise their option to purchase additional Preferred Securities, Stifel Capital will issue and sell to Stifel Financial additional Common Securities in such aggregate Liquidation Amount as is required for Stifel Financial to continue to hold Common Securities in an aggregate Liquidation Amount equal to at least 3% of the total capital of Stifel Capital and Stifel Financial will issue and sell to Stifel Capital Subordinated Debentures in an aggregate principal amount equal to the total aggregate Liquidation Amount of the additional Preferred Securities being purchased pursuant to the option and the additional Common Securities. In connection with the offering of the Preferred Securities, the Underwriters and any selling group members and their respective affiliates may engage in transactions effected in accordance with Rule 104 of the Securities and Exchange Commission's Regulation M that are intended to stabilize, maintain or otherwise affect the market price of the Preferred Securities. Such transactions may include over-allotment transactions in which the Underwriters create a short position for their own account by selling more Preferred Securities 45 47 than they are committed to purchase from the Trust. In such a case, to cover all or part of the short position, the Underwriters may exercise the over-allotment option described above or may purchase Preferred Securities in the open market following completion of the initial offering of the Preferred Securities. The Underwriters also may engage in stabilizing transactions in which they bid for, and purchase, shares of the Preferred Securities at a level above that which might otherwise prevail in the open market for the purpose of preventing or retarding a decline in the market price of the Preferred Securities. The Underwriters also may reclaim any selling concessions allowed to an Underwriter or dealer if the Underwriters repurchase shares distributed by that Underwriter or dealer. Any of the foregoing transactions may result in the maintenance of a price for the Preferred Securities at a level above that which might otherwise prevail in the open market. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Preferred Securities. The Underwriters are not required to engage in any of the foregoing transactions and, if commenced, such transactions may be discontinued at any time without notice. During a period of 180 days from the date of this Prospectus, neither Stifel Capital nor Stifel Financial will, subject to certain exceptions, without the prior written consent of the Representative, directly or indirectly, sell, offer to sell, grant any option for sale of, or otherwise dispose of, any Preferred Securities, any security convertible into or exchangeable into or exercisable for Preferred Securities or Subordinated Debentures or any debt securities substantially similar to the Subordinated Debentures or equity securities substantially similar to the Preferred Securities (except for Subordinated Debentures and the Preferred Securities offered hereby). An application will be made to have the Preferred Securities approved for listing on the NYSE, subject to official notice of issuance, under the symbol "SFPr." Prior to the Offering, there has been no public market for the Preferred Securities. To meet one of the requirements for listing the Preferred Securities on the NYSE, the Underwriters will undertake to sell Preferred Securities to a minimum of 400 beneficial holders. There can be no assurance made as to the liquidity of such Preferred Securities or that an active and liquid trading market will develop or, if developed, that it will continue. The offering price and distribution rate have been determined by negotiations among representatives of Stifel Financial and the Underwriters, and the offering price of the Preferred Securities may not be indicative of the market price following the Offering. The Representative will have no obligation to make a market in the Preferred Securities, however, and may cease market-making activities, if commenced, at any time. Stifel Capital and Stifel Financial have agreed to indemnify the Underwriters against, or contribute to payments that the Underwriters may be required to make in respect of, certain liabilities, including liabilities under the Securities Act. Stifel, Nicolaus, a wholly-owned subsidiary of the Company, is also an Underwriter. Therefore, the underwriting arrangements for the offering will comply with Conduct Rule 2720 (formerly Schedule E to the By-Laws) of the NASD ("Rule 2720"), which provides that, among other things, when an NASD member participates in the underwriting of an affiliate's equity securities, the initial public offering price can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with this requirement, has served in such role and has recommended a price in compliance with the requirements of Rule 2720. In connection with the offering, in its role as qualified independent underwriter has performed due diligence investigations and reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. In addition, the Underwriters may not confirm sales to any discretionary account without the prior specific written approval of the customer. VALIDITY OF SECURITIES Certain matters of Delaware law relating to the validity of the Preferred Securities, the enforceability of the Trust Agreement and the formation of Stifel Capital will be passed upon by Richards, Layton & Finger, special Delaware counsel to Stifel Financial and Stifel Capital. Certain legal matters for Stifel Financial and Stifel Capital, including the validity of the Guarantee and the Subordinated Debentures will be passed upon 46 48 for Stifel Financial and Stifel Capital by Bryan Cave LLP, St. Louis, Missouri, counsel to Stifel Financial and Stifel Capital. John J. Goebel, a partner of Bryan Cave LLP, is a director of Stifel Financial and owns 1,274 shares of Stifel Financial's common stock and options to purchase 6,381 shares of common stock. Bryan Cave LLP from time to time serves as legal counsel to [several of] the Underwriters, including Stifel, Nicolaus. Certain legal matters will be passed upon for the Underwriters by . Bryan Cave LLP and will rely upon the opinion of Richards, Layton & Finger as to matters of Delaware law. Certain matters relating to United States federal income tax considerations will be passed upon for Stifel Financial by Bryan Cave LLP. EXPERTS The financial statements and the related financial statement schedules incorporated in this prospectus by reference from the Company's Annual Report on Form 10-K and Annual Report to Security Holders for the year ended December 31, 1996 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The financial statements and the related financial statement schedules incorporated in this prospectus by reference from the Company's Annual Report on Form 10-K and Annual Report to Security Holders for the years ended December 31, 1995 and 1994 have been audited by Coopers & Lybrand L.L.P., independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, previously filed by Stifel Financial with the Securities and Exchange Commission pursuant to Section 13 of the Exchange Act, are incorporated herein by reference: (a) Stifel Financial's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K") (included as Appendix A hereto); and (b) Stifel Financial's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (included as Appendix B hereto). In addition, the following portions of Stifel Financial's 1996 Annual Report to Stockholders are incorporated herein by reference (and are included as Exhibit 13 to the 1996 Form 10-K, included as Appendix A hereto): (a) Management's discussion and analysis of financial condition and results of operations (Management's Financial Discussion); and (b) Audited Consolidated Statements of Financial Condition, Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, Notes to Consolidated Financial Statements. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. STIFEL FINANCIAL WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO THE OFFICE OF THE SECRETARY, STIFEL 47 49 FINANCIAL CORP., 500 NORTH BROADWAY, ST. LOUIS, MISSOURI 63102. TELEPHONE REQUESTS MAY BE DIRECTED TO (314) 342-2000. AVAILABLE INFORMATION This Prospectus constitutes a part of a Registration Statement on Form S-2 (together with all amendments and exhibits thereto, the "Registration Statement") filed by Stifel Financial and Stifel Capital with the Commission under the Securities Act, with respect to the Preferred Securities and the Subordinated Debentures. This Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, although it does include a summary of the material terms of the Indenture and the Trust Agreement. Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to the Stifel Financial, Stifel Capital, the Preferred Securities and the Subordinated Debentures. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission or incorporated by reference herein are not necessarily complete, and, in each instance, reference is made to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. Stifel Financial is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the following public reference facilities maintained by the Commission: 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon payment of prescribed rates. The Commission maintains in Internet web site that contains reports, proxy and information statements and other information regarding issuers who file electronically with the Commission. The address of that site is http://www.sec.gov. In addition, reports, proxy statements and other information concerning Stifel Financial may be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. No separate financial statements of Stifel Capital have been included herein. Stifel Financial does not consider that such financial statements would be material to holders of Preferred Securities because (i) all of the voting securities of Stifel Capital will be owned by Stifel Financial, a reporting company under the Exchange Act, (ii) Stifel Capital has no independent operations but exists for the sole purpose of issuing securities representing undivided beneficial interests in the assets of Stifel Capital and investing the proceeds thereof in Subordinated Debentures issued by Stifel Financial, and (iii) the obligations of Stifel Financial described herein to provide certain indemnities in respect of and be responsible for certain costs, expenses, debts and liabilities of Stifel Capital under the Indenture and pursuant to the Trust Agreement, the guarantee issued by Stifel Financial with respect to the Preferred Securities, the Subordinated Debentures purchased by Stifel Capital and the related Indenture, taken together, constitute, in the belief of Stifel Financial and Stifel Capital, a full and unconditional guarantee of payments due on the Preferred Securities. See "Description of the Subordinated Debentures" and "Description of the Guarantee." Stifel Capital is not currently subject to the information reporting requirements of the Exchange Act. Stifel Capital will become subject to such requirements upon the effectiveness of the Registration Statement, although it intends to seek and expects to receive an exemption therefrom. 48 50 APPENDIX A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 ----------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------------- ------------------ Commission file number 1-9305 ------ STIFEL FINANCIAL CORP. - - -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 43-1273600 - - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 N. Broadway St. Louis, Missouri 63102-2188 - - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 314-342-2000 ------------------------------------ Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class On Which Registered - - -------------------------------------- ------------------------------------ Common Stock, Par Value $.15 per share New York Stock Exchange Chicago Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [X] Aggregate market value of voting stock held by non-affiliates of the registrant at March 11, 1997 was $32,425,544. Shares of Common Stock outstanding at March 11, 1997: 4,725,747 shares, par value $.15 per share. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Annual Report to Stockholders for the year ended December 31, 1996 are incorporated by reference to Part II hereof. Portions of the Company's Proxy Statement filed with the SEC in connection with the Company's Annual Meeting of Stockholders to be held April 22, 1997 are incorporated by reference to Part III hereof. Exhibit Index located on page 24. A1 51 PART I ITEM 1. BUSINESS - - ---------------- Stifel Financial Corp. ("Financial") was organized in fiscal year 1983 pursuant to a plan of reorganization whereby Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus") became a wholly-owned subsidiary of Financial. Stifel, Nicolaus is the successor to a partnership founded in 1890. The term "Company" as used herein means Financial and its subsidiaries. The Company offers securities-related financial services through its wholly-owned operating subsidiaries, Stifel, Nicolaus, Century Securities Associates, Inc., Todd Investment Advisors, Inc., and Pin Oak Capital, Ltd. These subsidiaries provide brokerage, trading, investment banking, investment advisory, and related financial services primarily to customers throughout the United States from 43 locations. The Company's customers include individuals, corporations, municipalities and institutions. Although the Company has customers throughout the United States, its major geographic area of concentration is in the Midwest. On May 25, 1995, the Company sold the majority of the assets related to its operations in Oklahoma, which consisted of 26 retail securities offices and the municipal underwriting, trading, and institutional sales operations located in Oklahoma, and three retail offices in Texas. These operations comprised 14% of the Company's total revenue for 1994. (See proforma financial information in Note O of the Consolidated Financial Statements incorporated by reference herein.) PRINCIPAL SOURCES OF REVENUE The amounts of each of the principal sources of revenue of the Company for the calendar years 1996, 1995 and 1994 is contained in Item 6. Selected Financial Data, filed herein. COMMISSIONS During recent years, most of the Company's securities commissions resulted from transactions with retail (individual) investor accounts. Retail commissions are charged on both stock exchange and over-the-counter transactions in accordance with the Company's commission schedule. In certain cases (usually on large trades or to active customers), discounts from that schedule are granted. The percentage of total commission revenue from institutional customers was 5% in 1996. Prior to 1996 revenue generated from institutional customers was not accounted for separately. Institutional accounts are serviced mainly by the Company's offices in St. Louis. Retail investment executives also receive orders from institutional customers from time to time. PRINCIPAL TRANSACTIONS The Company trades as principal in the over-the-counter market. It acts as both principal and agent to facilitate the execution of customers' orders. The Company "makes a market" in various securities of interest to its customers through buying, selling and maintaining an inventory of these securities. The Company does not engage in a significant amount of trading for its own account. The Company also buys corporate and municipal bonds for its own account in the secondary market, maintains an inventory, and resells from that inventory to other dealers and to institutional and retail customers. A2 52 INVESTMENT BANKING The Company manages the underwriting of both corporate and municipal securities and participates as an underwriter in syndicates of issues managed by other firms. The corporate and public finance departments are responsible for originating underwritings, mergers and acquisitions, placements, valuations, financial advisory work and other investment banking matters. The Company acts as an underwriter and dealer in bonds issued by states, cities and other political subdivisions and may act as manager or participant in offerings managed by other firms. The majority of the Company's municipal bond underwritings and corporate underwritings are originated and sold through its office in St. Louis. Prior to 1994, the majority of the Company's investment banking related revenue was generated by its Oklahoma City based public finance department. As a result of the negative publicity surrounding the two year investigation and civil injunctive action by the Securities and Exchange Commission, which was settled in August of 1995, related to certain municipal bond underwritings managed by the Oklahoma City office, the Company's ability to generate municipal bond underwritings in Oklahoma and elsewhere was adversely impacted (see also Item 7 "Management's Financial Discussion" and Note H of the Consolidated Financial Statements incorporated by reference herein). During 1995, the number of municipal bond offerings underwritten by the St. Louis public finance department was not only affected by the negative publicity as a result of the Securities and Exchange Commission investigation and enforcement action but also was effected by the downturn in the public finance market experienced industry-wide. Interest rates had not fluctuated downward as dramatically as several years ago, and consequently the volume of refinancings by institutions and governmental agencies has remained low. During 1996, the St. Louis public finance department rebounded somewhat as evidenced by the increase in the number of awards as senior manager for new issue underwritings, which increased to 34 awards in 1996 from 24 awards in 1995. While several broker-dealers have ceased their public finance operations resulting from the industry-wide slowdown, management is uncertain at this time what effects, if any, this may have on the department's future performance. In calendar years 1996 and 1995, the majority of the Company's investment banking revenues have been generated by the corporate finance department. The growth in the revenue is due to the department's focus on providing research, financial advisory services, and consulting services for merger and acquisition and serving as a manager or co-manager for underwriting issuances of corporate debt or equity securities for financial institutions and Real Estate Investment Trusts (REITs) located primarily in the Midwest. Management expects the performance of the corporate finance department to remain strong. The management of and participation in public offerings involves significant risks. An underwriter may incur losses if it is unable to resell, at a profit, the securities it has purchased. Under the Securities Act of 1933 and other statutes and court decisions, an underwriter may be subject to substantial liability for misstatements or omissions that are judged to be material in prospectuses and other communications related to underwritings. Underwriting commitments cause a charge against net capital (as defined by Rule 15c3-1 administered by the Securities and Exchange Commission -- see "Regulation"); and, consequently, the aggregate amount of underwriting commitments at any one time may be limited by the amount of available net capital of the Company. A3 53 OTHER BUSINESS The Company has dealer-sales agreements with numerous distributors of investment company shares. These agreements provide generally for dealer discounts ranging up to 5.75 percent of the purchase price, depending upon the size of the transaction. The Company acts as an agent for its customers' transactions in put and call options traded on the Chicago Board Options Exchange, Inc., American Stock Exchange, Inc., Philadelphia Stock Exchange, Inc., and, to a much lesser extent, in the over-the- counter market. The Company has a wholly-owned subsidiary, Century Securities Associates, Inc. ("CSA"), an introducing broker-dealer which clears its transactions through Stifel, Nicolaus. CSA contracts with independent licensed brokers to sell securities and other investment products to retail (individual) investor accounts. CSA is licensed in 50 states and has 93 registered representatives. Management expects CSA to continue to grow in significance in relation to the Company's operation as a whole. In 1993, the Company formed a wholly-owned subsidiary, Stifel Asset Management Corp. ("SAM"), to act as a holding company for two investment advisory firms, Pin Oak Capital, Ltd. ("Pin Oak"), and Todd Investment Advisors, Inc. ("Todd"). Pin Oak, which operated formerly as the investment advisory division of Stifel, Nicolaus, was formed as an investment advisory firm and began operations during the five-month transition period ended December 31, 1993. SAM purchased all of the outstanding stock of Todd, an investment advisory firm located in Louisville, Kentucky, in December 1993. Both Pin Oak and Todd provide investment advice and services to individual, fiduciary and corporate clients. Combined assets under management for the two firms at December 31, 1996 was approximately $2,575,649,000. Pin Oak holds registrations as an investment advisor in six states. Todd is registered as an investment advisor in fourteen states. In late 1994, Stifel, Nicolaus established a program for managing customers' investment portfolios. Fees are charged based upon a percentage of total assets of the portfolio. At December 31, 1996, Stifel, Nicolaus had assets under management of approximately $332,462,000 related to this program. The Company intends to commit resources to grow this business. Coincidental with the sale of the Oklahoma based operations, the Company entered into a clearing agreement to clear the trades of the purchasing firm's broker-dealer subsidiary and carry its customer accounts on a fully-disclosed basis. The Company charges for these services based upon the clearing agreement. Various subsidiaries of the Company act as General Partners in certain limited partnerships for which Stifel, Nicolaus has sold limited partnership interests to the public. The subsidiaries may receive distributions upon the dissolution of such partnerships, but the amount and timing of receipts of such distributions, if any, cannot be determined at this time and are subject to the usual risks and liabilities associated with acting as a general partner. CUSTOMER FINANCING Securities are purchased for customers on either a cash or margin basis. The customer deposits less than the full cost of the security when securities are purchased on a margin basis. The Company makes a loan for the balance of the purchase price. Such loans are collateralized by the securities purchased. The amounts of the loans are subject to the margin requirements of Regulation T of the Board of Governors of the Federal Reserve System, New York Stock Exchange, Inc. ("NYSE") margin requirements, and the Company's internal policies, which usually are more restrictive than Regulation T or NYSE requirements. In permitting customers to purchase securities on margin, the Company is subject to the risk of a market decline which could reduce the value of its collateral below the amount of the customers' indebtedness. A4 54 RESEARCH The Company's research department provides retail and institutional customers information and recommendations on the securities of specific companies. These services are rendered without charge. The Company also purchases research services from other firms. COMPETITION The Company competes with other securities firms, some of which offer their customers a broader range of brokerage services, have substantially greater resources, and may have greater operating efficiencies. In addition, an increasing number of specialized firms, as well as banks, savings and loans, and other financial institutions, now offer discount brokerage services to individual retail customers. These firms generally charge lower commission rates to their customers without offering services such as portfolio valuation, investment recommendations and research. Competition from such discount brokerage services may adversely affect revenues of the Company and other firms providing full retail brokerage services. Banks also compete with brokerage firms by offering certain investment banking and corporate finance services. Management relies on the expertise acquired in its market area over its 106-year history, its personnel, and its equity capital to operate in the competitive environment. REGULATION The securities industry in the United States is subject to extensive regulation under federal and state laws. The Securities and Exchange Commission ("SEC") is the federal agency charged with the administration of the federal securities laws. Much of the regulation of broker-dealers, however, has been delegated to self-regulatory organizations, principally the National Association of Securities Dealers, Inc., the Municipal Securities Rulemaking Board, and the national securities exchanges, such as the NYSE. These self-regulatory organizations adopt rules (which are subject to approval by the SEC) which govern the industry and conduct periodic examinations of member broker-dealers. Securities firms are also subject to regulation by state securities commissions in the states in which they are registered. The regulations to which broker-dealers are subject cover all aspects of the securities business, including sales practices, trade practices among broker-dealers, capital structure of securities firms, record keeping, and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the SEC and by self-regulatory organizations, and changes in the interpretation or enforcement of existing laws and rules often directly affect the method of operation and profitability of broker-dealers. The SEC and the self-regulatory organizations may conduct administrative proceedings which can result in censures, fines, suspension or expulsion of a broker- dealer, its officers or employees. The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets rather than the protection of creditors and stockholders of broker-dealers. As a broker-dealer and member of the NYSE, Stifel, Nicolaus is subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated by the SEC which provides that a broker-dealer doing business with the public shall not permit its aggregate indebtedness (as defined) to exceed 15 times its net capital (as defined) or, alternatively, that its net capital shall not be less than 2 percent of aggregate debit balances (primarily receivables from customers and broker-dealers) computed in accordance with the SEC's Customer Protection Rule (Rule 15c3-3). The Uniform Net Capital Rule is designed to measure the general financial integrity and liquidity of a broker-dealer and the minimum net capital deemed necessary to meet the broker-dealer's continuing commitments to its customers and other broker/dealers. Both methods allow broker-dealers to increase their commitments to customers only to the extent their net capital is deemed adequate to support an increase. Management believes that the alternative method, which is utilized by most full- A5 55 service securities firms, is more directly related to the level of customer business. Therefore, Stifel, Nicolaus computes its net capital under the alternative method. Under SEC rules, a broker-dealer may be required to reduce its business and restrict withdrawal of subordinated capital if its net capital is less than 4 percent of aggregate debit balances and may be prohibited from expanding its business and declaring cash dividends if its net capital is less than 5 percent of aggregate debit balances. A broker-dealer that fails to comply with the Uniform Net Capital Rule may be subject to disciplinary actions by the SEC and self-regulatory agencies, such as the NYSE, including censures, fines, suspension, or expulsion. In computing net capital, various adjustments are made to net worth to exclude assets which are not readily convertible into cash and to state conservatively the other assets such as a firm's position in securities. Compliance with the Uniform Net Capital Rule may limit those operations of a firm such as Stifel, Nicolaus which require the use of its capital for purposes of maintaining the inventory required for a firm trading in securities, underwriting securities, and financing customer margin account balances. Stifel, Nicolaus had net capital of approximately $24,182,000 at December 31, 1996, which was approximately 9.7 percent of aggregate debit balances and approximately $19,191,000 in excess of required net capital. EMPLOYEES There were 733 individuals employed by the Company as of February 28, 1997. This includes both full and part-time personnel. ITEM 2. PROPERTIES - - ------------------- The headquarters and administrative offices of the Company, Stifel, Nicolaus and CSA are located in downtown Saint Louis, Missouri. Todd is located in Louisville, Kentucky. Pin Oak is located in New York, New York. Stifel Nicolaus has a branch office system located in 13 states, primarily in the Midwest. The Company has a total of 43 locations in 14 states. All offices of the Company are located in leased premises. The Company's management believes that at the present time the facilities are suitable and adequate to meet its needs and that such facilities have sufficient productive capacity and are appropriately utilized. The Company also leases communication and other equipment. Aggregate annual rental expense for the twelve month period ended December 31, 1996, for office space and equipment, was approximately $3,541,000. Further information about the lease obligations of the Company is provided in Note D of the Consolidated Financial Statements incorporated by reference herein ITEM 3. LEGAL PROCEEDINGS - - -------------------------- The Company is a defendant in several lawsuits and arbitrations which arose from its usual business activities. Some of these lawsuits and arbitrations claim substantial amounts, including punitive damages. While results of litigation and arbitration cannot be predicted with certainty, management, based on opinions of outside counsel, has provided for actions most likely of adverse disposition and believes that the effects of resolution of such litigation and arbitration beyond the amounts provided will not have a material adverse effect on the Company's consolidated financial position. However, depending upon the period of resolution, such effects could be material to the financial results of an individual operating period. It is reasonably possible that certain of these lawsuits and arbitrations could be resolved in the next year and management does not believe such resolutions will result in losses materially in excess of the amounts previously provided. During 1995, the SEC completed a formal investigation into possible violations of the federal securities laws in connection with certain municipal bond issues managed by the Company's former Oklahoma City A6 56 based public finance department where the Company was the managing or co-managing underwriter. This investigation resulted in the Company consenting to a permanent injunction and ancillary relief whereby, the Company paid approximately $1.1 million in disgorgement and prejudgement interest, and $250,000 in fines. Additionally, the Company is named in lawsuits filed by The Oklahoma Turnpike Authority ("OTA") and The State of Oklahoma. The OTA suit seeks $6.5 million in compensatory damages and an unspecified amount of punitive damages. The State of Oklahoma seeks $7.6 million in compensatory damages and that these damages be trebled. The OTA suit alleges that an undisclosed fee paid to the Company by a third party for the placement of a forward purchase contract in an advance refunding escrow for the proceeds of the 1992 OTA $660 million refinancing should have been paid to the OTA. The State of Oklahoma suit alleges that the Company and two former executives of the Company committed violations of the Racketeer Influenced and Corrupt Organizations Act. This suit alleges essentially the same facts as are alleged in the OTA suit and were alleged by the SEC in its action against the Company which was settled in August, 1995, by the Company without admitting or denying the allegations. Management does not believe the ultimate resolution of these matters will have a materially adverse effect on the Company's financial position. See Note H to the Company's Consolidated Financial Statements, filed herein. EXECUTIVE OFFICERS OF THE REGISTRANT - - ------------------------------------ The following information is furnished pursuant to General Instruction G(3) of Form 10-K with respect to the executive officers of Financial: Positions or Offices Position with the Name Age with the Company Company Since - - -------------------- --- ------------------------ ----------------- George H. Walker III 66 Chairman of the Board 1976 of Financial and Stifel, Nicolaus Gregory F. Taylor 47 President and Chief 1985 Executive Officer of Financial and Stifel, Nicolaus Stephen J. Bushmann 39 Chief Financial Officer 1981 of Financial Charles R. Hartman 53 General Counsel and 1994 Senior Vice President of Stifel, Nicolaus Michael A. Murphy 45 Senior Vice President - 1989 Director of Retail Group of Stifel, Nicolaus Rexford E. Riordan 63 Senior Vice President - 1979 Director of Investment Services Group of Stifel, Nicolaus Lawrence E. Somraty 48 President of Century 1977 Securities Associates, Inc. The following are brief summaries of the business experience during the past five years of each of the executive officers. George H. Walker III joined Stifel, Nicolaus in 1976, became Chief Executive Officer of Stifel, Nicolaus in December, 1978, and became Chairman of Stifel, Nicolaus in July, 1982. From the time of the A7 57 organization of Financial, Mr. Walker has served as its Chairman of the Board and, until October 26, 1992, Mr. Walker served as its President and Chief Executive Officer. Mr. Walker is a director of Laclede Steel Company, Laidlaw Corp., and EAC Corporation. He is active in various community activities and currently is Chairman of the Missouri Historical Society. He is Chairman of the Advisory Committee of Webster University Business School and on the National Counsel of Washington University Business School. Gregory F. Taylor was branch manager of Stifel, Nicolaus' Chicago branch from October, 1985 until July, 1988. He became Executive Vice President and Director of National Sales and Marketing of Stifel, Nicolaus in July, 1988, Chief Operating Officer in November, 1991 and President and Chief Executive Officer as of October 26, 1992. He was elected a Vice President of Financial in October, 1991 and President and Chief Executive Officer as of October 26, 1992. Stephen J. Bushmann joined Stifel, Nicolaus in October of 1981. He is Chief Financial Officer and Vice President of Financial and Chief Financial Officer and Senior Vice President of Stifel, Nicolaus. From 1994 - 1996, Mr. Bushmann served as Financial Analyst and prior to that he was Assistant Controller. Charles R. Hartman joined Stifel, Nicolaus in June of 1994. He is the General Counsel, Senior Vice President and Secretary of Stifel, Nicolaus. Prior to joining Stifel, Nicolaus, Mr. Hartman was the Regional Counsel for the Securities and Exchange Commission in Los Angeles, California and since April of 1982 a Los Angeles partner in the law firm of Rogers & Wells. Michael A. Murphy joined Stifel, Nicolaus in 1989. He is Senior Vice President and Director of Retail Group of Stifel, Nicolaus. From 1989 - 1994, Mr. Murphy served as First Vice President and Director of Branch Administration. Rexford E. Riordan joined Stifel, Nicolaus in 1979. He is Senior Vice President and Director of Investment Services Group of Stifel, Nicolaus. From 1979 - 1995, Mr. Riordan served in various capacities in the firm including assisting in the National Sales department, Manager of Mutual Funds and Unit Investment Trusts departments, Director of Training, and served as First Vice President. Lawrence E. Somraty has been with Stifel, Nicolaus since 1977. He served as Option Department Manager, Senior Registered Options Principal, Investment Advisor and Branch Manager. He became the President of Century Securities Associates, Inc. in January 1991. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------ None A8 58 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED - - -------------------------------------------------------------- STOCKHOLDER MATTERS ------------------- a.) MARKET INFORMATION The common stock of Financial is traded on the New York Stock Exchange and Chicago Stock Exchange under the symbol "SF." The high/low sales prices for Financial's Common Stock for each full quarterly period for the two most recent calendar years are as follows: HIGH AND LOW STOCK PRICE BY QUARTER ------------------------------------------------ 1996 1995 QUARTER HIGH - LOW HIGH - LOW ------------------------------------------------ First $ 6 1/4 - 5 7/8 $ 6 1/4 - 5 Second 7 3/4 - 6 1/8 6 1/8 - 5 1/8 Third 7 3/4 - 6 1/4 6 1/2 - 5 1/2 Fourth 8 1/8 - 6 5/8 6 - 5 1/4 ------------------------------------------------ b.) HOLDERS The approximate number of stockholders of record on March 11, 1997 was 3,000. c.) DIVIDENDS Dividends paid were as follows: RECORD PAYMENT CASH STOCK DATE DATE DIVIDEND DIVIDEND 02/10/95 02/24/95 $0.03 5% 05/09/95 05/23/95 $0.03 -- 08/08/95 08/22/95 $0.03 -- 11/07/95 11/21/95 $0.03 -- 02/06/96 02/20/96 $0.03 5% 05/07/96 05/21/96 $0.03 -- 11/05/96 11/19/96 $0.03 -- A regular quarterly cash dividend of $0.025 per share was established on February 9, 1993. On November 30, 1993 the regular quarterly cash dividend was increased to $0.03 per share. Note E of the Consolidated Financial Statements, incorporated by reference herein, describes the restrictions of paying future dividends. On July 23, 1996, the Board of Directors of Financial approved the redemption of certain stock rights under a former Shareholder Rights Plan and the adoption of a new Shareholder Rights Plan. Shareholders on record, as of August 12, 1996, received a payment of $0.05 per share, representing the redemption price for the former Rights. This payment was in lieu of the regular quarterly cash dividend of $0.03 per share. A9 59 ITEM 6. SELECTED FINANCIAL DATA - - -------------------------------- STIFEL FINANCIAL CORP. AND SUBSIDIARIES FINANCIAL SUMMARY
FIVE MONTHS YEARS ENDED DECEMBER 31, ENDED YEARS ENDED JULY -------------------------------- -------------------- (IN THOUSANDS, EXCEPT PER SHARE 1996 1995 1994 Dec. 31, 1993 1993 1992 AND PERCENTAGES) REVENUES Commissions $ 31,424 $ 28,292 $ 25,407 $ 11,949 $ 26,456 $ 25,204 Principal transactions 17,919 18,980 22,567 9,313 25,201 25,260 Investment banking 15,964 11,674 11,969 10,885 30,551 29,791 Interest 13,774 13,002 10,918 4,057 8,851 9,130 Sale of investment company shares 9,609 8,316 9,674 4,906 10,741 8,638 Sale of unit investment trusts 1,868 1,828 2,736 1,362 3,220 2,611 Sale of insurance products 2,867 2,109 2,207 1,263 1,614 1,676 Other 16,388 11,159 8,448 2,720 6,837 5,699 -------- -------- -------- -------- -------- -------- 109,813 95,360 93,926 46,455 113,471 108,009 -------- -------- -------- -------- -------- -------- EXPENSES Employee compensation and benefits 66,765 57,187 60,652 29,421 68,657 63,891 Commissions and floor brokerage 2,641 2,319 2,120 845 2,485 2,437 Communications and office supplies 6,794 7,651 8,045 3,090 6,836 6,168 Occupancy and equipment rental 7,255 7,884 9,397 3,333 7,648 7,401 Promotional 2,146 2,024 2,868 1,231 2,925 2,206 Interest 8,197 8,312 6,138 1,763 4,838 5,505 Litigation, settlements, and bad debts 3,292 1,610 2,467 473 1,237 3,745 Restructuring charge - - - - 2,672 - - - - - - Other operating expenses 7,121 7,066 8,788 3,239 7,575 7,588 -------- -------- -------- -------- -------- -------- 104,211 94,053 103,147 43,395 102,201 98,941 -------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY CREDIT 5,602 1,307 (9,221) 3,060 11,270 9,068 Provision (benefit) for income taxes 2,209 663 (3,718) 1,145 4,232 3,363 -------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT 3,393 644 (5,503) 1,915 7,038 5,705 Extraordinary Credit -- tax benefit from utilization of net operating loss carryforward - - - - - - - - - - 648 -------- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 3,393 $ 644 $ (5,503) $ 1,915 $ 7,038 $ 6,353 ======== ======== ======== ======== ======== ======== PER SHARE DATA Primary earnings (loss)(a) $ .71 $ .14 $ (1.17) $ .40 $ 1.52 $ 1.44 Fully Diluted earnings (loss)(a) $ .64 $ .14 $ (1.17) $ .36 $ 1.27 $ 1.21 Cash dividends $ .09 $ .12 $ .09 $ .055 $ .15 - - OTHER DATA Total assets $301,049 $226,775 $222,208 $288,203 $196,539 $191,059 Long-term obligations $ 10,000 $ 10,760 $ 11,520 $ 11,520 $ 10,000 $ 10,000 Stockholder's equity $ 37,752 $ 34,795 $ 34,226 $ 40,609 $ 38,995 $ 31,597 Net income as % average equity 9.35% 1.87% * N.M. 4.81% 19.94% 22.55% Net income as % revenues 3.09% 0.68% * N.M. 4.12% 6.20% 5.88% Average common shares and share equivalents outstanding (a): Primary 4,780 4,674 4,689 4,748 4,626 4,399 Fully diluted 6,281 6,105 6,107 6,165 6,106 5,817 - - -----------------------------------------------------------------------------------------------------------------
(a) Retroactively restated to reflect the 5 percent stock dividend declared January 21, 1997. * Not Meaningful A10 60 The information called for in items 7 and 8 of Part II is set forth on the pages listed below of the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference: PAGES IN ANNUAL REPORT TO STOCKHOLDERS (filed herewith in Exhibit 13) ITEM 7. MANAGEMENT'S FINANCIAL DISCUSSION. 8 through 13 - - ------------------------------------------ ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 14 through 36 - - ---------------------------------------------------- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON - - -------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- The Company filed a report on Form 8-K dated October 29, 1996. This report Form 8-K contained information under Item 4. "Changes in registrant's certifying accountants". The Board of Directors of Financial, upon the recommendation of its Audit Committee, determined to replace Coopers & Lybrand L.L.P. as the Company's independent auditors for the year ended December 31, 1996. In addition, the Company filed a report on Form 8-K dated December 9, 1996. This report Form 8-K contained information under Item 4. "Changes in registrant's certifying accountants". The Board of Directors of Financial, upon the recommendation of its Audit Committee, determined to appoint Deloitte & Touche LLP as the Company's newly engaged certifying accountants and Deloitte & Touche LLP has accepted this appointment. During the two years ended December 31, 1995 and through the date of their appointment, Deloitte & Touche LLP has not provided any consultations to the Company. PART III -------- ITEMS 10 THROUGH 13 - - ------------------- Financial intends to file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A involving the election of directors not later than 120 days after the end of its fiscal year ended December 31, 1996. Accordingly, except to the extent included in Part I under the caption "Executive Officers of the Registrant", the information required by Part III (Items 10, 11, 12 and 13) is incorporated herein by reference to such definitive proxy statement in accordance with General Instruction G(3) to Form 10-K. A11 61 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON - - ----------------------------------------------------------------- FORM 8-K -------- (a) The following documents are filed as a part of this report: REFERENCE (PAGE) ---------------- ANNUAL FORM 10-K REPORT TO ANNUAL STOCKHOLDERS REPORT ------------ --------- 1. The following consolidated financial statements of Stifel Financial Corp. and subsidiaries, included on pages 7 through 37 in the 1996 Annual Report to Stockholders, are incorporated by reference in Item 8 Independent Auditors' Report...........................14 Consolidated Statements of Financial Condition -- December 31, 1996 and December 31, 1995.............15 - 16 Consolidated Statements of Operations -- Years ended December 31, 1996, December 31, 1995 and December 31, 1994.................................17 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1996, December 31, 1995 and December 31, 1994.................................18 Consolidated Statements of Cash Flows -- Years ended December 31, 1996, December 31, 1995 and December 31, 1994...............................19 - 20 Notes to Consolidated Financial Statements...........21 - 35 2. The following consolidated financial statement schedules of Stifel Financial Corp. and subsidiaries are filed herewith pursuant to ITEM 14(d): Independent Auditors' Report.........................................18 Report of Independent Accountants....................................19 Report of Independent Accountants....................................20 Schedule I - Condensed Financial Information of Registrant.........21 - 23 Schedule II - Valuation and Qualifying Accounts......................24 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. A12 62 3. Exhibits -------- Exhibit No. (Referenced to Item 601(b) of Regulation S-K) (a)(1) Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on June 1, 1983, incorporated herein by reference to Exhibit 3.1 to Financial's Registration Statement on Form S-1, as amended (Registration File No. 2-84232) filed July 19, 1983. (a)(2) Amendment to Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on May 11, 1987, incorporated herein by reference to Exhibit (3)(a)(2) to Financial's Report on Form 10-K for the year ended July 31, 1987. (a)(3) Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Financial filed with the Secretary of State of Delaware on July 10, 1987, incorporated herein by reference to Exhibit (3)(a) (3) to Financial's Report on Form 10-K for the year ended July 31, 1987. (a)(4) Amendment to Restated Certificate of Incorporation of Financial filed with the Secretary of State of Delaware on November 28, 1989, incorporated herein by reference to Exhibit (3)(a)(4) to Financial's Report on Form 10-K for the year ended July 27, 1990. (b) Amended and Restated By-Laws of Financial, incorporated herein by reference to Exhibit 3(b)(1) to Financial's Report on Form 10-K for fiscal year ended July 30, 1993. 4. Note Agreement dated as of October 15, 1988, between Financial and Bankers United Life Assurance Company and Pacific Fidelity Life Insurance Company, incorporated herein by reference to Exhibit 4 to Financial's Report on Form 10-Q for the quarterly period ended April 28, 1989. The Company hereby agrees to furnish the Securities and Exchange Commission copies of such instruments upon request. 10. (a)(1) Employment Agreement with George H. Walker III dated August 21, 1987, incorporated herein by reference to Exhibit 10(c) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1987. (a)(2) First Amendment to Employment Agreement with George H. Walker III, incorporated herein by reference to Exhibit 10(a)(2) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1992. (b) Form of Indemnification Agreement with directors dated as of June 30, 1987, incorporated herein by reference to Exhibit 10.2 to Financial's Report on Form 8-K (date of earliest event reported - June 22, 1987) filed July 14, 1987. (c) 1983 Incentive Stock Option Plan of Financial, incorporated herein by reference to Exhibit 4(a) to Financial's Registration Statement on Form S-8 (Registration File No. 2-94326) filed November 14, 1984. (d) 1985 Incentive Stock Option Plan of Financial, incorporated herein by reference to Exhibit 28C to Financial's Registration Statement on Form S-8, as amended (Registration File No. 33-10030) filed November 7, 1986. A13 63 (e) 1987 Non-qualified Stock Option Plan of Financial, incorporated herein by reference to Exhibit 10(h) to Financial's Report on Form 10-K for the fiscal year ended July 31, 1987. (f) Amendment to 1983 Incentive Stock Option Plan, 1985 Incentive Stock Option Plan and 1987 Non-Qualified Stock Option Plan, incorporated herein by reference to Exhibit 10(f) to Financial's Report on Form 10-K for the fiscal year ended July 28, 1989. (g)(1) 1993 Employee Stock Purchase Plan of Financial, incorporated herein by reference to ANNEX A of Financial's Definitive Proxy Statement (Registration File No. 33-16150) filed October 28, 1992. (g)(2) First Amendment to the 1993 Employee Stock Plan of Financial, incorporated herein by reference to Exhibit 4.5 to Financial's Registration Statement on Form S-8 (Registration File No. 33-53097) filed April 11, 1994. (h) Employment and Non-Competition Agreement with Gregory F. Taylor dated July 26, 1993, incorporated herein by reference to Exhibit 10(m) to Financial's Report on Form 10-K for fiscal year ended July 30, 1993. (i) Dividend Reinvestment and Stock Purchase Plan of Financial, incorporated herein by reference to Financial's Registration Statement on Form S-3 (Registration File No. 33-53699) filed May 18, 1994. (j) 1997 Incentive Stock Plan of Financial, incorporated herein by reference to Appendix A of Financial's Definitive Proxy Statement filed March 21, 1997. (k) 1998 Employee Stock Plan of Financial, incorporated herein by reference to Appendix B of Financial's Definitive Proxy Statement filed March 21, 1997. 11. Statement regarding computation of per share earnings, filed herewith. 13. Annual Report to Stockholders for the year ended December 31, 1996. Except for those portions of pages expressly incorporated by reference, the 1996 Annual Report to Stockholders is not deemed filed as part of this Annual Report on Form 10-K. 21. List of Subsidiaries of Financial, filed herewith. 23. (a) Consent of Independent Auditors, filed herewith. 23. (a) Consent of Independent Accountants, filed herewith. 27. Financial Data Schedule BD, filed herewith. A14 64 (b) Reports on Form 8-K: The Company filed a report on Form 8-K dated October 29, 1996. This report Form 8-K contained information under Item 4. "Changes in registrant's certifying accountants". The Board of Directors of Financial, upon the recommendation of its Audit Committee, determined to replace Coopers & Lybrand L.L.P. as the Company's independent auditors for the year ended December 31, 1996. In addition, the Company filed a report on Form 8-K dated December 9, 1996. This report Form 8-K contained information under Item 4. "Changes in registrant's certifying accountants". The Board of Directors of Financial, upon the recommendation of its Audit Committee, determined to appoint Deloitte & Touche LLP as the Company's newly engaged certifying accountants and Deloitte & Touche LLP has accepted this appointment. During the two years ended December 31, 1995 and through the date of their appointment, Deloitte & Touche LLP has not provided any consultations to the Company. A15 65 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on the 21st day of March, 1997. STIFEL FINANCIAL CORP. (Registrant) By /s/ Gregory F. Taylor -------------------------------------------- Gregory F. Taylor (Principal Executive Officer) /s/ Stephen J. Bushmann -------------------------------------------- Stephen J. Bushmann (Principal Financial and Accounting Officer) A16 66 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on March 21, 1997, in the capacities indicated. /s/ George H. Walker III Chairman of the Board -------------------------------- George H. Walker III /s/ Gregory F. Taylor President, Chief Executive -------------------------------- Gregory F. Taylor Officer, and Director /s/ Bruce A. Beda Director -------------------------------- Bruce A. Beda /s/ Belle A. Cori Director -------------------------------- Belle A. Cori /s/ Charles A. Dill Director -------------------------------- Charles A. Dill /s/ Richard F. Ford Director -------------------------------- Richard F. Ford /s/ John J. Goebel Director -------------------------------- John J. Goebel /s/ Robert E. Lefton Director -------------------------------- Robert E. Lefton /s/ James M. Oates Director -------------------------------- James M. Oates A17 67 [DELOITTE & TOUCHE LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Stifel Financial Corp. St. Louis, Missouri: We have audited the consolidated financial statements of Stifel Financial Corp. and Subsidiaries as of December 31, 1996 and for the year then ended, and have issued our report thereon dated February 25, 1997; such consolidated financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audit also included the 1996 consolidated financial statement schedules of Stifel Financial Corp. and Subsidiaries, listed in Item 14. These consolidated financial statement schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audit. In our opinion, such 1996 consolidated financial statement schedules, when considered in relation to the basic 1996 consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP February 25, 1997 A18 68 [COOPERS & LYBRAND L.L.P. LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS Stockholders and Board of Directors Stifel Financial Corp. We have audited the accompanying consolidated statement of financial condition of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1995 and December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and the consolidated results of their operations and their cash flows for the years ended December 31, 1995 and December 31, 1994, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri February 25, 1996 A19 69 [COOPERS & LYBRAND L.L.P. LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors Stifel Financial Corp. Our report on the consolidated financial statements of Stifel Financial Corp. and Subsidiaries is included on page 23 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules for the years ended December 31, 1995 and December 31, 1994 listed in the index on page 12 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri February 25, 1996 A20 70 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS STIFEL FINANCIAL CORP.
DEC. 31, 1996 DEC. 31, 1995 ------------- ------------- ASSETS Cash $ 9,155 $ 9,155 Due from subsidiaries (a) 3,711,973 3,887,790 Investment in subsidiaries (a) 41,262,901 37,421,622 Office equipment and leasehold improvements, less allowances for depreciation and amortization of $9,705,941 and $12,107,975, respectively 2,182,025 2,972,388 Investments, at cost 815,764 736,549 Goodwill, net of amortization of $462,235 and $396,480, respectively 1,906,907 1,189,430 Other assets 1,389,304 2,102,135 ------------- ------------ TOTAL ASSETS $ 51,278,029 $ 48,319,069 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Due to subsidiaries (a) $ 1,739,432 $ 402,336 Obligation under capital lease 580,945 774,229 Long-term debt 10,000,000 10,760,000 Other liabilities 1,206,523 1,587,142 ------------- ------------ TOTAL LIABILITIES 13,526,900 13,523,707 Stockholders' Equity: Capital stock 715,158 681,134 Additional paid-in capital 21,402,971 19,622,646 Retained earnings 16,733,073 15,753,713 ------------- ------------ 38,851,202 36,057,493 Less cost of stock in treasury 892,892 1,162,376 Less unamortized stock awards 207,181 99,755 ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 37,751,129 34,795,362 ------------- ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 51,278,029 $ 48,319,069 ============= ============ - - -------------------- (a) Eliminated in consolidation.
See Notes to Consolidated Financial Statements (Item 8) A21 71 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CONDENSED STATEMENTS OF OPERATIONS STIFEL FINANCIAL CORP.
YEARS ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 ---- ---- ---- REVENUES: Lease $ 1,406,556 $ 1,708,160 $ 2,162,292 Other (59,024) (162,347) (7,522) ----------- ----------- ----------- 1,347,532 1,545,813 2,154,770 EXPENSES: Depreciation and amortization 1,431,798 1,751,250 2,325,301 Professional fees 246,178 170,664 236,506 Provision for doubtful collection 300,000 - - - - Miscellaneous 159,460 135,363 128,882 ----------- ----------- ----------- 2,137,436 2,057,277 2,690,689 ----------- ----------- ----------- LOSS BEFORE INCOME TAXES (789,904) (511,464) (535,919) (Benefit) provision for income taxes (343,024) 52,100 26,246 ----------- ----------- ----------- LOSS BEFORE EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES (446,880) (563,564) (562,165) Equity in net income (loss) of subsidiaries 3,839,382 1,207,085 (4,941,170) ----------- ----------- ----------- NET INCOME (LOSS) $ 3,392,502 $ 643,521 $(5,503,335) =========== =========== ===========
See Notes to Consolidated Financial Statements (Item 8) A22 72 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CONDENSED STATEMENTS OF CASH FLOWS STIFEL FINANCIAL CORP.
YEARS ENDED DECEMBER 31, ------------------------------------------ 1996 1995 1994 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,392,502 $ 643,521 $(5,503,335) Non-cash items included in net income (loss): Depreciation and amortization 1,431,798 1,751,250 2,325,301 Unrealized loss on investments 115,000 - - 321,300 Provision for doubtful collection 300,000 - - - - Deferred tax (benefit) provision (234,353) 105,547 (27,160) Undistributed (income) loss of subsidiaries (3,839,382) (1,207,085) 4,941,170 Amortization and forfeitures of restricted stock awards and stock benefits 75,055 84,346 107,341 ----------- ----------- ----------- 1,240,620 1,377,579 2,164,617 Net change in due to/due from subsidiaries 1,512,913 730,442 (718,361) Decrease (increase) in other assets 1,187,309 (1,162,037) 1,365,788 (Decrease) increase in other liabilities (379,298) 393,193 180,271 ----------- ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES 3,561,544 1,339,177 2,992,315 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Employee stock purchase plan 616,670 755,274 611,688 Exercised options 3,098 123,503 81,213 Dividend reinvestment plan 12,570 9,533 944 Payments for: Retirement of long-term debt (760,000) (760,000) - - Purchase of stock for treasury (520,321) (546,615) (1,416,932) Principal payments under capital lease (433,284) (255,053) (710,089) Cash dividend and rights redemption (625,128) (500,611) (354,368) ----------- ----------- ----------- CASH USED FOR FINANCING ACTIVITIES (1,706,395) (1,173,969) (1,787,544) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from: Distributions/sales received on investments 36,360 94,893 25,000 Sales of office equipment and leasehold improvements 23,405 909,762 24,235 Dissolution of subsidiaries - - - - 505,000 Payments for: Acquisition of investments (1,513,232) - - (52,219) Office equipment and leasehold improvements (401,682) (1,169,863) (1,706,787) ----------- ----------- ----------- CASH USED FOR INVESTING ACTIVITIES (1,855,149) (165,208) (1,204,771) ----------- ----------- ----------- INCREASE IN CASH 0 0 0 Cash (beginning of period) 9,155 9,155 9,155 ----------- ----------- ----------- Cash (end of period) $ 9,155 $ 9,155 $ 9,155 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Schedule of Non-cash Investing and Financing Activities Fixed assets acquired under capital lease $ 240,000 - - $ 808,000 Restricted stock awards, net of forfeitures $ 181,000 $ 3,000 $ 146,000 Stock dividends distributed $ 1,788,000 $ 1,406,000 $ 1,287,000
See Notes to Consolidated Financial Statements (Item 8) A23 73 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS STIFEL FINANCIAL CORP. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E Balance at Additions Balance Beginning Charged to Costs at End Description of Period and Expenses Deductions of Period ----------- ---------- ---------------- ---------- --------- YEAR ENDED DECEMBER 31, 1996: Deducted from asset account: Allowances for doubtful accounts $ 804,916 $ 28,400 $ 251,370 (1) $ 581,946 Deducted from asset account: Allowances for doubtful notes receivables 3,002,220 173,467 624,060 (2) 2,551,627 Deducted from asset account: Allowances for doubtful collection of other assets 0 300,000 0 300,000 Deducted from asset account: Reserves for investments 638,362 115,000 8,000 (3) 745,362 Deducted from asset account: Reserves for securities owned 200,000 0 0 200,000 YEAR ENDED DECEMBER 31, 1995: Deducted from asset account: Allowances for doubtful accounts $1,070,985 $ 0 $ 266,069 (1) $ 804,916 Deducted from asset account: Allowances for doubtful notes receivables 2,560,617 802,004 360,401 (2) 3,002,220 Deducted from asset account: Reserves for investments 972,795 88,500 422,933 (3)(5) 638,362 Deducted from asset account: Reserves for securities owned 0 0 (200,000)(5) 200,000 YEAR ENDED DECEMBER 31, 1994: Deducted from asset account: Allowances for doubtful accounts $1,435,058 $ 0 $ 364,073 (1) $1,070,985 Deducted from asset account: Allowances for doubtful notes receivables 0 3,040,969 480,352 (2) 2,560,617 Deducted from asset account: Reserves for investments 1,071,007 322,404 420,616 (3) 972,795 Deducted from asset account: Reserves for securities owned 450,000 0 450,000 (4) 0
- - ---------------- (1) Uncollected accounts written off and recoveries. (2) Uncollected notes written off and recoveries. (3) Investments disposed of. (4) Securities disposed of. (5) Reserve balance reclassified from Reserve for investments to conform to 1995 presentation. A24 74 EXHIBIT INDEX STIFEL FINANCIAL CORP. AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1996 Exhibit Number Description - - ------- ----------- 11. Statement regarding computation of per share earnings. 13. 1996 Annual Report to Stockholders.* 21. Subsidiaries of Stifel Financial Corp. 23.(a) Consent of Independent Auditors. 23.(b) Consent of Independent Accountants. 27. Financial Data Schedule BD. * Certain portions of the Annual Report to Stockholders are incorporated herein by reference; the Annual Report to Stockholders is not to be deemed filed as a part of this Annual Report on Form 10-K. A25 75 EXHIBIT 11 STIFEL FINANCIAL CORP. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE
YEARS ENDED DECEMBER 31, 1996 1995 1994 ---- ---- ---- PRIMARY - - ------- Net income (loss) $ 3,392,502 $ 643,521 $(5,503,335) ----------- ----------- ----------- Average number of common shares outstanding during the period 4,671,863 4,606,775 4,572,498 Additional Shares assuming exercise of stock options (1) 108,125 67,109 116,656 ----------- ----------- ----------- Common shares and equivalents used to calculate earnings (loss) per share 4,779,988 4,673,884 4,689,154 ----------- ----------- ----------- Primary earnings (loss) per share $ 0.71 $ 0.14 $ (1.17) =========== =========== =========== FULLY DILUTED - - ------------- Net income (loss) $ 3,392,502 $ 643,521 $(5,503,335) After-tax interest savings assuming conversion of Senior Convertible Notes (2) 600,961 553,902 684,075 ----------- ----------- ----------- Net income (loss) $ 3,993,463 $ 1,197,423 $(4,819,260) ----------- ----------- ----------- Average number of common shares outstanding during the period 4,671,863 4,606,775 4,572,498 Additional Shares assuming exercise of stock options (1) 191,639 80,742 116,656 Additional Shares assuming conversion of Senior Convertible Notes (3) 1,417,716 1,417,716 1,417,716 ----------- ----------- ----------- Common shares and equivalents used to calculate earnings (loss) per share 6,281,218 6,105,233 6,106,870 ----------- ----------- ----------- Fully diluted earnings (loss) per share $ 0.64 $ 0.14(4) $ (1.17)(4) =========== =========== ===========
(1) Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. For primary earnings per share computations, these purchases were assumed to have been made at the average market price of the common stock during the period or that part of the period for which the option was outstanding. For fully diluted earnings per share computations, these purchases were assumed to have been made at the greater of the market price of the common stock at the end of the period or average market price of the common stock during the period or that part of the period for which the option was outstanding. (2) Represents the after-tax interest savings resulting from assumed conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes. (3) Represents the number of shares of common stock issuable upon conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes at a conversion price of $7.05 share. (4) Net fully diluted earnings (loss) per share to $0.20 and ($0.79) for the years ended December 31, 1995 and December 31, 1994, respectively. Since this is anti-dilutive, fully diluted earnings (loss) per share is equivalent to primary earnings (loss) per share. A26 76 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] MANAGEMENT'S FINANCIAL DISCUSSION BUSINESS ENVIRONMENT Stifel Financial Corp. and Subsidiaries (the "Company"), through its principal subsidiary, Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus"), provides securities brokerage and investment management and advisory services primarily to individuals, provides investment banking services to municipal and corporate clients, and trades fixed income securities and over-the-counter equity securities. Century Securities Associates, Inc. ("CSA"), a wholly owned subsidiary of the Company, provides administration services to independent registered investment executives. Additionally, Pin Oak Capital Ltd. ("Pin Oak") and Todd Investment Advisors, Inc. ("Todd"), both wholly owned subsidiaries of the Company, provide fee-based investment advisory services to both individual and institutional clients. Results of any individual period should not be considered representative of future profitability. Many of the Company's activities are sensitive to a variety of factors, including the securities trading volume, the volatility and price level of securities markets, the demand for investment banking services, the level and volatility of interest rates, and investor sentiment. A portion of the Company's expenses are relatively fixed and do not vary with market activity. Consequently, sustained periods of reduced transaction activity or loss of clients may adversely affect profitability. The Company faces increasing competition from other financial institutions such as commercial banks, thrifts, and investment firms. Certain financial services, traditionally provided only by securities firms, are increasingly being provided by these other financial institutions. The business environment for the securities industry during 1996 was one of the most prosperous in recent years. New investors, larger holdings, and increased activity fueled record market volume and prices. Individuals continued to evolve from savers to investors as strong corporate earnings, low interest rates, and low inflation boosted the equity markets. Historically, a significant source of the Company's investment banking revenues originated from Oklahoma municipal securities issuances. During the last three years, the Company's municipal investment banking business has been adversely impacted by general municipal finance industry conditions and the negative publicity surrounding a formal investigation and subsequent enforcement actions by the Securities and Exchange Commission relating to certain municipal bond issues managed by the Company's Oklahoma municipal finance department (see Note H of the Notes to Consolidated Financial Statements filed herein). Additionally, during 1995, the Company sold its Oklahoma operations (see Note O of the Notes to Consolidated Financial Statements filed herein), enabling the Company to focus on its retail sales, fee-based money management services, equity research, corporate finance, and the St. Louis-based municipal finance department. A27 77 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] MANAGEMENT'S FINANCIAL DISCUSSION RESULTS OF OPERATIONS The following table summarizes amounts and percentages of changes in the major categories of revenues and expenses for the periods indicated:
- - ------------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, INCREASE (DECREASE) 1996 VS. 1995 1995 VS . 1994 - - ------------------------------------------------------------------------------------------------------ AMOUNTS IN THOUSANDS AMOUNT PERCENTAGE AMOUNT PERCENTAGE - - ------------------------------------------------------------------------------------------------------ REVENUES: Commissions $ 5,184 13.4% $ 1,430 3.8% Principal transactions (864) (4.2) (4,278) (17.4) Investment banking 4,132 34.1 (513) (4.1) Interest 772 5.9 2,084 19.1 Other 5,229 46.9 2,711 32.1 - - ------------------------------------------------------------------------------------------------------ $14,453 15.2% $ 1,434 1.5% ====================================================================================================== EXPENSES: Employee compensation and benefits $ 9,578 16.7% $(3,465) (5.7)% Commissions and floor brokerage 322 13.9 199 9.4 Communications and office supplies (857) (11.2) (394) (4.9) Occupancy and equipment rental (629) (8.0) (1,513) (16.1) Interest (115) (1.4) 2,174 35.4 Litigation, settlements, and bad debts 1,682 104.5 (857) (34.7) Restructure charge 0 0 (2,672) (100.0) Other operating expenses 177 1.9 (2,566) (22.0) - - ------------------------------------------------------------------------------------------------------ $10,158 10.8% $(9,094) (8.8)% ======================================================================================================
A28 78 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] MANAGEMENT'S FINANCIAL DISCUSSION 1996 AS COMPARED TO 1995 The Company recorded $.71 earnings per primary share in 1996 compared to $.14 earnings per primary share in 1995. The increase in earnings per share was attributed principally to the growth in revenues to $109.8 million in 1996 from $95.4 in 1995. The Company experienced a $14.5 million (15.2%) growth in total revenues in 1996 over 1995 revenues, increasing to $109.8 million from $95.4 million. Total revenues in 1996 were the second highest in the Company's history. Average revenues per Investment Executive increased $43,000 (22.2%) to $237,000 from $194,000 due to the addition of higher producing Investment Executives in conjunction with industry-wide record performance and growth which was attributed in part to increased corporate profits and continued low interest rates. Revenue from commissions, which includes sale of investment company shares and sale of insurance products, increased $5.2 million (13.4%) to $43.9 million from $38.7 million as a result of strong markets and increased production per Investment Executive referred to above. Principal transactions, which accounts for over-the-counter sales and trading profits and losses on securities the Company held as principal to meet investors' needs, decreased $900,000 (4.2%) to $19.5 million from $20.4 million primarily as a result of decreased trading in fixed income products -- municipal and corporate debt which decreased $3.0 million (22.5%) to $10.5 million from $13.5 million due to continued low interest rates which fueled investors' demands for the higher returns generated by the equity products. This decrease was offset by an increase in over-the-counter principal sales credits and trading profits of $1.9 million (36.9%) to $7.4 million from $5.5 million. The increase was due to improved trading profits and continued strong demand for the over-the-counter equity products. Investment banking, which consists of revenue derived from underwriting corporate and municipal securities and advisory fees, increased $4.1 million (34.1%) to $16.2 million from $12.1 million largely as a result of an increase in corporate finance revenues. Favorable market conditions fueled corporate new issue underwritings. Revenue for new issue corporate underwritings and financial advisory fees, primarily for regional financial institutions and Real Estate Investment Trusts ("REITs"), increased $2.8 million (39.1%) to $10.1 million from $7.3 million. Municipal investment banking revenues, which includes fee income, increased $900,000 to $3.8 million from $2.9 million as the number of awards as senior manager for underwritings increased to 34 in 1996 from 24 in 1995. Interest income is derived principally from financing customers' margin accounts. Interest income increased $772,000 (5.9%) to $13.7 million from $13.0 million as a result of increased borrowing by customers to finance their investments. Other income increased $5.2 million (46.9%) to $16.4 million from $11.2 million principally due to a one-time gain of $3.3 million on an investment resulting from the exercise of warrants generated by the corporate finance department related to an underwriting and the ultimate sale of the shares received for the exercise of those warrants. Additionally, managed account fees, which are derived from management of customers' investment portfolios, increased $1.4 million (137.0%) to $2.5 million from $1.1 million due principally to the growth of the managed account program which was introduced in November 1994. A29 79 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] MANAGEMENT'S FINANCIAL DISCUSSION 1996 AS COMPARED TO 1995 (CONTINUED) Total expenses increased $10.2 million (10.8%) to $104.2 million from $94.0 million largely as a result of increased compensation and benefits, which increased $9.6 million (16.7%) to $66.8 million from $57.2 million, and litigation, settlements, and bad debts, which increased $1.7 million (104.5%) to $3.3 million from $1.6 million. The fixed portion of compensation and benefits, principally salaries, remained virtually unchanged from 1995. The variable portion of total compensation and benefits, principally Investment Executive compensation and incentive compensation payments, increased coincidentally with increased production and profitability. Commission and floor brokerage increased $300,000 (13.9%) to $2.6 million from $2.3 million coincidentally with increased commission revenue discussed in the aforementioned increase in commission revenue. Communications and office supplies and occupancy and equipment rental decreased $900,000 (11.2%) to $6.8 million from $7.7 million and $600,000 (8.0%) to $7.3 million from $7.9 million, respectively, principally due to the sale of the Oklahoma offices (see Note O of the Notes to Consolidated Financial Statements filed herein). Litigation, settlements, and bad debt increased $1.7 million (104.5%) to $3.3 million from $1.6 million due principally to settlements of claims against Stifel, Nicolaus resulting from activities initiated in an office which was closed in 1995. 1995 AS COMPARED TO 1994 For 1995, the Company had net income of $644,000, or $.14 per primary share, on revenues of $95.4 million. During the year ended December 31, 1994, the Company had a net loss of $5.5 million, or $1.17 per primary share, on revenues of $93.9 million. The loss in 1994 included a one-time restructuring charge of $2.7 million. Revenues for 1995 increased in commissions, interest income, and other revenue, but declined in principal transactions. Commission revenue increased $1.4 million (3.8%) to $38.7 million in 1995 from $37.3 million in 1994 despite the reduction in the number of Investment Executives which resulted from the sale of the Company's Oklahoma-based operations and the restructuring plan of 1994. The number of Investment Executives decreased by 79 (21.8%) to 283 at December 31, 1995, from 362 at December 31, 1994. Despite this decline, average production per Investment Executive increased $17,000 (9.6%) to $194,000 from $177,000. Principal transactions decreased $4.3 million (17.4%) to $20.3 million from $24.6 million largely as a result of decreased fixed income trading activity. Investment banking decreased only slightly in 1995, $500,000 (4.1%) to $12.1 million from $12.6 million. Public finance-related fee income decreased significantly, $2.4 million (58.8%) to $1.6 million from $4.0 million, due to the negative publicity surrounding the SEC's investigation into certain municipal finance underwritings by the Company's Oklahoma City public finance department and the reduced number of transactions by municipalities experienced industry-wide. These decreases were offset by an increase in corporate finance-related investment banking revenue which increased $3.8 million (279.6%) to $5.2 million from $1.4 million largely as a result of increased public offerings, particularly for financial institutions and real estate investment trusts (REITs). In addition, underwriting and syndicate participation fees and profits on trading new underwriting issues decreased $1.8 million primarily as a result of the aforementioned decreased municipal finance activity. A30 80 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] MANAGEMENT'S FINANCIAL DISCUSSION 1995 AS COMPARED TO 1994 (CONTINUED) Interest income increased $2.1 million (19.1%) to $13.0 million from $10.9 million, and net interest (interest income less interest expense) decreased $90,000. The revenue increase is primarily due to higher customer borrowings which resulted from increased retail investor activity experienced industry- wide. Because of the generally corresponding increase in borrowings by the Company to finance the purchase of marketable securities and underwrite new securities issues, the net interest retention percentage decreased from 43.8% to 36.1%. Other revenue increased $2.7 million (32.1%) to $11.1 million from $8.4 million primarily as a result of increases in managed account fees, money market distribution fees, clearing revenues, and realized gains on sale of investments, which increased approximately $1.0 million, $800,000, $500,000, and $400,000, respectively. Managed account fees increased because of the introduction of the managed account program in late 1994. Management expects the managed account fees to continue to grow, which are generated by charging a fixed rate for managing investment portfolios of customers. Realized gain on sale of investments increased primarily due to sales of investments held by the Company's venture capital subsidiary. Money market distribution fees increased because of higher levels of customer funds invested in money market funds and the Company's switch to omnibus processing of these funds. Clearing revenues increased as a direct result of the clearing for Capital West Securities, Inc., the broker-dealer subsidiary of Capital West, which began in June 1995. Total expenses decreased $9.0 million (8.8%) to $94.1 million from $103.1 million. With the exception of commissions and floor brokerage and interest expense, all expense categories decreased for the year as a result of the sale of the Oklahoma-based operations and the downsizing and restructuring plan implemented in the fourth quarter of 1994. The Company charged $2.7 million to operations related to this plan in the fourth quarter of 1994. There were no expenses related to that plan charged to operations in 1995. Employee compensation and benefits decreased $3.5 million (5.7%) to $57.2 million from $60.7 million. Investment Executives' aggregate compensation decreased $1.9 million, which was directly attributable to the decrease in aggregate revenue production. Profitability and production-based incentive compensation increased $2.1 million due to increased profitability and achievement of production goals. Salaries and benefits decreased $4.6 million (17.8%) to $21.2 million from $25.8 million. Total full-time and part-time salaried employees decreased by 93 to 417 from 510. Commissions and floor brokerage increased $199,000 (9.4%) to $2.3 million from $2.1 million as a result of increased agency commissions. Communications and office supplies and occupancy and equipment rental expenses decreased $394,000 (4.9%) to $7.7 million from $8.0 million and $1.5 million (16.1%) to $7.9 million from $9.4 million, respectively. Interest expense increased $2.2 million (35.4%) to $8.3 million from $6.1 million due primarily to increased levels of short-term borrowings by the Company and its customers and increased average borrowing rates. The average level of short-term borrowings from banks for the year was $61.4 million as compared to $59.0 million for 1994. The average interest rate charged for these borrowings was 6.57% for 1995 as compared to 4.90% for 1994. The Company's borrowings increased due to decreased available capital which resulted primarily from the operating loss in 1994. Other operating expenses decreased $2.6 million (22.0%) to $9.1 million from $11.7 million. Included in the caption "Other operating expenses" are legal fees which increased $600,000 due to continuing litigation surrounding certain municipal bond issues and transactions completed by the Company's former Oklahoma City-based public finance department. Management expects legal fees to decrease in 1996. Litigation, settlements, and bad debts decreased $857,000 (34.7%) to $1.6 million from $2.5 million in 1994. The charges in 1995 include an amount for doubtful collection related to notes and advances receivable of former employees and provision for settlements of Oklahoma suits. The 1994 charges included doubtful collection of employee note receivables and advances of $2.0 million. A31 81 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] MANAGEMENT'S FINANCIAL DISCUSSION LIQUIDITY AND CAPITAL RESOURCES The Company's assets are highly liquid, consisting mainly of cash or assets readily convertible into cash. These assets are financed primarily by the Company's equity capital, customer credit balances, short-term bank loans, proceeds from securities lending, long-term notes payable, and other payables. Changes in securities market volumes, related customer borrowing demands, underwriting activity, and levels of securities inventory affect the amount of the Company's financing requirements. During the year ended December 31, 1996, cash and cash equivalents increased $1.6 million. Cash used for operating activities totaled $44.1 million due primarily to increases in operating receivables as a result of increased borrowings by customers. The decrease in cash used for operating activities was funded by short-term borrowings which increased by $46.0 million. The Company has $2.6 million in receivables from Investment Executives and other employees who terminated employment with the Company. The Company intends to vigorously pursue collection of these receivables and does not anticipate that the outcome of these activities will adversely affect liquidity or capital resources. The first installment of the Company's long-term debt is due September 1, 1997, in the amount of $2.5 million. Management believes that funds from operations and available informal short-term credit arrangements of $82.6 million at December 31, 1996, will provide sufficient resources to meet its present and anticipated financing needs. Stifel, Nicolaus & Company, Incorporated, the Company's principal broker- dealer subsidiary, is subject to certain requirements of the Securities and Exchange Commission with regard to liquidity and capital requirements. At December 31, 1996, Stifel, Nicolaus had net capital of approximately $24.2 million, which exceeded the minimum net capital requirements by approximately $19.2 million. INFLATION The Company's assets are primarily monetary, consisting of cash, securities inventory, and receivables. These monetary assets are generally liquid and turn over rapidly and, consequently, are not significantly affected by inflation. However, the rate of inflation affects various expenses of the Company, such as employee compensation and benefits, communications, and occupancy and equipment, which may not be readily recoverable in the price of its services. RECENT ACCOUNTING PRONOUNCEMENTS The Company deals in listed options and other products such as collateralized mortgage obligations which derive their values from the price of some other security or index. The Company does not deal in complex derivative financial instruments, such as futures, forwards, and swaps, and therefore has no disclosure requirements in accordance with the Financial Accounting Standard Board's Statement 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The Company adopted Statements of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed of," and SFAS 123, "Accounting for Stock-Based Compensation," during the year ended December 31, 1996. The adoption of these new standards did not have a material impact on the Company's consolidated financial statements. The Financial Accounting Standards Board has also issued SFAS 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Management believes the adoption of this standard will not have a material impact on the Company's consolidated financial statements. A32 82 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] Independent Auditors' Report To the Board of Directors and Stockholders of Stifel Financial Corp. St. Louis, Missouri We have audited the accompanying consolidated statements of financial condition of Stifel Financial Corp. and Subsidiaries (the "Company") as of December 31, 1996, and the related consolidated statement of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company for the years ended December 31, 1995 and 1994, were audited by other auditors whose report, dated February 25, 1996, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such 1996 consolidated financial statements present fairly, in all material respects, the consolidated financial position of Stifel Financial Corp. and Subsidiaries as of December 31, 1996, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP February 25, 1997 St. Louis, Missouri [Deloitte & Touche LLP Logo] A33 83 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - ------------------------------------------------------------------------------------------------------------------------------ (IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 - - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 7,960 $ 6,344 -------------------------------------------------------------------------------------------- Cash segregated for the exclusive benefit of customers 483 776 -------------------------------------------------------------------------------------------- Receivable from brokers and dealers: Securities failed to deliver 617 1,790 Deposits paid for securities borrowed 10,284 4,912 Settlement balances with clearing organizations 3,935 9,722 -------------------------------------------------------------------------------------------- 14,836 16,424 -------------------------------------------------------------------------------------------- Receivable from customers, net of allowance for doubtful accounts of $582 and $805, respectively 235,216 156,904 -------------------------------------------------------------------------------------------- Securities owned, at fair value: U.S. Government obligations 3,619 6,529 State and municipal obligations 9,506 7,111 Corporate obligations 3,502 2,394 Corporate stocks 2,286 3,487 -------------------------------------------------------------------------------------------- 18,913 19,521 -------------------------------------------------------------------------------------------- Memberships in exchanges, at cost 513 513 Office equipment and leasehold improvements, at cost, net of allowances for depreciation and amortization of $10,125 and $12,517, respectively 2,233 3,015 Goodwill, net of accumulated amortization of $1,107 and $827, respectively 4,488 3,985 Notes receivable from and advances to officers and employees, net of allowance for doubtful receivables of $2,552 and $3,002, respectively 3,373 4,328 Refundable income taxes 358 254 Deferred tax asset 3,671 3,902 Other assets 9,005 10,809 -------------------------------------------------------------------------------------------- TOTAL ASSETS $301,049 $226,775 ============================================================================================
A34 84 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - ------------------------------------------------------------------------------------------------------ (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) DECEMBER 31, 1996 DECEMBER 31, 1995 - - ------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings from banks $132,400 $ 86,450 ----------------------------------------------------------------------------------------------------- Payable to brokers and dealers: Securities failed to receive 421 2,572 Deposits received from securities loaned 46,727 20,555 ----------------------------------------------------------------------------------------------------- 47,148 23,127 ----------------------------------------------------------------------------------------------------- Payable to customers 32,095 31,806 Securities sold, but not yet purchased, at fair value 3,229 2,744 Drafts payable 15,287 17,867 Accrued employee compensation 14,756 9,526 Obligations under capital leases 581 774 Accounts payable and accrued expenses 7,801 8,876 Long-term debt 10,000 10,760 ----------------------------------------------------------------------------------------------------- Total 263,297 191,930 ----------------------------------------------------------------------------------------------------- Subordinated note - - 50 ----------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock -- $1 par value; authorized 3,000,000 shares; none issued Common stock -- $.15 par value; authorized 10,000,000 shares; issued 4,767,715 and 4,540,890 shares, respectively; outstanding 4,632,260 and 4,357,665 shares, respectively 715 681 Additional paid-in capital 21,403 19,622 Retained earnings 16,733 15,754 --------------------------------------------------------------------------------------------------- 38,851 36,057 --------------------------------------------------------------------------------------------------- Less: Treasury stock, at cost 135,455 and 183,225 shares, respectively 892 1,162 Unamortized expense of restricted stock awards 207 100 --------------------------------------------------------------------------------------------------- Total Stockholders' Equity 37,752 34,795 --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $301,049 $226,775 ===================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. A35 85 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] CONSOLIDATED STATEMENTS OF OPERATIONS
- - ----------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 - - ----------------------------------------------------------------------------------------------------- Revenues Commissions $ 43,900 $ 38,716 $ 37,286 Principal transactions 19,498 20,362 24,640 Investment banking 16,253 12,121 12,634 Interest 13,774 13,002 10,918 Other 16,388 11,159 8,448 -------------------------------------------------------------------------- 109,813 95,360 93,926 - - ---------------------------------------------------------------------------------------------------- Expenses - - -------- Employee compensation and benefits 66,765 57,187 60,652 Commissions and floor brokerage 2,641 2,319 2,120 Communications and office supplies 6,794 7,651 8,045 Occupancy and equipment rental 7,255 7,884 9,397 Interest 8,197 8,312 6,138 Litigation, settlements, and bad debts 3,292 1,610 2,467 Restructuring charge - - - - 2,672 Other operating expenses 9,267 9,090 11,656 ------------------------------------------------------------------------ 104,211 94,053 103,147 - - -------------------------------------------------------------------------------------------------- Income (loss) before income taxes 5,602 1,307 (9,221) Provision (benefit) for income taxes 2,209 663 (3,718) - - -------------------------------------------------------------------------------------------------- Net income (loss) $ 3,393 $ 644 $ (5,503) ================================================================================================== Earnings (Loss) Per Common Share and Share Equivalents Net income (loss) per share: Primary earnings (loss) per share $ 0.71 $ 0.14 $ (1.17) Fully diluted earnings (loss) per share $ 0.64 $ 0.14 $ (1.17)
All earnings per share amounts have been adjusted to reflect the 5 percent stock dividend declared January 21, 1997. See Notes to Consolidated Financial Statements. A36 86 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unamortized Additional Expense of Common Stock Paid-In Retained Treasury Stock Restricted (In thousands, except share amounts) Shares Amount Capital Earnings Shares Amount Stock Awards Total - - ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1994 4,119,239 $617 $17,269 $24,162 $(150,453) $(1,240) $(199) $40,609 - - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends -- common stock ($.09 per share) (356) (356) Purchase of treasury shares (188,964) (1,417) (1,417) Employee benefit plans 88 72,883 614 702 Stock options exercised (34) 13,884 115 81 Restricted stock awards granted (87) 24,500 194 (107) - - Amortization of restricted stock awards 108 108 Stock benefits 60 1 1 Dividend reinvestment 151 1 1 Net loss for the year (5,503) (5,503) 5% stock dividend 205,712 32 1,255 (1,287) (11,397) - - - - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 4,324,951 649 18,491 17,016 (239,336) (1,732) (198) 34,226 - - ------------------------------------------------------------------------------------------------------------------------------------ Cash dividends -- common stock ($.12 per share) (500) (500) Purchase of treasury shares (88,656) (547) (547) Employee benefit plans (195) 132,173 948 753 Stock options exercised (36) 22,425 159 123 Restricted stock awards granted (14) 13,000 96 (82) - - Restricted stock awards forfeited 3 (16,125) (96) 79 (14) Amortization of restricted stock awards 101 101 Dividend reinvestment (1) 2,019 10 9 Net income for the year 644 644 5% stock dividend 215,939 32 1,374 (1,406) (8,725) - - - - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 4,540,890 681 19,622 15,754 (183,225) (1,162) (100) 34,795 - - ------------------------------------------------------------------------------------------------------------------------------------ Cash dividends -- common stock ($.09 per share) (405) (405) Stock rights redemption -- common stock ($.05 per share) (223) (223) Purchase of treasury shares (69,713) (520) (520) Employee benefit plans (132) 118,953 753 621 Stock options exercised (1) 615 4 3 Restricted stock awards 162 3,000 20 (182) - - Amortization of restricted stock awards 75 75 Dividend reinvestment 1,365 13 13 Net income for the year 3,393 3,393 5% stock dividend 226,825 34 1,752 (1,786) (6,450) - - - - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 4,767,715 $715 $21,403 $16,733 (135,455) $(892) $(207) $37,752 ====================================================================================================================================
See Notes to Consolidated Financial Statements. A37 87 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED (IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 - - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 3,393 $ 644 $ (5,503) - - --------------------------------------------------------------------------------------------------------- Noncash items included in earnings: Depreciation and amortization 1,664 1,990 2,572 Provision for litigation and bad debts 905 1,610 2,467 Unrealized loss (gain) on investments 28 (57) (96) Bonus notes amortization 1,213 1,033 1,134 Deferred compensation 571 468 538 Amortization of restricted stock awards and stock benefits 75 84 107 Deferred tax provision (benefit) 231 736 (1,735) Restructuring charge - - - - 2,672 - - --------------------------------------------------------------------------------------------------------- 8,080 6,508 2,156 (Increase) decrease in operating receivables: Customers (78,291) (17,005) 13,474 Brokers and dealers 1,588 5,409 (4,548) Increase (decrease) in operating payables: Customers 289 7,437 (11,955) Brokers and dealers 24,020 (23,268) 21,873 Decrease (increase) in assets: Cash and U.S. Government securities segregated for the exclusive benefit of customers 293 540 (54) Securities owned 608 3,798 63,191 Notes receivable from officers and employees (1,030) (1,190) (5,427) Other assets (560) (2,125) (1,779) Increase (decrease) in liabilities: Securities sold, not yet purchased 485 (1,508) 345 Drafts payable, accounts payable and accrued expenses, and accrued employee compensation 397 212 (1,919) - - --------------------------------------------------------------------------------------------------------- Cash (Used For) Provided By Operating Activities (44,121) (21,192) 75,357 - - ---------------------------------------------------------------------------------------------------------
A38 88 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED (IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 - - --------------------------------------------------------------------------------------------------------- Cash (Used For) Provided By Operating -- Activities From Previous Page (44,121) (21,192) 75,357 - - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (payments) for short-term borrowings from banks 45,950 20,800 (71,300) Proceeds from: Employee stock purchase plan 617 755 613 Exercised stock options 3 124 81 Subordinated borrowings - - - - 50 Dividend reinvestment plan 13 10 1 Payments for: Settlement of long-term debt (760) (760) - - Purchases of stock for treasury (520) (547) (1,417) Principal payments under capital lease obligation (433) (256) (710) Subordinated borrowings (50) - - - - Cash dividends and rights redemption (626) (500) (356) - - --------------------------------------------------------------------------------------------------------- Cash Provided By (Used For) Financing Activities 44,194 19,626 (73,038) - - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of office equipment and leasehold improvements 28 910 24 Sale of investments 3,753 1,694 32 Payments for: Acquisition of office equipment and leasehold improvements (443) (1,179) (1,734) Acquisition of investments (1,795) (440) (258) - - --------------------------------------------------------------------------------------------------------- Cash Provided By (Used For) Investing Activities 1,543 985 (1,936) - - --------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 1,616 (581) 383 Cash and cash equivalents -- beginning of year 6,344 6,925 6,542 - - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents -- end of year $ 7,960 $ 6,344 $ 6,925 ========================================================================================================= Supplemental disclosures of cash flow information: Interest payments $ 8,264 $ 8,237 $ 5,897 Income tax payments $ 2,247 $ 372 $ 118 Schedule of Noncash Investing and Financing Activities Fixed assets acquired under capital lease $ 240 - - $ 808 Restricted stock awards, net of forfeitures $ 181 $ 3 $ 146 Stock dividends distributed $ 1,788 $ 1,406 $ 1,287
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. A39 89 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE A -- ACCOUNTING AND REPORTING POLICIES NATURE OF OPERATIONS Stifel Financial Corp. ("the Parent"), through its wholly owned subsidiaries, principally Stifel, Nicolaus & Company, Incorporated ("Stifel, Nicolaus"), collectively referred to as ("the Company"), is principally engaged in retail brokerage, securities trading, investment banking, investment advisory, and related financial services throughout the United States. Although the Company has offices throughout the United States, its major geographic area of concentration is in the Midwest. The Company's principal customers are individual investors, with the remaining client base composed of corporations, municipalities, and institutions. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiaries, principally Stifel, Nicolaus. Stifel, Nicolaus is a broker-dealer registered under the Securities Exchange Act of 1934. All material intercompany balances and transactions are eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Where appropriate, prior years' financial information has been reclassified to conform with the current year presentation. For purposes of presenting the consolidated statements of cash flows, the Company has defined cash equivalents as short-term, highly liquid investments with original maturities of 90 days or less, other than those held for sale in the ordinary course of business. SECURITY TRANSACTIONS Trading and investment securities owned and securities sold, but not yet purchased are carried at fair value, and unrealized gains and losses are reflected in the results of operations. Securities held for investment by the Parent are included in other assets and are carried at the lower of historical cost or fair value. Investment securities of the subsidiaries are carried at fair value or amounts that approximate fair value as determined by management. Securities failed to deliver and receive represent the contract value of securities that have not been delivered or received by settlement date. Receivable from customers includes amounts due on cash and margin transactions. The value of securities owned by customers and held as collateral for these receivables is not reflected in the consolidated statements of financial condition. Customer security transactions are recorded on a settlement date basis with related commission income and expense recorded on a trade date basis. Principal securities transactions are recorded on a trade date basis. A40 90 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE A - ACCOUNTING AND REPORTING POLICIES (CONTINUED) FAIR VALUE The Company's financial instruments are carried at fair value or amounts that approximate fair value. Securities owned and securities sold, but not yet purchased are valued using quoted market or dealer prices, pricing models, or management's estimates. Customer receivables, primarily consisting of floating-rate loans collateralized by customer-owned securities, are charged interest at rates similar to other such loans made throughout the industry. The Company's remaining financial instruments are generally short-term in nature, and their carrying values approximate fair value. The Company has estimated the fair value of its long-term debt using the discounted cash flow analysis of payments. At December 31, 1996, the estimated fair value of the notes was $11,004. INCOME TAXES Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial reporting and income tax bases of assets and liabilities. OTHER Investment banking revenue is recorded as follows: management fees on effective date of the registration, selling concessions on trade date, underwriting fees upon completion of the underwriting, and other investment banking revenue upon the completion of the service. Securities borrowed and securities loaned are recorded at the amount of cash collateral advanced or received. Securities borrowed transactions require Stifel, Nicolaus to deposit cash or other collateral with the lender. With respect to securities loaned, Stifel, Nicolaus receives collateral in the form of cash or other collateral in an amount generally in excess of the market value of securities loaned. Stifel, Nicolaus monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary. Amortization of assets under capital lease is computed on a straight-line basis over the estimated useful life of the asset. Leasehold improvements are amortized over the lesser of the economic useful life of the improvement or the term of the lease. Depreciation of office equipment is computed on a straight-line basis for equipment purchased prior to January 1, 1994, and an accelerated method for equipment purchased thereafter. Goodwill recognized in business combinations accounted for as purchases is being amortized over 15 to 40 years on a straight-line basis. Earnings (loss) per share of common stock is based upon the weighted average number of common shares and share equivalents outstanding during the periods. Common share equivalents include dilutive stock options under the treasury stock method and dilutive shares from Senior Convertible Notes under the if converted method. NOTE B -- SPECIAL RESERVE BANK ACCOUNT At December 31, 1996, cash of $483 has been segregated in a special reserve bank account for the exclusive benefit of customers pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. A41 91 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE C -- SHORT-TERM BORROWINGS FROM BANKS In the normal course of business, Stifel, Nicolaus borrows from various banks on a demand basis with company-owned and customer securities pledged as collateral. Available credit arrangements with banks totaled $215,000 at December 31, 1996, of which $82,600 was unused. There were no compensating balance requirements under these arrangements. The Company's floating interest rate short-term borrowings bore interest at a weighted average rate of 6.07% and 6.63% at December 31, 1996 and 1995, respectively. Certain short-term borrowings were collateralized by company-owned securities valued at approximately $19,155 on a settlement date basis. Short-term borrowings used to finance receivables from customers were collateralized by customer- owned securities valued at approximately $192,378 at December 31, 1996. The value of these customer-owned securities is not reflected in the consolidated statement of financial condition. NOTE D -- COMMITMENTS AND CONTINGENCIES In the normal course of business, Stifel, Nicolaus enters into underwriting commitments. Settlement of transactions relating to such underwriting commitments which were open December 31, 1996, had no material effect on the consolidated financial statements. In connection with margin deposit requirements of The Options Clearing Corporation, Stifel, Nicolaus has pledged cash and customer-owned securities valued at $16,566. At December 31, 1996, the amounts on deposit satisfied the minimum margin deposit requirement of $12,954. The future minimum rental commitments at December 31, 1996, with initial or remaining non-cancellable lease terms in excess of one year for office space and equipment are as follows:
- - ----------------------------------------------------------------------------------------------- OPERATING LEASES ---------------------------------------------- MINIMUM FUTURE LEASE PAYMENTS UNDER MINIMUM RENTAL YEAR ENDING DECEMBER 31, CAPITAL LEASES COMMITMENTS RELATED SUBLEASE COMMITMENT - - ----------------------------------------------------------------------------------------------- 1997 $384 $ 3,427 $(350) $ 3,077 1998 238 2,852 (169) 2,683 1999 0 2,576 (96) 2,480 2000 0 2,450 (28) 2,422 2001 0 1,396 0 1,396 Thereafter 0 1,804 0 1,804 ---- ------- ----- ------- Minimum Commitments $622 $14,505 $(643) $13,862 Less Interest 41 ======= ===== ======= ---- Net Present Value of Capital Lease Obligations $581 ====
A42 92 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE D - COMMITMENTS AND CONSINGENCIES (CONTINUED) Rental expense for the years ended 1996, 1995, and 1994 amounted to approximately $3,541, $3,986, and $4,596, respectively. Office equipment, under capital leases, with a recorded cost of approximately $566 net of amortization of $953, collateralizes the above capital lease obligations and is included in the consolidated statements of financial condition in the caption of "Office equipment and leasehold improvements." The Company purchased equipment, that was subject to a capital lease, for approximately $440 in the first quarter of 1995. During the fourth quarter of 1995, management determined that certain of that equipment with a carrying value of approximately $248, which was originally intended for use in operations, was not immediately required and therefore recorded a $195 charge to fourth quarter operations to write the equipment down to net recoverable value based on outside dealer quotes. Amortization and depreciation expense of assets under capital lease and owned furniture and equipment for 1996, 1995, and 1994 was $1,384, $1,732, and $2,192, respectively. NOTE E -- NET CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS Stifel, Nicolaus is subject to the Uniform Net Capital Rule, Rule 15c3-1 under the Securities Exchange Act of 1934 (the "rule"), which requires the maintenance of minimum net capital, as defined. Stifel, Nicolaus has elected to use the alternative method permitted by the rule which requires maintenance of minimum net capital equal to the greater of $250 or 2 percent of aggregate debit items arising from customer transactions, as defined. The rule also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5 percent of aggregate debit items. At December 31, 1996, Stifel, Nicolaus had net capital of $24,182, which was 9.7 percent of aggregate debit items and $19,191 in excess of minimum required net capital. At December 31, 1996, the net assets of Stifel, Nicolaus were $39,351, of which $12,475 was restricted as to the payment of dividends. In addition, there are restrictions in the Parent's long-term note agreement on payment of dividends by the Parent to its stockholders based on the amount of the Company's cumulative consolidated net income, as defined. At December 31, 1996, dividends of $2,032 had been paid against the cumulative available amounts of $2,204 under such provision. NOTE F -- EMPLOYEE BENEFIT PLANS The Company has a profit sharing 401(k) plan (the "PSP") covering qualified employees as defined in the plans. Contributions to the PSP were based upon a company match of 50% of the employees' first $500 in annual contributions for 1996, 1995, and 1994. Additional contributions by the Company are discretionary. The amounts charged to operations for the PSP were $146, $166, and $185, for 1996, 1995, and 1994, respectively. Stifel, Nicolaus also has a deferred compensation plan available to Investment Executives whereby a certain percentage of their earnings is deferred as defined in the plan and vests over a three to five year period. The Investment Executives have the right to elect to invest their individual deferred amounts into several investment options, including Company stock. The amounts charged to operations related to this plan were $571, $468, and $539, for 1996, 1995, and 1994, respectively. A43 93 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE ARE PER SHARE AMOUNTS) NOTE G -- STOCK-BASED COMPENSATION PLANS At December 31, 1996, the Company had several stock-based compensation plans, which are described below. The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under the Fixed Stock Option and the Employee Stock Purchase Plans consistent with the method of FASB Statement 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: - - ------------------------------------------------------------------ 1996 1995 - - ------------------------------------------------------------------ Net income As reported $3,393 $644 Pro forma $3,345 $621 - - ------------------------------------------------------------------ Primary earnings per share As reported $.71 $.14 Pro forma $.70 $.13 - - ------------------------------------------------------------------ Fully diluted earnings per share As reported $.64 $.14 Pro forma $.63 $.13 - - ------------------------------------------------------------------ All option plans are administered by the Compensation Committee of the Board of Directors of the Parent which has the authority to interpret the Plans, determine to whom options may be granted under the Plans, determine the terms of each option, and cancel, with the consent of an optionee, any option previously granted to such optionee and to grant a new option in place thereof. All shares issued for the various plans were satisfied with treasury stock. A44 94 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE G -- STOCK-BASED COMPENSATION PLANS (CONTINUED) Fixed Stock Option Plans The Company has four fixed option plans. Under the Company's 1983 and 1985 Incentive Stock Option Plans, the Company may grant options up to an aggregate of 450,000 shares to key employees. Under the Company's 1987 non-qualified stock option plan, the Company may grant options up to an aggregate of 100,000 shares. Options under these plans are generally granted at 100% of market value at the date of the grant and expire 10 years from the date of grant. The options vest at a rate of 25% each anniversary date or on a five-year cliff vesting period. The Company has also granted stock options to external board members under a non-qualified plan. These options are generally granted at 100% of market value at the date of the grant and are exercisable one year from date of grant and expire 10 years from date of grant. Effective with options granted in 1995 and subsequently, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 1.88% for both years; expected volatility of 26.7% and 22.2%; risk-free interest rates of 6.17% and 6.06%; and expected lives of 5.25 years for both years. Activity under all plans for the years ended 1996, 1995, and 1994, respectively, is set forth on the following table. All amounts and prices have been adjusted to reflect the 5 percent stock dividend declared January 21, 1997. The summary of the status of the Company's fixed stock option plans as of December 31, 1996, 1995, and 1994, and changes during the years ending on those dates is presented below:
- - ------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 ------------------------ ------------------------ ------------------------ WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE - - ------------------------------------------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 348,938 $5.55 413,767 $5.69 415,660 $5.51 - - ------------------------------------------------------------------------------------------------------------------- Granted 111,077 5.98 33,352 5.75 47,065 6.23 Exercised (21,062) 5.02 (24,723) 5.00 (16,073) 5.05 Forfeited (5,523) 8.55 (68,993) 6.85 (32,885) 4.49 Expired - - - - (4,465) 4.60 - - - - - - ------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 433,430 $5.63 348,938 $5.55 413,767 $5.69 =================================================================================================================== Options exercisable at year-end 254,792 262,710 299,384 Weighted-average fair value of options granted during the year $1.89 $1.53 - - - - -------------------------------------------------------------------------------------------------------------------
A45 95 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE G -- STOCK-BASED COMPENSATION PLANS (CONTINUED)
The following table summarizes information about fixed stock options outstanding at December 31, 1996: - - ------------------------------------------------------------------------------------------------------------ OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- --------------------------------- NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE EXERCISE PRICES 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE 12/31/96 EXERCISE PRICE - - ------------------------------------------------------------------------------------------------------------ $4.00 - $4.99 164,040 2.81 years $4.58 157,963 $4.59 $5.00 - $5.99 62,715 4.66 years 5.58 54,436 5.65 $6.00 - $6.99 182,315 8.12 years 6.20 35,014 6.61 $7.00 - $7.99 - - - - - - - - - - $8.00 - $8.99 24,360 6.96 years 8.47 7,379 8.53 - - ------------------------------------------------------------------------------------------------------------ Total 433,430 254,792 ============================================================================================================
EMPLOYEE STOCK PURCHASE PLAN Under the 1993 Employee Stock Purchase Plan (the "ESPP"), the Company is authorized to issue up to 125,000 shares of common stock to its full-time employees, nearly all of whom are eligible to participate. Under the terms of the ESPP, employees can choose each year to have a specified percentage of their compensation withheld in 1% increments not to exceed 10%. The participant may also specify a maximum dollar amount to be withheld. At the beginning of every year, each participant will be granted an option to purchase 1,000 shares of common stock at a price equal to the lower of 85% of the beginning-of-year or end-of-year fair market value of the common stock. Approximately 29% to 41% of eligible employees have participated in the ESPP in the last three years. Under the ESPP, the Company sold 115,217 shares, 112,613 shares, and 124,663 shares to employees in 1996, 1995, and 1994, respectively. Effective with options granted in 1995, the fair value of each employee's purchase rights is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 1.88% for both years; expected volatility of 26.7% and 22.2%; risk-free interest rates of 5.09% and 7.05%; and expected lives of 1 year for both years. The weighted-average fair value of those purchase rights granted in 1996 and 1995 was $1.30 and $1.07, respectively. A46 96 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE G -- STOCK-BASED COMPENSATION PLANS (CONTINUED) RESTRICTED STOCK AWARDS Restricted stock awards are made, and shares issued, to certain key employees without cash payment by the employee. Certain key employees were granted 3,000, 13,000, and 32,500 shares of restricted stock, with a fair value of $18, $82, and $203, during 1996, 1995, and 1994, respectively. As of December 31, 1996, the restricted stock awards covering 14,334 shares were outstanding, with the restrictions expiring at various dates through 2000. The shares are restricted as to resale. Restrictions lapse ratably over three- and five-year service periods. The deferred cost of the restricted stock awards is amortized on a straight-line basis. EMPLOYEE STOCK OWNERSHIP PLAN The Company has an employee stock ownership plan (the "ESOP") covering qualified employees as defined in the plan. Employer contributions are made to the ESOP as determined by the Compensation Committee of the Board of Directors of the Parent on behalf of all eligible employees based upon the relationship of individual compensation (up to a maximum of $150) to total compensation. At December 31, 1996, the plan held and has allocated 240,926 shares of the Parent common stock valued at $2,108. The Company charged to operations $280 for the ESOP contribution for 1996. There were no contributions for the ESOP for 1995 and 1994. NOTE H -- LEGAL PROCEEDINGS The Company is a defendant in several lawsuits and arbitrations which arose from its usual business activities. Some of these lawsuits and arbitrations claim substantial amounts, including punitive damage claims. While results of litigation and arbitration cannot be predicted with certainty, management, based on opinions of outside counsel, has provided for actions most likely of adverse disposition and believes that the effects of resolution of such litigation and arbitration beyond the amounts provided will not have a material adverse effect on the Company's consolidated financial position. However, depending upon the period of resolution, such effects could be material to the financial results of an individual operating period. It is reasonably possible that certain of these lawsuits and arbitrations could be resolved in the next year, and management does not believe such resolutions will result in losses materially in excess of the amounts previously provided. During 1995, the Securities and Exchange Commission (the "SEC") completed a formal investigation into possible violations of the federal securities laws in connection with certain municipal bond issues managed by the Company's former Oklahoma City-based public finance department where the Company was the managing or co-managing underwriter. This investigation resulted in the Company consenting to a final judgement of permanent injunction whereby, among other things, the Company paid approximately $1,100 in disgorgement and prejudgement interest, and $250 in fines. A47 97 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE H -- LEGAL PROCEEDINGS (CONTINUED) Additionally, the Company is named in lawsuits filed by The Oklahoma Turnpike Authority ("OTA") and The State of Oklahoma. The OTA suit seeks $6.5 million in compensatory damages and an unspecified amount of punitive damages. The State of Oklahoma seeks $7.6 million in compensatory damages and that these damages be trebled. The OTA suit alleges that an undisclosed fee paid to the Company by a third party for the placement of a forward purchase contract in an advance refunding escrow for the proceeds of the 1992 OTA $660 million refinancing should have been paid to the OTA. The State of Oklahoma suit alleges that the Company and two former executives of the Company committed violations of the Racketeer Influenced and Corrupt Organizations Act. This suit alleges essentially the same facts as are alleged in the OTA suit and were alleged by the SEC in its action against the Company which was settled in August 1995 by the Company without admitting or denying the allegations. Management does not believe the ultimate resolution of these matters will have a materially adverse effect on the Company's financial statements. NOTE I -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK In the normal course of business, the Company executes, settles, and finances customer and proprietary securities transactions. These activities expose the Company to off-balance sheet risk in the event that customers or other parties fail to satisfy their obligations. In accordance with industry practice, securities transactions are recorded on settlement date, generally three business days after trade date. Should a customer or broker fail to deliver cash or securities as agreed, the Company may be required to purchase or sell securities at unfavorable market prices. The Company borrows and lends securities to finance transactions and facilitate the settlement process, utilizing both firm proprietary positions and customer margin securities held as collateral. The Company monitors the adequacy of collateral levels on a daily basis. The Company periodically borrows from banks on a collateralized basis utilizing firm and customer margin securities in compliance with SEC rules. Should the counterparty fail to return customer securities pledged, the Company is subject to the risk of acquiring the securities at prevailing market prices in order to satisfy its customer obligations. The Company sells securities it does not currently own, and is obligated to subsequently purchase such securities at prevailing market prices. The Company is exposed to risk of loss if securities prices increase prior to closing the transactions. The Company controls its exposure to credit risk by continually monitoring its counterparties' position, and where deemed necessary, the Company may require a deposit of additional collateral and/or a reduction or diversification of positions. CONCENTRATIONS OF CREDIT RISK The Company maintains margin and cash security accounts for its customers located throughout the United States. The majority of the Company's customer receivables are serviced by branch locations in Missouri and Illinois. A48 98 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE J -- LONG-TERM DEBT The Parent has outstanding $10,000 aggregate principal amount of its 11.25 percent Senior Convertible Notes due September 1, 1997, through September 1, 2000, in equal installments. The notes are convertible into shares of the Company's $.15 par value common stock at any time prior to maturity, unless previously redeemed, at a conversion price of $7.05 per share. Under certain conditions, the notes are redeemable in whole or in part at the option of the Parent by payment of the principal and the accrued interest on the notes to be redeemed plus a premium of 4.1 percent. The premium decreases approximately one percentage point each September 1 from 1997 through 1999. The Company is required to maintain consolidated tangible net worth (as defined by the note agreement) at an amount not less than $22,000 as long as any amount remains unpaid. At December 31, 1995, the Parent had outstanding $760 in promissory notes issued for the purchase of Todd Investment Advisors, Inc. The principal of the notes was paid on January 2, 1996, with interest at 3.83%. Interest charged to operations for these notes was $29 and $58 for years 1995 and 1994, respectively. NOTE K -- PREFERRED STOCK PURCHASE RIGHTS On June 30, 1987, the Company's Board of Directors declared a distribution of one preferred stock purchase right for each share of the Company's common stock. On July 23, 1996, the Company's Board of Directors approved the redemption of these shareholder rights and the adoption of a new Shareholder Rights Plan. Shareholders of record on August 12, 1996, received a payment of $.05 per share, representing the redemption price for the existing rights. This payment was in lieu of the regular quarterly dividend of $.03 per share. In addition, on July 23, 1996, the Company's Board of Directors authorized and declared a dividend distribution of one preferred stock purchase right for each outstanding share of the Company's common stock, par value $0.15 per share. The dividend was distributed to stockholders of record on August 12, 1996. Each right will entitle the registered holder to purchase one one- hundredth of a share of a Series A Junior Participating Preferred Stock, par value $1.00 per share, at an exercise price of $35 per right. The rights become exercisable on the tenth day after public announcement that a person or group has acquired 15 percent or more of the Company's common stock or upon commencement of announcement of intent to make a tender offer for 15 percent or more of the outstanding shares of common stock without prior written consent of the Company. If the Company is acquired by any person after the rights become exercisable, each right will entitle its holder to purchase shares of common stock at one-half the then current market price, and in the event of a subsequent merger or other acquisition of the Company, to buy shares of common stock of the acquiring entity at one-half of the market price of those shares. The rights may be redeemed by the Company prior to becoming exercisable by action of the Board of Directors at a redemption price of $.01 per right. These rights will expire, if not previously exercised, on August 12, 2006. A49 99 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE L -- INCOME TAXES The Company's provision (benefit) for income taxes consists of:
- - ------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 - - ------------------------------------------------------------------------------ CURRENT: Federal $ 1,597 $ (59) $ (1,601) State 381 (14) (382) - - ------------------------------------------------------------------------------ $ 1,978 $ (73) $ (1,983) DEFERRED: Federal $ 187 $ 594 $ (1,401) State 44 142 (334) - - ------------------------------------------------------------------------------ $ 231 $ 736 $ (1,735) - - ------------------------------------------------------------------------------ $ 2,209 $ 663 $ (3,718) ==============================================================================
The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate to (loss) income before income taxes for the following reasons:
- - -------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 - - -------------------------------------------------------------------------------------------------------- Federal tax computed at statutory rates $1,904 $444 $(3,135) State income taxes, net of federal income tax benefit 281 84 (450) Tax-exempt interest, net of interest expense (59) (62) (143) Goodwill amortization 80 80 80 Meals and entertainment 103 96 107 SEC fine - - 85 - - Increase in cash surrender value of life insurance (36) (27) 9 Other, net (64) (37) (186) - - -------------------------------------------------------------------------------------------------------- Provision (benefit) for income taxes $2,209 $663 $(3,718) ========================================================================================================
A50 100 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE L -- INCOME TAXES (CONTINUED) The net deferred tax asset consists of the following temporary differences:
- - ------------------------------------------------------------------------------- DECEMBER 31, 1996 DECEMBER 31, 1995 - - ------------------------------------------------------------------------------- DEFERRED TAX ASSET Receivables from customers, principally due to allowance for doubtful accounts $ 227 $ 314 Office equipment and leasehold improvements, principally book over tax depreciation 856 777 Deferred compensation 810 693 Deferred revenue 195 171 Investments, principally due to valuation allowance 25 155 Provision for litigation and settlements 401 644 Receivables from officers and employees, principally due to allowance for doubtful accounts 1,111 1,169 Accrued expenses 382 485 Other 15 8 - - ------------------------------------------------------------------------------- Deferred Tax Asset 4,022 4,416 - - ------------------------------------------------------------------------------- DEFERRED TAX LIABILITY Intangible assets, principally tax over book amortization (211) (220) Investment fee revenue installment receivable (140) (294) - - ------------------------------------------------------------------------------- Total Gross Deferred Tax Liability (351) (514) - - ------------------------------------------------------------------------------- Net Deferred Tax Asset $3,671 $3,902 ===============================================================================
The Company believes that a valuation allowance with respect to the realization of the total gross deferred tax asset is not necessary. Based on the Company's historical earnings and taxes previously paid, future expectations of taxable income, and the future reversals of gross deferred tax liability, management believes it is more likely than not that the Company will realize the gross deferred tax asset. A51 101 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE M -- RELATED PARTY TRANSACTIONS Four directors of the Parent are associated with firms which provide legal and consulting services to the Company. The Company charged approximately $801, $1,263, and $1,287 (primarily for legal fees) to operations for these services for 1996, 1995, and 1994, respectively. Additionally, several employees of Stifel, Nicolaus, through their individual ownership or interest in a corporation or partnership, provide leasing services primarily for branch office space. The Company charged to operations approximately $17, $20, and $82 for 1996, 1995, and 1994, respectively, for these services. A director of the Parent has a general partnership interest in an enterprise in which the Company also holds general and limited partnership interests carried at approximately $663 at December 31, 1996, and $623 at December 31, 1995. The Company has receivables aggregating $1,976 at December 31, 1996, from two former employees who were also directors and officers of the Company. These receivables arose from employment contracts which called for the amounts loaned or advanced to be earned or forgiven if performance criteria defined in the contracts were met. The employees terminated employment with the Company in 1994. The Company filed claims to recover the balance of the receivables. In October 1996, an NASD Regulation, Inc. Office of Dispute Resolution arbitration awarded the Company $1,260 in compensatory damages plus interest from one of the two former employees. Additionally, the Company reached a settlement agreement with the other former employee subsequent to December 31, 1996. The Company is vigorously pursuing collection. A52 102 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE N -- PLAN OF RESTRUCTURING During the fourth quarter of 1994, the Board of Directors of the Parent approved a restructuring and downsizing plan for the Company to be implemented beginning in December 1994, which involved the closing or downsizing of 31 office locations and termination of approximately 70 officers and employees. The plan was completed during 1995. Following is a summary of activity in the accounts related to the restructuring accrual:
SEVERANCE PAY, EXTENDED BENEFITS, NET LEASE AND RECEIVABLES COMMITMENTS WRITTEN OFF FOR ABANDONMENT FOR CLOSED TERMINATED CONTRACTUAL OF LEASEHOLD OFFICES EMPLOYEES COMMITMENTS IMPROVEMENTS TOTAL - - ------------------------------------------------------------------------------------------------------------- January 1, 1995 Balance $1,400 $695 $191 $206 $2,492 ------ ---- ---- ---- ------ Payments/charges 441 627 61 197 1,326 Adjustments through operations 64 1 130 - - 195 ------ ---- ---- ---- ------ December 31, 1995 Balance 895 67 - - 9 971 ------ ---- ---- ---- ------ Payments/charges 238 67 - - - - 305 Adjustments through operations - - - - - - 9 9 ------ ---- ---- ---- ------ December 31, 1996 Balance $ 657 - - - - - - $ 657 ====== ==== ==== ==== ======
The balances at December 31, 1996, and December 31, 1995, are included in the statement of financial condition under the caption "Accounts payable and accrued expenses." During 1995, the Parent Company's Board of Directors reversed its decision regarding the payment of certain philanthropic commitments which had been accrued in 1994 as part of the restructuring charge and included in "Contractual commitments" above. As a result of this decision, $130 related to accrued contractual commitments was reversed and credited to operations in 1995. NOTE O -- SALE OF OKLAHOMA-BASED ASSETS On May 25, 1995, the Company sold the majority of the assets of its Oklahoma- based operations to Capital West Financial Corporation ("Capital West"). Capital West is primarily owned by former employees of the Company. Included in the sale were the majority of the assets related to the Company's retail offices in Oklahoma, several retail offices in Texas, and the Oklahoma-based public finance, institutional trading, and sales departments. The Company received cash, secured and senior notes, and warrants to purchase a minority interest in Capital West. In addition, Capital West assumed or subleased certain office and equipment lease obligations of the Company. The sale resulted in the reduction of approximately 70 Investment Executives and approximately 50 support staff located in 26 branch offices. A53 103 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE O -- SALE OF OKLAHOMA BASED ASSETS (CONTINUED) The Company received secured and senior notes with a face amount of $1,850 bearing interest at a 10% annual rate with the final payments due May 24, 2000, in connection with the sale of its Oklahoma-based assets. The notes were recorded at a discounted cash flows rate of 17%. The Company has deferred recognition of the gain on the sale in the amount of $570 and has deferred recognition of any interest income related to the notes until such time that Capital West has demonstrated the ability to generate earnings and cash flow to fund interest and principal payments when scheduled. The notes receivable net of the discount of $336 and deferred gain of $570 are included in the statement of financial condition under the caption "Other assets" at December 31, 1995. Pro forma financial information assuming the transaction had taken place at the beginning of the year is presented below: - - ------------------------------------------------------------------------ YEAR ENDED UNAUDITED PRO FORMA COMBINED RESULTS OF OPERATIONS DECEMBER 31, 1995 - - ------------------------------------------------------------------------ Revenue $85,846 Net income $ 770 Net income per primary share $ .16 - - ------------------------------------------------------------------------ The above pro forma results do not purport to be indicative of results which actually would have occurred had the sale been made on January 1, 1995. NOTE P -- SUBSEQUENT EVENT On January 2, 1997, Capital West was reorganized and a new company, Affinity Holdings Corporation ("Affinity"), was formed. Affinity assumed the outstanding debt of Capital West. As part of the reorganization, Affinity exchanged the remaining balance of the $1,850 secured and senior notes issued by Capital West for a secured note due December 31, 2001, with a face amount of $305 bearing interest at a 10% annual rate; two hundred thousand shares of 10% cumulative non-voting preferred stock, par value $1.00; warrants to purchase a minority interest in Affinity; and substantially all of the fixed assets of Affinity with a fair value of approximately $300, which will be leased back to Affinity. Principal and interest payments on the note and dividend payments will be made monthly based upon the level of activity of Affinity's broker-dealer subsidiary. The transaction had no material impact on the results of operations for the Company for the year ended December 31, 1996. On January 21, 1997, the Company's Board of Directors approved a 5 percent stock dividend to be distributed and $.03 per share cash dividend to be paid on February 18, 1997, to shareholders of record on February 4, 1997. All shares issued and earnings per share amounts included in the consolidated financial statements and notes thereto have been retroactively adjusted to give effect to the 5 percent stock dividend. NOTE Q -- RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Management believes the adoption of this standard will not have a material impact on the Company's consolidated financial statements. ****** A54 104 [STIFEL FINANCIAL CORP. AND SUBSIDIARIES LETTERHEAD] QUARTERLY RESULTS (in thousands, except share and per share amounts)
- - ------------------------------------------------------------------------------------------ QUARTERLY OPERATING RESULTS (UNAUDITED) - - ------------------------------------------------------------------------------------------ EARNINGS PRIMARY FULLY DILUTED (LOSS) NET EARNINGS EARNINGS BEFORE INCOME (LOSS) (LOSS) REVENUE INCOME TAXES (LOSS) PER SHARE PER SHARE - - ------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------ YEAR 1996 BY QUARTER - - ------------------------------------------------------------------------------------------ First $23,438 $ 258 $ 150 $ .03 $ .03 Second 30,707 2,241 1,361 .28 .25 Third 24,203 775 458 .10 .09 Fourth 31,465 2,328 1,424 .30 .25 - - ------------------------------------------------------------------------------------------ YEAR 1995 BY QUARTER - - ------------------------------------------------------------------------------------------ First $21,895 $ (318) $ (183) $(.04) $(.04) Second 25,748 593 348 .07 .07 Third 23,055 482 162 .03 .03 Fourth 24,662 550 317 .07 .07
ALL EARNINGS (LOSS) PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE 5 PERCENT STOCK DIVIDEND DECLARED JANUARY 21, 1997. A55 105 EXHIBIT 21 STIFEL FINANCIAL CORP. AND SUBSIDIARIES SUBSIDIARIES OF STIFEL FINANCIAL CORP. (1)
STATE OF NAMES UNDER WHICH NAME INCORPORATION SUBSIDIARY DOES BUSINESS - - ---- ------------- ------------------------ - - - Stifel, Nicolaus & Missouri Stifel, Nicolaus & Company, Company, Incorporated Incorporated - - - Alliance Realty Corp. Missouri Alliance Realty Corp. - - - Century Securities Missouri Century Securities Associates, Inc. Associates, Inc. - - - Stifel, Nicolaus Insurance Arkansas Stifel, Nicolaus Insurance Agency, Inc. (2) Agency, Inc. - - - S-N Capital Corp. (2) Missouri S-N Capital Corp. - - - Stifel Insurance Agency - Ohio Stifel Insurance Agency - Ohio, Inc. (4) Ohio, Inc. - - - Stifel Venture Corp. Missouri Stifel Venture Corp. - - - Pin Oak Capital, Ltd. (3) Missouri Pin Oak Capital, Ltd. - - - Stifel Asset Management Corp. Missouri Stifel Asset Management Corp. - - - Todd Investment Advisors, Inc. (3) Kentucky Todd Investment Advisors, Inc.
- - ------------------ (1) Does not include corporations in which registrant owns 50 percent or less of the stock. (2) Wholly owned subsidiary of Stifel, Nicolaus & Company, Incorporated. (3) Wholly owned subsidiary of Stifel Asset Management Corp. (4) Majority owned subsidiary of Stifel, Nicolaus & Company, Incorporated. A56 106 [DELOITTE & TOUCHE LLP LETTERHEAD] EXHIBIT 23 (a) STIFEL FINANCIAL CORP. CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration statements of Stifel Financial Corp. and Subsidiaries on Form S-8 (file numbers 2-94326, 33-10030, 33-16150, 33-20568 and 33-53097) and on Form S-3 (file number 33-53699), of our report dated February 25, 1997, incorporated by reference in the Annual Report on Form 10-K of Stifel Financial Corp. for the year ended December 31, 1996. /s/ Deloitte & Touche LLP February 25, 1997 A57 107 [COOPERS & LYBRAND LETTERHEAD] EXHIBIT 23 (b) STIFEL FINANCIAL CORP. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Stifel Financial Corp. and Subsidiaries on Form S-8 (file numbers 2-94326, 33-10030, 33-16150, 33-20568 and 33-53097) and on Form S-3 (file number 33-53699), of our report dated February 25, 1996 on our audits of the consolidated financial statements and financial statement schedules of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and for the years ended December 31, 1995 and December 31, 1994, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. St. Louis, Missouri March 17, 1997 A58 108 APPENDIX B SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 27, 1997 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission file number 1-9305 ------ STIFEL FINANCIAL CORP. (Exact name of registrant as specified in its charter) DELAWARE 43-1273600 - - ------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 N. Broadway, St. Louis, Missouri 63102-2188 - - ------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 314-342-2000 ------------ ----------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Shares of common stock outstanding at March 27, 1997: 4,722,491 par value $.15. Exhibit Index is on page 15. B1 109 Stifel Financial Corp. And Subsidiaries Form 10-Q Index March 27, 1997 PAGE PART I. FINANCIAL CONDITION ---- Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition -- March 27, 1997 and December 31, 1996.............. 3-4 Consolidated Statements of Operations -- Three Months Ended March 27, 1997 and March 29, 1996.................................... 5 Consolidated Statements of Cash Flows-- Three Months Ended March 27, 1997 and March 29, 1996.................................... 6-7 Notes to Consolidated Financial Statements........ 8-10 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.... 11-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................ 13 Item 4. Submission of Matters to a Vote of Security Holders................................. 13 Item 6. Exhibits and Reports on Form 8-K................. 13 Signatures................................................ 14 B2 110 PART I. FINANCIAL CONDITION Item 1. Financial Statements (UNAUDITED) STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (In thousands)
MARCH 27, DECEMBER 31, 1997 1996 --------- ------------ ASSETS Cash and cash equivalents $ 6,126 $ 7,960 Cash segregated for the exclusive benefit of customers 309 483 Receivable from brokers and dealers 18,991 14,836 Receivable from customers, net of allowance for doubtful accounts of $578 and $582, respectively 267,874 235,216 Securities owned, at fair value 27,464 18,913 Membership in exchanges, at cost 513 513 Office equipment and leasehold improvements, at cost, net of allowances for depreciation and amortization of $10,081 and $10,125, respectively 2,312 2,233 Goodwill, net of accumulated amortization of $1,184 and $1,107, respectively 4,411 4,488 Notes receivable from and advances to officers and employees, net of allowance for doubtful receivables of $2,201 and $2,552, respectively 3,343 3,373 Refundable income taxes 354 358 Deferred tax asset 3,552 3,671 Other assets 7,947 9,005 -------- -------- $343,196 $301,049 ======== ========
See Notes to Consolidated Financial Statements. B3 111 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED) (UNAUDITED) (In thousands, except share amounts)
MARCH 27, DECEMBER 31, 1997 1996 --------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Short-term borrowings from banks $166,375 $132,400 Payable to brokers and dealers 62,089 47,148 Payable to customers 28,534 32,095 Securities sold, but not yet purchased, at fair value 3,536 3,229 Drafts payable 11,897 15,287 Accrued employee compensation 10,378 14,756 Obligations under capital leases 703 581 Accounts payable and accrued expenses 10,168 7,801 Convertible debt 10,000 10,000 -------- -------- Total Liabilities 303,680 263,297 Stockholders' equity Preferred stock -- $1 par value; authorized 3,000,000 shares; none issued Common stock -- $.15 par value; authorized 10,000,000 shares; issued 4,767,715 shares; outstanding 4,722,491 and 4,632,260 shares, respectively 715 715 Additional paid-in capital 21,119 21,403 Retained earnings 18,238 16,733 -------- -------- 40,072 38,851 Less treasury stock, at cost 45,224 and 135,455 shares, respectively 374 892 Less unamortized expense of restricted stock awards 182 207 -------- -------- Total Stockholders' Equity 39,516 37,752 -------- -------- $343,196 $301,049 ======== ========
See Notes to Consolidated Financial Statements. B4 112 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts)
THREE MONTHS ENDED MARCH 27, 1997 MARCH 29, 1996 -------------- -------------- REVENUES Commissions $ 11,420 $ 11,042 Principal transactions 5,266 4,788 Investment banking 7,696 1,214 Interest 4,045 3,190 Other 3,418 3,204 -------- -------- 31,845 23,438 EXPENSES Employee compensation and benefits 20,215 14,526 Commissions and floor brokerage 695 665 Communications and office supplies 1,658 1,696 Occupancy and equipment rental 1,443 1,821 Interest 2,351 1,942 Other operating expenses 2,731 2,530 -------- -------- 29,093 23,180 -------- -------- INCOME BEFORE INCOME TAXES 2,752 258 Provision for income taxes 1,105 108 -------- -------- NET INCOME $ 1,647 $ 150 ======== ======== Net income per share: Primary $ 0.34 $0.03 Fully diluted $ 0.28 $0.03 Dividends declared per share $ 0.03 $0.03 Average common equivalent shares outstanding: Primary 4,852 4,724 Fully Diluted 6,270 6,145
See Notes to Consolidated Financial Statements. B5 113 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(In thousands)
THREE MONTHS ENDED MARCH 27, 1997 MARCH 29, 1996 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,647 $ 150 Noncash items included in earnings: Depreciation and amortization 383 423 Provision for litigation and bad debts 450 133 Net Realized and unrealized gains on investments (25) (18) Bonus notes amortization 330 236 Deferred compensation 175 111 Deferred tax provision 119 300 Amortization of restricted stock awards 25 15 -------- -------- 3,104 1,350 (Increase) decrease in operating receivables: Customers (32,658) 16,838 Brokers and dealers (4,155) 1,620 (Decrease) increase in operating payables: Customers (3,561) (11,865) Brokers and dealers 14,941 17,696 Decrease (increase) in assets: Cash and U.S. Government securities segregated for the exclusive benefit of customers 174 198 Securities owned (8,551) (3,597) Notes receivable from officers and employees (263) (579) Other assets 1,519 3,651 Increase (decrease) in liabilities: Securities sold, not yet purchased 307 (1,471) Drafts payable, accounts payable and accrued expenses, and accrued employee compensation (5,584) (12,818) -------- -------- CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES $(34,727) $ 11,023 -------- --------
See Notes to Consolidated Financial Statements. B6 114 STIFEL FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)(In thousands)
THREE MONTHS ENDED MARCH 27, 1997 MARCH 29, 1996 -------------- -------------- CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES - FROM PREVIOUS PAGE $(34,727) $ 11,023 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (payments) for short-term borrowings from banks 33,975 (11,700) Proceeds from: Temporary subordinated debt 8,000 - - Employee stock purchase plan 727 617 Exercised stock options 15 - - Dividend reinvestment plan 2 5 Payments for: Temporary subordinated debt (8,000) - - Settlement of long-term debt - - (760) Purchases of stock for treasury (796) (6) Principal payments under capital lease obligation (103) (66) Cash dividends (143) (134) -------- -------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 33,677 (12,044) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of office equipment and leasehold improvements 3 5 Sale of investments - - 190 Payments for: Acquisition of office equipment and leasehold improvements (161) (90) Acquisition of investments (626) (37) -------- -------- CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (784) 68 -------- -------- Decrease in cash and cash equivalents (1,834) (953) Cash and cash equivalents - beginning of period 7,960 6,344 -------- -------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 6,126 $ 5,391 ======== ======== Supplemental disclosure of cash flow information: Income tax payments $ 49 $ 20 Interest payments $ 2,449 $ 2,317 Schedule of noncash investing and financing activities: Fixed assets acquired under capital lease $ 292 - - Employee stock ownership plan shares issued $ 287 - -
See Notes to Consolidated Financial Statements. B7 115 STIFEL FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in thousands, except share and per share amounts) NOTE A - BASIS OF PRESENTATION The consolidated financial statements include the accounts of Stifel Financial Corp. and its subsidiaries (collectively referred to as "the Company"). The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 27, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. Where appropriate, prior years' financial information has been reclassified to conform with the current year presentation. NOTE B - NET CAPITAL REQUIREMENT The Company's principal subsidiary, Stifel, Nicolaus & Company, Incorporated ("SN & Co."), is subject to the Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934 (the "rule"), which requires the maintenance of minimum net capital, as defined. SN & Co. has elected to use the alternative method permitted by the rule which requires maintenance of minimum net capital equal to the greater of $250 or 2 percent of aggregate debit items arising from customer transactions, as defined. The rule also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5 percent of aggregate debit items. At March 27, 1997, SN & Co. had net capital of $25,883 which was 9% of its aggregate debit items and $20,311 in excess of minimum net capital. B8 116 NOTE C - PLAN OF RESTRUCTURING During the fourth quarter of 1994, the Board of Directors of the Company approved a restructuring and downsizing plan for the Company which was implemented beginning in December 1994, and involved the closing or downsizing of 31 office locations and termination of approximately 70 officers and employees. Detail of the activity during the first three months related to the restructuring accruals are as follows:
- - ------------------------------------------------------------------------------------------------------------------------ BALANCE ADJUSTMENTS BALANCE AT RECORDED AT DECEMBER PAYMENTS/ THROUGH MARCH 27, 31, 1996 CHARGES OPERATIONS 1997 - - ------------------------------------------------------------------------------------------------------------------------ Net lease commitments for closed offices $657 $ 77 $318 $262 - - ------------------------------------------------------------------------------------------------------------------------
Such amounts are included in the consolidated statement of financial condition under the caption of "Accounts payable and accrued expenses" at March 27, 1997 and December 31, 1996. During the period, the Company renegotiated a long-term lease commitment resulting in a credit to operations which had previously been included in the restructuring charge taken in 1994. NOTE D - SALE OF OKLAHOMA-BASED ASSETS On May 25, 1995, the Company sold the majority of the assets of its Oklahoma-based operations to Capital West Financial Corporation ("Capital West"). The Company received secured and senior notes with a face amount of $1,850 bearing interest at a 10% annual rate with the final payments due May 24, 2000, in connection with the sale of its Oklahoma-based assets. The notes were recorded at a discounted rate of 17%. The Company had deferred recognition of the gain on the sale in the amount of $570 and had deferred recognition of any interest income related to the notes until such time that Capital West had demonstrated the ability to generate earnings and cash flow to fund interest and principal payments when scheduled. The Company received payments of $79 toward the notes. The notes receivable net of the discount of $336 and deferred gain of $570 are included in the statement of financial condition under the caption "Other assets" at December 31, 1996. On January 2, 1997, Capital West was reorganized and a new company, Affinity Holdings Corporation ("Affinity"), was formed. Affinity assumed the outstanding debt of Capital West. As part of the reorganization, Affinity exchanged the remaining balance of the $1,850 secured and senior notes issued by Capital West for a secured note due December 31, 2001, with a face amount of $305 bearing interest at a 10% annual rate; two hundred thousand shares of 10% cumulative non-voting preferred stock, par value $1.00; warrants to purchase a minority interest in Affinity; and substantially all of the fixed assets of Affinity with a fair value of approximately $300, which are being leased back to Affinity. Principal and interest payments to date total $138 and are being made monthly based upon the level of activity of Affinity's broker-dealer subsidiary. The note receivable, preferred stock, and lease receivable are included in the statement of financial B9 117 condition under the caption "Other assets" at March 27, 1997. The transaction had no material impact on the results of operations for the Company for the quarter ended March 27, 1997. NOTE E- RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued SFAS 128, "Earnings per Share," which is to be implemented by companies whose fiscal year ends after December 15, 1997. The adoption of this accounting standard will not have a material impact on the Company's reported earnings per share. NOTE F - SUBSEQUENT EVENT On April 22, 1997, the Company's Board of Directors declared a regular quarterly dividend of $0.03 per share, payable on May 20, 1997 to stockholders of record May 6, 1997. ****** B10 118 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 1997 AND MARCH 1996 The Company recorded net earnings of $1,647, or $0.34 per primary share on total revenues of $31,845 for the first quarter ended March 27, 1997, compared to net earnings of $150 or $0.03 per primary share on total revenues of $23,438 for the same period one year earlier. The increase in 1997 first quarter results over 1996 first quarter results can be attributed primarily to the increase in revenues. Total revenues increased $8,407 (35.9%) from $23,438 to $31,845 as retail investor activity remained strong coupled with a solid investment banking performance. Investment banking increased $6,482 (533.9%) from $1,214 to $7,696 as a result of underwriting a number of secondary offerings of trust preferred stocks for financial institutions and REITs for mortgage banking companies. These underwritings generated $6,400 in revenue. Interest revenue increased $855 (26.8%) primarily as a result of increased secured borrowings by individual investors. Total customer receivables increased $127,816 (91.3%) from $140,058 at March 29, 1996 to $267,874 at March 27, 1997, due largely to increases in borrowings by certain customers. Commissions and principal transactions increased $378 (3.4%) from $11,042 to $11,420 and $478 (10.0%) from $4,788 to $5,266, respectively due to continued strong markets for individual investor activity. Other revenue increased $214 (6.7%) from $3,204 to $3,418 principally due to continued growth of the managed account program. Total expenses increased $5,913 (25.5%) from $23,180 to $29,093, primarily as a result of increased compensation and benefits which increased $5,689 (39.2%) from $14,526 to $20,215. The variable component of compensation and benefits increased $5,458 (53.7%) from $10,161 to $15,619 correspondingly to increased revenue production and increased profitability. The fixed portion of compensation and benefits increased $231 (5.3%) from $4,364 to $4,595 due principally to normal year to year salary adjustments. Occupancy and equipment rental decreased $378 (20.8%) from $1,821 to $1,443, primarily as a result of a one time credit related to a renegotiation of a long term office space lease which had been previously accrued (see Note C of Notes to Consolidated Financial Statements). Interest expense increased $409 (21.1%) from $1,942 to $2,351 as a result of increased borrowings for customer trading activity and increased borrowings by the firm for underwriting activity and increased level of securities owned. Average borrowings for the firm increased B11 119 $27,734 (41.0%) from $67,681 for the first quarter of 1996 to $95,415 for the first quarter of 1997. Liquidity and Capital Resources The Company's assets are highly liquid, consisting mainly of cash or assets readily convertible into cash. These assets are financed primarily by the Company's equity capital, customer credit balances, short-term bank loans, proceeds from securities lending, long-term senior convertible notes, and other payables. Changes in securities market volumes, related customer borrowing demands, underwriting activity, and levels of securities inventory affect the amount of the Company's financing requirements. Because of the nature of the Company's business, the changes in operating assets and liability account balances relative to net income for any particular accounting period can be quite large and somewhat arbitrary and therefore are not very useful indicators of long-term trends in the Company's cash flow from operations. In the three months ended March 27, 1997, cash and cash equivalents decreased $1,834 (23.0%) to $6,126 from $7,960 at December 31, 1996. The decrease in cash was substantially a result of cash used by operating activities of $34,727 and offset by cash provided by financing activities of $33,677. The cash used for operating activities was principally attributed to increases in operating receivables and securities inventory owned of $36,813 and $8,551, respectively, and decreases of drafts payable, accounts payable and accrued expenses, and accrued employee compensation of $5,584. The cash used for operating activities was partly offset by cash provided by net income adjusted for noncash charges of $3,104 and an increase in operating payables of $11,380. The cash provided from financing activity primarily consisted of proceeds for the short-term borrowings from banks of $33,975.r SN & Co. is subject to requirements of the Securities and Exchange Commission with regard to liquidity and capital requirements (see Note B of the Notes to Consolidated Financial Statements). At March 27, 1997, SN & Co. had net capital of $25,883 which was 9% of its aggregate debit items and $20,311 in excess of the 2% net capital requirement. During the first quarter ended March 27, 1997, SN & Co. obtained and repaid a temporary subordinated note in the amount of $8,000. The subordinated note was used to finance underwritings. The first installment of the company's convertible debt is due September 1, 1997, in the amount of $2,500. Management believes that funds from operations and available informal short-term credit arrangements of $93,625 at March 27, 1997, will provide sufficient resources to meet the present and anticipated financing needs. B12 120 PART II. OTHER INFORMATION Item 1. Legal Proceedings There were no material changes, during the three months ended March 27, 1997, in the legal proceedings previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Such information is hereby incorporated by reference. Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual meeting of Stockholders was held on April 22, 1997, for the election of four directors, the adoption of the 1997 Incentive Stock Plan, the adoption of the 1998 Employee Stock Purchase Plan and for the appointment of Deloitte & Touche LLP as the Company's independent auditors for the year ending December 31, 1997. (b) Proxies for the meeting were solicited pursuant to Regulation 14 under the Act. There was no solicitation in opposition to the Board of Directors' proposals as listed in the Proxy Statement and all of the proposals were passed. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit No. Sequential (Reference to Item 601(b) Page of Regulation S-K) Description Number ------------------------- ----------- ---------- 11 Computation of 16 Earnings Per Share 27 Financial Data Schedule 17 (furnished to the Securities and Exchange Commission for Electronic Data Gathering, Analysis, and Retrieval [EDGAR] purposes only) (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended March 27, 1997. B13 121 SIGNATURES Pursuant to the requirement of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STIFEL FINANCIAL CORP. (Registrant) Date: May 8, 1997 By /s/ Gregory F. Taylor --------------------------- Gregory F. Taylor (Chief Executive Officer) Date: May 8, 1997 By /s/ Stephen J. Bushmann --------------------------- Stephen J. Bushmann (Principal Financial and Accounting Officer) B14 122 STIFEL FINANCIAL CORP. AND SUBSIDIARIES EXHIBIT INDEX March 27, 1997 Exhibit Sequential Number Description Page Number ------- ----------- ----------- 11 Computation of Earnings Per Share 16 27 Financial Data Schedule 17 (furnished to the Securities and Exchange Commission for Electronic Data Gathering, Analysis, and Retrieval [EDGAR] purposes only) B15 123 EXHIBIT 11 STIFEL FINANCIAL CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In Thousands, Except Per Share Amounts) (UNAUDITED)
THREE MONTHS ENDED MARCH 27, 1997 MARCH 29, 1996 FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED ------- ------- ------- ------- Net income $ 1,647 $ 1,647 $ 150 $ 150 After-tax interest savings assuming conversion of Senior Convertible Notes (1) - - 129 - - 172 ------- ------- ------- ------- Net income adjusted for after- tax interest savings $ 1,647 $ 1,776 $ 150 $ 322 ======= ======= ======= ======= Average number of common shares outstanding during the period 4,709 4,709 4,669 4,669 Additional shares assuming exercise of stock options (2) 143 143 55 58 Additional Shares assuming conversion of Senior Convertible Notes (3) - - 1,418 - - 1,418 ------- ------- ------- ------- Average number of common shares used to calculate earnings per share 4,852 6,270 4,724 6,145 ======= ======= ======= ======= Net earnings per share $ 0.34 $ 0.28 $ 0.03 $ 0.03(4) ======= ======= ======= =======
(1) Represents the after-tax interest savings resulting from assumed conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes. (2) Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options and assumed purchases of stock from the Employee Stock Purchase Plan (ESPP). For primary earnings per share computations, these purchases were assumed to have been made at the average market price of the common stock during the period or that part of the period for which the option was outstanding or shares assumed purchased through the ESPP. For fully diluted earnings per share computations, these purchases were assumed to have been made at the greater of the market price of the common stock at the end of the period or average market price of the common stock during the period or that part of the period for which the option was outstanding or shares assumed purchased through the ESPP. (3) Represents the number of shares of common stock issuable upon conversion of $10,000,000 aggregate principal 11.25% Senior Convertible Notes at a conversion price of $7.0536 per share. (4) Net fully diluted earnings per share computes to $0.05 for the three months ended March 29, 1996. Since this is anti-dilutive, fully diluted earnings per share is equivalent to primary earnings per share. B16 124 ------------------------------------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... Risk Factors........................... Use of Proceeds........................ Market for the Preferred Securities.... Accounting Treatment................... Capitalization......................... Description of the Preferred Securities........................... Description of the Subordinated Debentures........................... Description of the Guarantee........... Relationship Among the Preferred Securities, Subordinated Debentures and the Guarantee.................... Certain Federal Income Tax Consequences......................... ERISA Considerations................... Underwriting........................... Validity of Securities................. Experts................................ Incorporation of Certain Documents by Reference............................ Available Information.................. Appendix A............................. A-1 Appendix B............................. B-1
------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY STIFEL FINANCIAL, STIFEL CAPITAL OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF STIFEL FINANCIAL SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ====================================================== 2,500,000 PREFERRED SECURITIES STIFEL FINANCIAL CAPITAL TRUST % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY) GUARANTEED, AS DESCRIBED HEREIN, BY [LOGO] STIFEL FINANCIAL CORP. ------------------------ $25,000,000 % SUBORDINATED DEBENTURES OF STIFEL FINANCIAL CORP. ------------------------ Prospectus June , 1997 ------------------------ STIFEL, NICOLAUS & COMPANY INCORPORATED ------------------------------------------------------ 125 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses (other than underwriting discounts and commissions), which other than the SEC registration fee are estimates, payable by the Company in connection with the sale and distribution of the shares registered hereby: SEC Registration Fee........................................ $8,713 NASD Filing Fee............................................. 3,375 Printing and Engraving Expenses............................. * Accounting Fees and Expenses................................ * Legal Fees and Expenses..................................... * Blue Sky Fees and Expenses.................................. * Miscellaneous Expenses...................................... * ------ Total.................................................. $ * ======
- - ------------ * To be completed by amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The following is a summary of Section 145 of the General Corporation Law of the State of Delaware (the "DGCL"). Subject to restrictions contained in the DGCL, a corporation may indemnify any person, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection therewith if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, in connection with any criminal action or proceeding, had no reasonable cause to believe that such person's conduct was unlawful. A person who is successful on the merits or otherwise in any suit or matter covered by the indemnification statute, shall be indemnified and indemnification is otherwise authorized upon a determination that the person to be indemnified has met the applicable standard of conduct required. Such determination shall be made by a majority vote of the board of directors who were not parties to such action, suit or proceeding, even though less than a quorum, or if there are no such directors, or if such directors so direct, by special independent counsel in a written opinion, or by the shareholders. Expenses incurred in defense may be paid in advance upon receipt by the corporation of a written undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that the recipient is not entitled to indemnification under the statute. The indemnification provided by statute is not exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, and shall inure to the benefit of the heirs, executors and administrators of such person. Insurance may be purchased on behalf of any person entitled to indemnification by the corporation against any liability asserted against him or her and incurred in an official capacity regardless of whether the person could be indemnified under the statute. References to the corporation include all constituent corporations absorbed in a consolidation or merger as well as the resulting corporation, and anyone seeking indemnification by virtue of acting in some capacity with a constituent corporation would stand in the same position as if such person had served the resulting or surviving corporation in the same capacity. The By-Laws of the Company provide for indemnification of directors and officers of the Company to the maximum extent permitted by the DGCL. II-1 126 The directors and officers of the Company are insured under a policy of directors' and officers' liability insurance. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is therefore unenforceable. ITEM 16. EXHIBITS. See Exhibit Index. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report, to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses II-2 127 incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (e) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (f) The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. II-3 128 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Stifel Financial Corp. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on this 6th day of June, 1997. STIFEL FINANCIAL CORP. By: /s/ GEORGE H. WALKER III ------------------------------------ George H. Walker III Chairman of the Board Pursuant to the requirements of the Securities Act of 1933, the Stifel Financial Capital Trust certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on this 6th day of June, 1997. STIFEL FINANCIAL CAPITAL TRUST By: /s/ GEORGE H. WALKER III ------------------------------------ George H. Walker III Trustee By: /s/ GREGORY F. TAYLOR ------------------------------------ Gregory F. Taylor Trustee By: /s/ CHARLES R. HARTMAN ------------------------------------ Charles R. Hartman Trustee II-4 129 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints George H. Walker III, Gregory F. Taylor and Charles R. Hartman and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, and in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement and all amendments and supplements to any prospectus relating thereto and any other documents and instruments incidental thereto, and any registration statement filed pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary or advisable to be done in and about the premises, as full to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that each said attorneys-in-fact and agents and/or any of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ GEORGE H. WALKER III Chairman of the Board June 6, 1997 - - --------------------------------------------- George H. Walker III /s/ GREGORY F. TAYLOR President and Chief Executive Officer June 6, 1997 - - --------------------------------------------- and Director (Principal Executive Gregory F. Taylor Officer) /s/ STEPHEN J. BUSHMANN Vice President, Treasurer and Chief June 6, 1997 - - --------------------------------------------- Financial Officer (Principal Financial Stephen J. Bushmann Officer and Principal Accounting Officer) /s/ BRUCE A. BEDA Director June 6, 1997 - - --------------------------------------------- Bruce A. Beda /s/ BELLE A. CORI Director June 6, 1997 - - --------------------------------------------- Belle A. Cori /s/ CHARLES A. DILL Director June 6, 1997 - - --------------------------------------------- Charles A. Dill /s/ RICHARD F. FORD Director June 6, 1997 - - --------------------------------------------- Richard F. Ford /s/ JOHN J. GOEBEL Director June 6, 1997 - - --------------------------------------------- John J. Goebel /s/ STUART I. GREENBAUM Director June 6, 1997 - - --------------------------------------------- Stuart I. Greenbaum /s/ ROBERT E. LEFTON Director June 6, 1997 - - --------------------------------------------- Robert E. Lefton /s/ JAMES M. OATES Director June 6, 1997 - - --------------------------------------------- James M. Oates
II-5 130 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - - ------- ----------- *1.1 Underwriting Agreement, dated as of , 1997, by and between the Company and Stifel, Nicolaus & Company, Incorporated, as representatives of the several Underwriters 4.1(a) Restated Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on June 1, 1983 (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, as amended (Registration File No. 2-84232) 4.1(b) Amendment to Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on May 11, 1987 (incorporated herein by reference to Exhibit (3)(a)(2) to the Company's Report on Form 10-K for the year ended July 31, 1987) 4.1(c) Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of the Company filed with the Secretary of State of Delaware on July 10, 1987 (incorporated herein by reference to Exhibit (3)(a)(3) to the Company's Report on Form 10-K for the year ended July 31, 1987) 4.1(d) Amendment to Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on November 28, 1989 (incorporated herein by reference to Exhibit (3)(a)(4) to the Company's Report on Form 10-K for the year ended July 27, 1990) 4.2 Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal year ended July 30, 1993) 4.3 Note Agreement dated as of October 15, 1988, between the Company and Bankers United Life Assurance Company and Pacific Fidelity Life Insurance Company (incorporated herein by reference to Exhibit 4 to the Company's Report on Form 10-Q for the quarterly period ended April 28, 1989) 4.4 Form of Indenture dated as of , 1997 by and between the Company and relating to the Junior Subordinated Debentures 4.5 Form of Debenture (included as Exhibit A to Exhibit 4.4) 4.6 Certificate of Trust of Stifel Financial Capital Trust 4.7 Trust Agreement of Stifel Financial Capital Trust 4.8 Form of Amended and Restated Trust Agreement 4.9 Form of Preferred Security Certificate for Stifel Financial Capital Trust (included as an exhibit to Exhibit 4.8) 4.10 Form of Common Security Certificate for Stifel Financial Capital Trust (included as an exhibit to Exhibit 4.8) 4.11 Form of Preferred Securities Guarantee Agreement of the Company for Stifel Financial Capital Trust 4.12 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.8) *5.1 Opinion of Bryan Cave LLP as to legality of the Subordinated Debentures and the Guarantee to be issued by the Company *5.2 Opinion of Richards, Layton & Finger as to legality of the Capital Securities to be issued by Stifel Financial Capital Trust *8.1 Opinion of Bryan Cave LLP as to certain federal income tax matters 10.1(a) Employment Agreement with George H. Walker III dated August 21, 1987 (incorporated herein by reference to Exhibit 10(c) to the Company's Report on Form 10-K for the fiscal year ended July 31, 1987)
131
EXHIBIT NUMBER DESCRIPTION - - ------- ----------- 10.1(b) First Amendment to Employment Agreement with George H. Walker III (incorporated herein by reference to Exhibit 10(a)(2) to the Company's Report on Form 10-K for the fiscal year ended July 31, 1992) 10.2 Form of Indemnification Agreement with directors of the Company dated as of June 30, 1987 (incorporated herein by reference to Exhibit 10.2 to the Company's Report on Form 8-K (date of earliest event reported - June 22, 1987) filed July 14, 1987) 10.3 1983 Incentive Stock Option Plan of the Company (incorporated herein by reference to Exhibit 4(a) to the Company's Registration Statement on Form S-8 (Registration File No. 2-94326) filed November 14, 1984) 10.4 1985 Incentive Stock Option Plan of the Company (incorporated herein by reference to Exhibit 28C to the Company's Registration Statement on Form S-8 (Registration File No. 33-10033) filed November 7, 1986) 10.5 1987 Non-qualified Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10(h) to the Company's Report on Form 10-K for the fiscal year ended July 31, 1987) 10.6 Amendment to 1983 Incentive Stock Option Plan, 1985 Incentive Stock Option Plan and 1987 Non-Qualified Stock Option Plan (incorporated herein by reference to Exhibit 10(f) to the Company's Report on Form 10-K for the fiscal year ended July 28, 1989) 10.7(a) 1993 Employee Stock Purchase Plan of the Company (incorporated herein by reference to ANNEX A of the Company's Definitive Proxy Statement (Registration File No. 33-16150) filed October 28, 1992) 10.7(b) First Amendment to the 1993 Employee Stock Plan of the Company (incorporated herein by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 (Registration File No. 33-53097) filed April 11, 1994) 10.8 Employment and Non-Competition Agreement with Gregory F. Taylor dated July 26, 1993 (incorporated herein by reference to Exhibit 10(m) to the Company's Report on Form 10-K for fiscal year ended July 30, 1993) 10.9 Dividend Reinvestment and Stock Purchase Plan of the Company (incorporated herein by reference to the Company's Registration Statement on Form S-3 (Registration File No. 33-53699) filed May 18, 1994) 10.10 1997 Incentive Stock Plan of the Company (incorporated herein by reference to Appendix A of the Company's Definitive Proxy Statement filed March 21, 1997) 10.11 1998 Employee Stock Purchase Plan of the Company (incorporated herein by reference to Appendix B of the Company's Definitive Proxy Statement filed March 21, 1997) *12.1 Computation of ratio of earnings to fixed charges (excluding interest on deposits) *12.2 Computation of ratio of earnings to fixed charges (including interest on deposits) 13.1 Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996 (included herein as Appendix A) 13.2 Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 31, 1997 (included herein as Appendix B) 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Coopers & Lybrand LLP *23.3 Consent of Bryan Cave LLP (included in Exhibit 5.1) *23.4 Consent of Richards, Layton & Finger (included in Exhibit 5.2) 24.1 Power of Attorney of certain officers and directors of the Company (located on the signature page hereto)
132
EXHIBIT NUMBER DESCRIPTION - - ------- ----------- *25.1 Form T-1 Statement of Eligibility of to act as trustee under the Indenture *25.2 Form T-1 Statement of Eligibility of to act as trustee under the Declaration of Trust of Stifel Financial Capital Trust *25.3 Form T-1 Statement of Eligibility of under the Guarantee for the benefit of the holders of Capital Securities of Stifel Financial Capital Trust
- - ------------ * To be filed by amendment. EX-4.4 2 FORM OF INDENTURE 1 EXHIBIT 4.4 =============================================================================== STIFEL FINANCIAL CORP. AND ____________________________ AS TRUSTEE INDENTURE _________% SUBORDINATED DEBENTURES DUE 2027 DATED AS OF _________________________, 1997 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.1. Definitions of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II Issue, Description, Terms, Conditions Registration and Exchange of the Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.1 Designation and Principal Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.2. Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.3. Form and Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.4. [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.5. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.6. Execution and Authentications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.7. Registration of Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.8. Temporary Debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures. . . . . . . . . . . . . . . . . . . . . . . . 13 Section 2.10. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.11. Benefit of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.12. Authentication Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE III Redemption of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.1. Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.2. Special Event Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.3. Optional Redemption by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3.4. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3.5. Payment Upon Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.6. No Sinking Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE IV Extension of Interest Payment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.1. Extension of Interest Payment Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.2. Notice of Extension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.3. Limitation on Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE V Particular Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 5.1. Payment of Principal and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 5.2. Maintenance of Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.3. Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.4. Appointment To Fill Vacancy in Office of Trustee. . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.5. Compliance with Consolidation Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.6. Limitation on Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.7. Covenants as to the Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.8. Covenants as to Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
i 3
ARTICLE VI Debentureholders' Lists and Reports by the Company and the Trustee . . . . . . . . . . . . . . . . . . . . 22 Section 6.1. Company To Furnish Trustee Names and Addresses of Debentureholders. . . . . . . . . . . . . . . 22 Section 6.2. Preservation of Information Communications with Debentureholders. . . . . . . . . . . . . . . . 23 Section 6.3. Reports by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.4. Reports by the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VII Remedies of the Trustee and Debentureholders on Event of Default . . . . . . . . . . . . . . . . . . . . 24 Section 7.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee. . . . . . . . . . . . . . . . 26 Section 7.3. Application of Moneys Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 7.4. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 7.5. Rights and Remedies Cumulative; Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . 28 Section 7.6. Control by Debentureholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 7.7. Undertaking To Pay Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE VIII Form of Debenture and Original Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 8.1. Form of Debenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 8.2. Original Issue of Debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE IX Concerning the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 9.1. Certain Duties and Responsibilities of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 9.2. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 9.3. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 9.4. Trustee Not Responsible for Recitals, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 9.5. May Hold Debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 9.6. Moneys Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 9.7. Compensation and Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 9.8. Reliance on Officers' Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 9.9. Disqualification; Conflicting Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 9.10. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 9.11. Resignation and Removal; Appointment of Successor. . . . . . . . . . . . . . . . . . . . . . . 35 Section 9.12. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 9.13. Merger, Conversion, Consolidation or Succession to Business. . . . . . . . . . . . . . . . . . 37 Section 9.14. Preferential Collection of Claims Against the Company. . . . . . . . . . . . . . . . . . . . . 37 ARTICLE X Concerning the Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 10.1. Evidence of Action by Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 10.2. Proof of Execution by Debentureholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 10.3. Who May Be Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 10.4. Certain Debentures Owned by Company Disregarded. . . . . . . . . . . . . . . . . . . . . . . . 38 Section 10.5. Actions Binding on Future Debentureholders. . . . . . . . . . . . . . . . . . . . . . . . . . 39
ii 4
ARTICLE XI Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 11.1. Supplemental Indentures Without the Consent of Debentureholders. . . . . . . . . . . . . . . . 39 Section 11.2. Supplemental Indentures with Consent of Debentureholders. . . . . . . . . . . . . . . . . . . 40 Section 11.3. Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.4. Debentures Affected by Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.5. Execution of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE XII Successor Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 12.1. Company May Consolidate, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 12.2. Successor Corporation Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 12.3. Evidence of Consolidation, Etc. to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE XIII Satisfaction and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 13.1. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 13.2. Discharge of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 13.3. Deposited Moneys To Be Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 13.4. Payment of Monies Held by Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 13.5. Repayment to Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE XIV Immunity of Incorporators, Stockholders, Officers and Directors . . . . . . . . . . . . . . . . . . . . . 44 Section 14.1. No Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE XV Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.1. Effect on Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.2. Actions by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.3. Surrender of Company Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 15.5. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 15.6. Treatment of Debentures as Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 15.7. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 15.8. Payments on Business Days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 15.9. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.11. Separability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.12. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.13. Acknowledgment of Rights; Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE XVI Subordination of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 16.1. Agreement to Subordinate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior Obligations. . . . . . . . . . 48 Section 16.3. Liquidation; Dissolution; Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 16.4. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 16.5. Trustee To Effectuate Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
iii 5 Section 16.6. Notice by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 16.7. Rights of the Trustee; Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . 52 Section 16.8. Subordination May Not Be Impaired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
iv 6 CROSS-REFERENCE TABLE
Section of Trust Indenture Act Section of of 1939, as amended Indenture - - ------------------- --------- 310(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10 310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9, 9.11 310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.14 311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.14 311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1, 6.2(a) 312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(c) 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(c) 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(a) 313(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(b) 313(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(a), 6.4(b) 313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(c) 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3(a) 314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 314(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(a), 9.3 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(a) 315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(b) 315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 7.6 316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4(b) 316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1(b) 317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9
Note: This Cross-Reference Table does not constitute part of this Indenture and shall not affect the interpretation of any of its terms or provisions. v 7 INDENTURE INDENTURE, dated as of __________, 1997, between STIFEL FINANCIAL CORP., a Delaware corporation (the "Company"), and ____________________________, a trust company duly organized and existing under the laws of the _________________ of ________________, as property trustee (the "Trustee"); RECITALS WHEREAS, for its lawful corporate purposes, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of securities to be known as its ____% Subordinated Debentures due 2027 (hereinafter referred to as the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in this Indenture; WHEREAS, Stifel Financial Capital Trust, a Delaware statutory business trust (the "Trust"), has offered to the public up to $28.75 million aggregate liquidation amount of its Preferred Securities (as defined herein) and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of up to $889,500 aggregate liquidation amount of its Common Securities (as defined herein), in $29,639,500 aggregate principal amount of the Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this Indenture; and WHEREAS, all requirements necessary to make this Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this Indenture have been duly authorized in all respects: WHEREAS, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, in consideration of the premises and the purchase of the Debentures by the holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the holders of the Debentures: 8 ARTICLE I DEFINITIONS SECTION 1.1. DEFINITIONS OF TERMS. The terms defined in this Section 1.1 (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1 and shall include the plural as well as the singular. All other terms used in this Indenture that are defined in the Trust Indenture Act, or that are by reference in the Trust Indenture Act defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of the execution of this instrument. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with Generally Accepted Accounting Principles. "Accelerated Maturity Date" means if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the date selected by the Company which is prior to the Scheduled Maturity Date, but is after June 30, 2002. "Additional Interest" shall have the meaning set forth in Section 2.5. "Additional Senior Obligations" means all indebtedness of the Company whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity contracts and similar arrangements; provided, however, that Additional Senior Obligations does not include claims in respect of Senior Debt or Subordinated Debt or obligations which, by their terms, are expressly stated to be not superior in right of payment to the Debentures or to rank pari passu in right of payment with the Debentures. For purposes of this definition, "claim" shall have the meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978, as amended. "Administrative Trustees" shall have the meaning set forth in the Trust Agreement. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person; (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (d) a partnership in which the specified Person is a general partner; (e) any officer or director of the specified Person; and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. 2 9 "Authenticating Agent" means an authenticating agent with respect to the Debentures appointed by the Trustee pursuant to Section 2.12. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any duly authorized committee of such Board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. "Business Day" means, with respect to the Debentures, any day other than a Saturday or a Sunday or a day on which federal or state banking institutions in the Borough of Manhattan, The City of New York, are authorized or required by law, executive order or regulation to close, or a day on which the Corporate Trust Office of the Trustee or the Property Trustee is closed for business. "Certificate" means a certificate signed by the principal executive officer, the principal financial officer, the principal accounting officer, the treasurer or any vice president of the Company. The Certificate need not comply with the provisions of Section 15.7. "Change in 1940 Act Law" shall have the meaning set forth in the definition of "Investment Company Event." "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with the Preferred Securities; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of (i) distributions, and (ii) payments upon liquidation, redemption and otherwise, are subordinated to the rights of holders of Preferred Securities. "Company" means Stifel Financial Corp., a corporation duly organized and existing under the laws of the State of Delaware, and, subject to the provisions of Article XII, shall also include its successors and assigns. "Compounded Interest" shall have the meaning set forth in Section 4.1. "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the 3 10 date hereof is located at Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department. "Coupon Rate" shall have the meaning set forth in Section 2.5. "Custodian" means any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. "Debentures" shall have the meaning set forth in the Recitals hereto. "Debentureholder," "holder of Debentures," "registered holder," or other similar term, means the Person or Persons in whose name or names a particular Debenture shall be registered on the books of the Company or the Trustee kept for that purpose in accordance with the terms of this Indenture. "Debenture Register" shall have the meaning set forth in Section 2.7(b). "Debenture Registrar" shall have the meaning set forth in Section 2.7(b). "Debt" means with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; and (vi) and every obligation of the type referred to in clauses (i) through (v) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "Default" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "Deferred Interest" shall have the meaning set forth in Section 4.1. "Dissolution Event" means that as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Trust Agreement and, the Debentures held by the Property Trustee are to be distributed, after satisfaction of liabilities of creditors of the Trust as required by applicable law, to the holders of the Trust Securities issued by the Trust pro rata, in accordance with the Trust Agreement. "Distribution" shall have the meaning set forth in the Trust Agreement. 4 11 "Event of Default" means, with respect to the Debentures, any event specified in Section 7.1, which has continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Exchange Act," means the Securities Exchange Act of 1934, as amended, as in effect at the date of execution of this instrument. "Extended Maturity Date" means if the Company elects to extend the Maturity Date in accordance with Section 2.2(b), the date selected by the Company which is after the Scheduled Maturity Date but before June 30, 2036. "Extension Period" shall have the meaning set forth in Section 4.1. "Generally Accepted Accounting Principles" means such accounting principles as are generally accepted at the time of any computation required hereunder. "Governmental Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged; or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America that, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such Governmental Obligation or a specific payment of principal of or interest on any such Governmental Obligation held by such custodian for the account of the holder of such depositary receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Governmental Obligation or the specific payment of principal of or interest on the Governmental Obligation evidenced by such depositary receipt. "Herein," "hereof," and "hereunder," and other words of similar import, refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into in accordance with the terms hereof. "Interest Payment Date" shall have the meaning set forth in Section 2.5. "Investment Company Act," means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. "Investment Company Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm experienced in such matters, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or 5 12 regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or shall be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities under the Trust Agreement. "Maturity Date" means the date on which the Debentures mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Compounded Interest and Additional Interest, if any. "Ministerial Action" shall have the meaning set forth in Section 3.2. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary of the Company that is delivered to the Trustee in accordance with the terms hereof. Each such certificate shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. "Opinion of Counsel" means an opinion in writing of legal counsel, who may be an employee of or counsel for the Company, that is delivered to the Trustee in accordance with the terms hereof. Each such opinion shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. "Outstanding," when used with reference to the Debentures, means, subject to the provisions of Section 10.4, as of any particular time, all Debentures theretofore authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore canceled by the Trustee or any paying agent, or delivered to the Trustee or any paying agent for cancellation or that have previously been canceled; (b) Debentures or portions thereof for the payment or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided, however, that if such Debentures or portions of such Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article III provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Debentures in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.7. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.3. "Person" means any individual, corporation, partnership, joint-venture, joint-stock company, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Debenture" means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of 6 13 this definition, any Debenture authenticated and delivered under Section 2.9 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Preferred Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with Common Securities issued by the Trust; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of (i) distributions, and (ii) payments upon liquidation, redemption and otherwise, are subordinated to the rights of holders of Preferred Securities. "Preferred Securities Guarantee" means any guarantee that the Company may enter into with the Trustee or other Persons that operate directly or indirectly for the benefit of holders of Preferred Securities. "Property Trustee" has the meaning set forth in the Trust Agreement. "Responsible Officer" when used with respect to the Trustee means the Chairman of the Board of Directors, the President, any Vice President, the Secretary, the Treasurer, any trust officer, any corporate trust officer or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Scheduled Maturity Date" means June 30, 2027. "Securities Act," means the Securities Act of 1933, as amended, as in effect at the date of execution of this instrument. "Senior Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Debentures or to other Debt which is pari passu with, or subordinated to, the Debentures; provided, however, that Senior Debt shall not be deemed to include (i) any Debt of the Company which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to the Company; (ii) any Debt of the Company to any of its subsidiaries; (iii) Debt to any employee of the Company; (iv) Debt which by its terms is subordinated to trade accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made to the holders of such Debt by the holders of the Debentures as a result of the subordination provisions of this Indenture would be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such Debt is subject; and (v) Debt which constitutes Subordinated Debt. 7 14 "Senior Indebtedness" shall have the meaning set forth in Section 16.1. "Special Event" means a Tax Event or an Investment Company Event. "Subordinated Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of this Indenture or thereafter incurred, which is by its terms expressly provided to be junior and subordinate to other Debt of the Company (other than the Debentures). "Subsidiary" means, with respect to any Person, (i) any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries; (ii) any general partnership, joint venture, trust or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. "Tax Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm experienced in such matters, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Company on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, shall not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. The Trust or the Company shall request and receive such Opinion of Counsel with regard to such matters within a reasonable period of time after the Trust or the Company shall have become aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. "Trust" means Stifel Financial Capital Trust, a Delaware statutory business trust. "Trust Agreement" means the Amended and Restated Trust Agreement, dated as of ____________, 1997, of the Trust. "Trustee" means _____________________ and, subject to the provisions of Article IX, shall also include its successors and assigns, and, if at any time there is more than one Person acting in such capacity hereunder, "Trustee" shall mean each such Person. 8 15 "Trust Indenture Act," means the Trust Indenture Act of 1939, as amended, subject to the provisions of Sections 11.1, 11.2, and 12.1, as in effect at the date of execution of this instrument. "Trust Securities" means the Common Securities and Preferred Securities, collectively. "Voting Stock," as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. ARTICLE II Issue, Description, Terms, Conditions Registration and Exchange of the Debentures Section 2.1 Designation and Principal Amount. There is hereby authorized Debentures designated the "___% Subordinated Debentures due 2027," limited in aggregate principal amount up to $29,639,500, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Debentures pursuant to Section 2.6. Section 2.2. Maturity. (a) The Maturity Date shall be either: (i) the Scheduled Maturity Date; or (ii) if the Company elects to extend the Maturity Date beyond the Scheduled Maturity Date in accordance with Section 2.2(b), the Extended Maturity Date; or (iii) if the Company elects to accelerate the Maturity Date to be a date prior to the Scheduled Maturity Date in accordance with Section 2.2(c), the Accelerated Maturity Date. (b) The Company may at any time before the day which is 90 days before the Scheduled Maturity Date, elect to extend the Maturity Date to the Extended Maturity Date, provided that the following conditions in this Section 2.2(b) are satisfied both at the date the Company gives notice in accordance with Section 2.2(d) of its election to extend the Maturity Date and at the Scheduled Maturity Date: (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation; 9 16 (ii) the Company is not in default in the payment of interest or principal on the Debentures; and (iii) the Trust is not in arrears on payments of Distributions on the Trust Securities issued by it and no deferred Distributions are accumulated; (c) The Company may, on one occasion, at any time before the day which is 90 days before the Scheduled Maturity Date and after June 30, 2002, elect to shorten the Maturity Date to the Accelerated Maturity Date. (d) If the Company elects to extend the Maturity Date in accordance with Section 2.2(b), the Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the extension of the Maturity Date and the Extended Maturity Date at least 90 days and no more than 180 days before the Scheduled Maturity Date. (e) If the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the acceleration of the Maturity Date and the Accelerated Maturity Date at least 90 days and no more than 180 days before the Accelerated Maturity Date. Section 2.3. Form and Payment. The Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form shall be payable, the transfer of such Debentures shall be registrable and such Debentures shall be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the holder at such address as shall appear in the Debenture Register or by wire transfer to an account maintained by the holder as specified in the Debenture Register, provided that the holder provides proper transfer instructions by the regular record date. Notwithstanding the foregoing, so long as the holder of any Debentures is the Property Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Interest, if any) on such Debentures held by the Property Trustee shall be made at such place and to such account as may be designated by the Property Trustee. Section 2.4. [Intentionally Omitted] Section 2.5. Interest. (a) Each Debenture shall bear interest at the rate of ___% per annum (the "Coupon Rate") from the original date of issuance until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded quarterly, payable (subject to the provisions of Article IV) quarterly in arrears on 10 17 March 31, June 30, September 30, and December 31 of each year (each, an "Interest Payment Date," commencing on September 30, 1997), to the Person in whose name such Debenture or any Predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which shall be the fifteenth day of the last month of the calendar quarter. (b) The amount of interest payable for any period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date such payment was originally payable. (c) If, at any time while the Property Trustee is the holder of any Debentures, the Trust or the Property Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any case, the Company shall pay as additional interest ("Additional Interest") on the Debentures held by the Property Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying such taxes, duties, assessments or other governmental charges shall be equal to the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. Section 2.6. Execution and Authentications. (a) The Debentures shall be signed on behalf of the Company by its Chief Executive Officer, President or one of its Vice Presidents, under its corporate seal attested by its Secretary or one of its Assistant Secretaries. Signatures may be in the form of a manual or facsimile signature. The Company may use the facsimile signature of any Person who shall have been a Chief Executive Officer, President or Vice President thereof, or of any Person who shall have been a Secretary or Assistant Secretary thereof, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such Person shall have ceased to be the Chief Executive Officer, President or a Vice President, or the Secretary or an Assistant Secretary, of the Company. The seal of the Company may be in the form of a facsimile of such seal and may be impressed, affixed, imprinted or otherwise reproduced on the Debentures. The Debentures may contain such notations, legends or endorsements required by law, stock exchange rule or usage. Each Debenture shall be dated the date of its authentication by the Trustee. (b) A Debenture shall not be valid until manually authenticated by an authorized signatory of the Trustee, or by an Authenticating Agent. Such signature shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. 11 18 (c) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures signed by its Chief Executive Officer, President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and deliver such Debentures. (d) In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 9.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. (e) The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture shall affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. Section 2.7. Registration of Transfer and Exchange. (a) Debentures may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose in the Borough of Manhattan, the City of New York, or at the office of the Debenture Registrar, for other Debentures and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section 2.7. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in exchange therefor the Debenture or Debentures that the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. (b) The Company shall keep, or cause to be kept, at its office or agency designated for such purpose in the Borough of Manhattan, the City of New York, or at the office of the Debenture Registrar, or such other location designated by the Company a register or registers (herein referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of Debentures as provided in this Article II and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall initially be the Trustee and thereafter as may be appointed by the Company as authorized by Board Resolution (the "Debenture Registrar"). Upon surrender for transfer of any Debenture at the office or agency of the Company designated for such purpose, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in the name of the transferee or transferees a new Debenture or Debentures for a like aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section 2.7, shall be accompanied (if so required by the Company or the Debenture Registrar) by a written instrument or instruments of transfer, in 12 19 form satisfactory to the Company or the Debenture Registrar, duly executed by the registered holder or by such holder's duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.8, Section 3.5(b) and Section 11.4 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of less than all the Outstanding Debentures and ending at the close of business on the day of such mailing; nor (ii) to register the transfer of or exchange any Debentures or portions thereof called for redemption. Section 2.8. Temporary Debentures. Pending the preparation of definitive Debentures, the Company may execute, and the Trustee shall authenticate and deliver, temporary Debentures (printed, lithographed, or typewritten). Such temporary Debentures shall be substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Debentures. Without unnecessary delay the Company shall execute and shall furnish definitive Debentures and thereupon any or all temporary Debentures may be surrendered in exchange therefor (without charge to the holders), at the office or agency of the Company designated for the purpose in the Borough of Manhattan, the City of New York, and the Trustee shall authenticate and such office or agency shall deliver in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures shall be entitled to the same benefits under this Indenture as definitive Debentures authenticated and delivered hereunder. Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures. (a) In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon the Company's request the Trustee (subject as aforesaid) shall authenticate and deliver, a new Debenture bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or 13 20 theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and deliver the same upon the written request or authorization of the Chairman, President or any Vice President and the Treasurer or any Assistant Treasurer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture that has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. (b) Every replacement Debenture issued pursuant to the provisions of this Section 2.9 shall constitute an additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.10. Cancellation. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On request of the Company at the time of such surrender, the Trustee shall deliver to the Company canceled Debentures held by the Trustee. In the absence of such request the Trustee may dispose of canceled Debentures in accordance with its standard procedures and deliver a certificate of disposition to the Company. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. Section 2.11. Benefit of Indenture. Nothing in this Indenture or in the Debentures, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, 14 21 condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness). Section 2.12. Authentication Agent. (a) So long as any of the Debentures remain Outstanding there may be an Authenticating Agent for any or all such Debentures, which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by federal or state authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. (b) Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. ARTICLE III Redemption of Debentures Section 3.1. Redemption. The Company may redeem the Debentures issued hereunder on and after the dates set forth in and in accordance with the terms of this Article III. Section 3.2. Special Event Redemption. If a Special Event has occurred and is continuing, then, notwithstanding Section 3.3(a) but subject to Section 3.3(b), the Company shall have the right upon not less than 30 days nor more than 60 days notice to the holders of the Debentures to redeem the Debentures, in whole but not in part, for cash within 180 days following the occurrence of such Special Event (the "180-Day Period") at a redemption price equal to 100% of the principal amount to be 15 22 redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Redemption Price"), provided that if at the time there is available to the Company the opportunity to eliminate, within the 180-Day Period, a Tax Event by taking some ministerial action (a "Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Company, the Trust or the holders of the Trust Securities issued by the Trust, the Company shall pursue such Ministerial Action in lieu of redemption, and, provided further, that the Company shall have no right to redeem the Debentures while the Trust is pursuing any Ministerial Action pursuant to its obligations under the Trust Agreement. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. Section 3.3. Optional Redemption by Company. (a) Subject to the provisions of Section 3.3(b), except as otherwise may be specified in this Indenture, the Company shall have the right to redeem the Debentures, in whole or in part, from time to time, on or after June 30, 2002, at a Redemption Price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption. Any redemption pursuant to this Section 3.3(a) shall be made upon not less than 30 days nor more than 60 days notice to the holder of the Debentures, at the Redemption Price. If the Debentures are only partially redeemed pursuant to this Section 3.3, the Debentures shall be redeemed pro rata or by lot or in such other manner as the Trustee shall deem appropriate and fair in its discretion. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. (b) If a partial redemption of the Debentures would result in the delisting of the Preferred Securities issued by the Trust from The Nasdaq Stock Market's National Market, the New York Stock Exchange or any other national securities exchange or other organization on which the Preferred Securities are then listed, the Company shall not be permitted to effect such partial redemption and may only redeem the Debentures in whole. Section 3.4. Notice of Redemption. (a) In case the Company shall desire to exercise such right to redeem all or, as the case may be, a portion of the Debentures in accordance with the right reserved so to do, the Company shall, or shall cause the Trustee to upon receipt of 45 days' written notice from the Company (which notice shall, in the event of a partial redemption, include a representation to the effect that such partial redemption shall not result in the delisting of the Preferred Securities as described in Section 3.3(b) above), give notice of such redemption to holders of the Debentures to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 16 23 30 days and not more than 60 days before the date fixed for redemption to such holders at their last addresses as they shall appear upon the Debenture Register unless a shorter period is specified in the Debentures to be redeemed. Any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the registered holder receives the notice. In any case, failure duly to give such notice to the holder of any Debenture designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Debentures. In the case of any redemption of Debentures prior to the expiration of any restriction on such redemption provided in the terms of such Debentures or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with any such restriction. Each such notice of redemption shall specify the date fixed for redemption and the Redemption Price and shall state that payment of the Redemption Price shall be made at the office or agency of the Company in the Borough of Manhattan, The City of New York or at the Corporate Trust Office, upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption shall be paid as specified in said notice and that from and after said date interest shall cease to accrue. If less than all the Debentures are to be redeemed, the notice to the holders of the Debentures shall specify the particular Debentures to be redeemed. If the Debentures are to be redeemed in part only, the notice shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the redemption date, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof shall be issued. (b) If less than all the Debentures are to be redeemed, the Company shall give the Trustee at least 45 days' notice in advance of the date fixed for redemption as to the aggregate principal amount of Debentures to be redeemed, and thereupon the Trustee shall select, by lot or in such other manner as it shall deem appropriate and fair in its discretion, the portion or portions (equal to $10 or any integral multiple thereof) of the Debentures to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Debentures to be redeemed, in whole or in part. The Company may, if and whenever it shall so elect pursuant to the terms hereof, by delivery of instructions signed on its behalf by its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Debentures for redemption and to give notice of redemption in the manner set forth in this Section 3.4, such notice to be in the name of the Company or its own name as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case may be, such Debenture Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section 3.4. Section 3.5. Payment Upon Redemption. (a) If the giving of notice of redemption shall have been completed as above provided, the Debentures or portions of Debentures to be redeemed specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable 17 24 Redemption Price, and interest on such Debentures or portions of Debentures shall cease to accrue on and after the date fixed for redemption, unless the Company shall default in the payment of such Redemption Price with respect to any such Debenture or portion thereof. On presentation and surrender of such Debentures on or after the date fixed for redemption at the place of payment specified in the notice, said Debentures shall be paid and redeemed at the Redemption Price (but if the date fixed for redemption is an interest payment date, the interest installment payable on such date shall be payable to the registered holder at the close of business on the applicable record date pursuant to Section 3.3). (b) Upon presentation of any Debenture that is to be redeemed in part only, the Company shall execute and the Trustee shall authenticate and the office or agency where the Debenture is presented shall deliver to the holder thereof, at the expense of the Company, a new Debenture of authorized denomination in principal amount equal to the unredeemed portion of the Debenture so presented. Section 3.6. No Sinking Fund. The Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV Extension of Interest Payment Period Section 4.1. Extension of Interest Payment Period. So long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of such Debentures for a period not exceeding 20 consecutive quarters (the "Extension Period"), during which Extension Period no interest shall be due and payable; provided that no Extension Period may extend beyond the Maturity Date. Interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, shall bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extension Period ("Compounded Interest"). At the end of the Extension Period, the Company shall calculate (and deliver such calculation to the Trustee) and pay all interest accrued and unpaid on the Debentures, including any Additional Interest and Compounded Interest (together, "Deferred Interest") that shall be payable to the holders of the Debentures in whose names the Debentures are registered in the Debenture Register on the first record date after the end of the Extension Period. Before the termination of any Extension Period, the Company may further extend such period, provided that such period together with all such further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date of the Debentures. Upon the termination of any Extension Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest shall be due and payable during an Extension Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extension Period. 18 25 Section 4.2. Notice of Extension. (a) If the Property Trustee is the only registered holder of the Debentures at the time the Company selects an Extension Period, the Company shall give written notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extension Period two Business Days before the earlier of (i) the next succeeding date on which Distributions on the Trust Securities issued by the Trust are payable; or (ii) the date the Trust is required to give notice of the record date, or the date such Distributions are payable, to The Nasdaq Stock Market's National Market, to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Preferred Securities issued by the Trust, but in any event at least one Business Day before such record date. (b) If the Property Trustee is not the only holder of the Debentures at the time the Company selects an Extension Period, the Company shall give the holders of the Debentures and the Trustee written notice of its selection of such Extension Period at least two Business Days before the earlier of (i) the next succeeding Interest Payment Date; or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to The Nasdaq Stock Market's National Market, the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Debentures. (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in the maximum Extension Period permitted under Section 4.1. Section 4.3. Limitation on Transactions. If (i) the Company shall exercise its right to defer payment of interest as provided in Section 4.1; or (ii) there shall have occurred any Event of Default, then (a) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock; (b) the Company shall not make any payment of interest, principal or premium, if any, or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior to the Debentures; provided, however, that notwithstanding the foregoing the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the Outstanding Debentures or any of the Preferred Securities. ARTICLE V Particular Covenants of the Company Section 5.1. Payment of Principal and Interest. The Company shall duly and punctually pay or cause to be paid the principal of and interest on the Debentures at the time and place and in the manner provided herein. 19 26 Section 5.2. Maintenance of Agency. So long as any of the Debentures remain Outstanding, the Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, and at such other location or locations as may be designated as provided in this Section 5.2, where (i) Debentures may be presented for payment; (ii) Debentures may be presented as hereinabove authorized for registration of transfer and exchange; and (iii) notices and demands to or upon the Company in respect of the Debentures and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside of the Borough of Manhattan, The City of New York, where the Debentures may be presented for registration or transfer and for exchange in the manner provided herein, and the Company may from time to time rescind such designation as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain any such office or agency in the Borough of Manhattan, The City of New York, for the purposes above mentioned. The Company shall give the Trustee prompt written notice of any such designation or rescission thereof. Section 5.3. Paying Agents. (a) The Property Trustee shall act as the Paying Agent. If the Company shall appoint one or more paying agents for the Debentures, other than the Property Trustee, the Company shall cause each such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 5.3: (i) that it shall hold all sums held by it as such agent for the payment of the principal of or interest on the Debentures (whether such sums have been paid to it by the Company or by any other obligor of such Debentures) in trust for the benefit of the Persons entitled thereto; (ii) that it shall give the Trustee notice of any failure by the Company (or by any other obligor of such Debentures) to make any payment of the principal of or interest on the Debentures when the same shall be due and payable; (iii) that it shall, at any time during the continuance of any failure referred to in the preceding paragraph (a)(ii) above, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (iv) that it shall perform all other duties of Paying Agent as set forth in this Indenture. 20 27 (b) If the Company shall act as its own Paying Agent with respect to the Debentures, it shall on or before each due date of the principal of or interest on such Debentures, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay such principal or interest so becoming due on Debentures until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of such action, or any failure (by it or any other obligor on such Debentures) to take such action. Whenever the Company shall have one or more Paying Agents for the Debentures, it shall, prior to each due date of the principal of or interest on any Debentures, deposit with the Paying Agent a sum sufficient to pay the principal or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of this action or failure so to act. (c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the agreement to hold sums in trust as provided in this Section 5.3 is subject to the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms and conditions as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Section 5.4. Appointment To Fill Vacancy in Office of Trustee. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee, so that there shall at all times be a Trustee hereunder. Section 5.5. Compliance with Consolidation Provisions. The Company shall not, while any of the Debentures remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other company unless the provisions of Article XII hereof are compiled with. Section 5.6. Limitation on Transactions. If Debentures are issued to the Trust or a trustee of the Trust in connection with the issuance of Trust Securities by the Trust and (i) there shall have occurred any event that would constitute an Event of Default; (ii) the Company shall be in default with respect to its payment of any obligations under the Preferred Securities Guarantee relating to the Trust; or (iii) the Company shall have given notice of its election to defer payments of interest on such Debentures by extending the interest payment period as provided in this Indenture and such period, or any extension thereof, shall be continuing, then (a) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock; (b) the Company shall not 21 28 make any payment of interest, principal or premium, if any, or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior to the Debentures; provided, however, that the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the Outstanding Debentures or any of the Preferred Securities. Section 5.7. Covenants as to the Trust. For so long as the Trust Securities of the Trust remain outstanding, the Company shall (i) maintain 100% direct or indirect ownership of the Common Securities of the Trust; provided, however, that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of the Common Securities; (ii) use its reasonable efforts to cause the Trust (a) to remain a business trust, except in connection with a distribution of Debentures, the redemption of all of the Trust Securities of the Trust or certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement; and (b) to otherwise continue not to be treated as an association taxable as a corporation or partnership for United States federal income tax purposes; and (iii) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an individual beneficial interest in the Debentures. In connection with the distribution of the Debentures to the holders of the Preferred Securities issued by the Trust upon a Dissolution Event, the Company shall use its best efforts to list such Debentures on The Nasdaq Stock Market's National Market, on the New York Stock Exchange or on such other exchange as the Preferred Securities are then listed. Section 5.8. Covenants as to Purchases. Except upon the exercise by the Company of its right to redeem the Debentures pursuant to Section 3.2 upon the occurrence and continuation of a Special Event, the Company shall not purchase any Debentures, in whole or in part, from the Trust prior to June 30, 2002. ARTICLE VI Debentureholders' Lists and Reports by the Company and the Trustee Section 6.1. Company To Furnish Trustee Names and Addresses of Debentureholders. The Company shall furnish or cause to be furnished to the Trustee (a) on a quarterly basis on each regular record date (as described in Section 2.5) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of the Debentures as of such regular record date, provided that the Company shall not be obligated to furnish or cause to furnish such list at any time that the list shall not differ in any respect from the most recent list furnished to the Trustee by the Company (in the event the Company fails to provide such list on a monthly basis, the Trustee shall be entitled to rely on the most recent list provided by the Company); and (b) at such other times as the Trustee may request in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that, in either case, no such list need be furnished if the Trustee shall be the Debenture Registrar. 22 29 Section 6.2. Preservation of Information Communications with Debentureholders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures contained in the most recent list furnished to it as provided in Section 6.1 and as to the names and addresses of holders of Debentures received by the Trustee in its capacity as Debenture Registrar for the Debentures (if acting in such capacity). (b) The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (c) Debentureholders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Debentureholders with respect to their rights under this Indenture or under the Debentures. Section 6.3. Reports by the Company. (a) The Company covenants and agrees to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) that the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports that may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Company covenants and agrees to transmit by mail, first class postage prepaid, or reputable overnight delivery service that provides for evidence of receipt, to the Debentureholders, as their names and addresses appear upon the Debenture Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 6.3 as may be required by rules and regulations prescribed from time to time by the Commission. 23 30 Section 6.4. Reports by the Trustee. (a) On or before July 15 in each year in which any of the Debentures are Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register, a brief report dated as of the preceding May 15, if and to the extent required under Section 313(a) of the Trust Indenture Act. (b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Debentureholders, be filed by the Trustee with the Company, with each stock exchange upon which any Debentures are listed (if so listed) and also with the Commission. The Company agrees to notify the Trustee when any Debentures become listed on any stock exchange. ARTICLE VII Remedies of the Trustee and Debentureholders on Event of Default Section 7.1. Events of Default. (a) Whenever used herein with respect to the Debentures, "Event of Default" means any one or more of the following events that has occurred and is continuing: (i) the Company defaults in the payment of any installment of interest upon any of the Debentures, as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of this Indenture shall not constitute a default in the payment of interest for this purpose; (ii) the Company defaults in the payment of the principal on the Debentures as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise; provided, however, that a valid extension of the maturity of such Debentures in accordance with the terms of this Indenture shall not constitute a default in the payment of principal; (iii) the Company fails to observe or perform any other of its covenants or agreements with respect to the Debentures for a period of 90 days after the date on which written notice of such failure, requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder, shall have been given to the Company by the Trustee, by registered or certified mail, or to the Company and the Trustee by the holders of at least 25% in principal amount of the Debentures at the time Outstanding; (iv) the Company pursuant to or within the meaning of any Bankruptcy Law (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or 24 31 for all or substantially all of its property; or (iv) makes a general assignment for the benefit of its creditors; (v) a court of competent jurisdiction enters an order under any Bankruptcy Law that (i) is for relief against the Company in an involuntary case; (ii) appoints a Custodian of the Company for all or substantially all of its property; or (iii) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days; or (vi) the Trust shall have voluntarily or involuntarily dissolved, except in connection with (i) the distribution of Debentures to holders of Trust Securities in liquidation of their interests in the Trust; (ii) the redemption of all of the outstanding Trust Securities of the Trust; or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement. (b) In each and every such case, unless the principal of all the Debentures shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Debentureholders) may declare the principal of all the Debentures to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, notwithstanding anything contained in this Indenture or in the Debentures. (c) At any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the holders of a majority in aggregate principal amount of the Debentures then Outstanding hereunder, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) the Company has paid or deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures and the principal of any and all Debentures that shall have become due otherwise than by acceleration (with interest upon such principal, and upon overdue installments of interest, at the rate per annum expressed in the Debentures to the date of such payment or deposit) and the amount payable to the Trustee under Section 9.7; and (ii) any and all Events of Default under this Indenture, other than the nonpayment of principal on Debentures that shall not have become due by their terms, shall have been remedied or waived as provided in Section 7.6. No such rescission and annulment shall extend to or shall affect any subsequent default or impair any right consequent thereon. (d) In case the Trustee shall have proceeded to enforce any right with respect to Debentures under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. 25 32 Section 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee. (a) The Company covenants that (1) in case it shall default in the payment of any installment of interest on any of the Debentures, and such default shall have continued for a period of 90 Business Days; or (2) in case it shall default in the payment of the principal of any of the Debentures when the same shall have become due and payable, whether upon maturity of the Debentures or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company shall pay to the Trustee, for the benefit of the holders of the Debentures, the whole amount that then shall have been become due and payable on all such Debentures for principal or interest, or both, as the case may be, with interest upon the overdue principal and upon overdue installments of interest at the rate per annum expressed in the Debentures; and (if the Debentures are held by the Trust or a trustee of the Trust, without duplication of any other amounts paid by the Trust or trustee in respect thereof) upon overdue installments of interest at the rate per annum expressed in the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 9.7. (b) If the Company shall fail to pay such amounts set forth in Section 7.2(a) forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Debentures and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or other obligor upon the Debentures, wherever situated. (c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or judicial proceedings affecting the Company or the creditors or property thereof, the Trustee shall have power to intervene in such proceedings and take any action therein that may be permitted by the court and shall (except as may be otherwise provided by law) be entitled to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Trustee and of the holders of the Debentures allowed for the entire amount due and payable by the Company under this Indenture at the date of institution of such proceedings and for any additional amount that may become due and payable by the Company after such date, and to collect and receive any moneys or other property payable or deliverable on any such claim, and to distribute the same after the deduction of the amount payable to the Trustee under Section 9.7; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of the Debentures to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to such Debentureholders, to pay to the Trustee any amount due it under Section 9.7. (d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Debentures, may be enforced by the Trustee without the possession of any of such Debentures, or the production thereof at any trial or other 26 33 proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment to the Trustee of any amounts due under Section 9.7, be for the ratable benefit of the holders of the Debentures. In case of an Event of Default hereunder, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Debentureholder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Debentureholder in any such proceeding. Section 7.3. Application of Moneys Collected. Any moneys collected by the Trustee pursuant to this Article VII with respect to the Debentures shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the Debentures, and notation thereon of the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 9.7; SECOND: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article XVI; and THIRD: To the payment of the amounts then due and unpaid upon the Debentures for principal and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal and interest, respectively. Section 7.4. Limitation on Suits. (a) Except as provided in Section 15.13 hereof, no holder of any Debenture shall have any right by virtue or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to the Debentures specifying such Event of Default, as hereinbefore provided; (ii) the holders of not less than 25% in aggregate principal amount of the Debentures then Outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as trustee hereunder; (iii) such holder or holders shall have offered to the Trustee such reasonable indemnity as it may require against the costs, 27 34 expenses and liabilities to be incurred therein or thereby; and (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding; and (v) during such 60 day period, the holders of a majority in principal amount of the Debentures do not give the Trustee a direction inconsistent with the request. (b) Notwithstanding anything contained herein to the contrary or any other provisions of this Indenture, the right of any holder of the Debentures to receive payment of the principal of and interest on the Debentures, as therein provided, on or after the respective due dates expressed in such Debenture (or in the case of redemption, on the redemption date), or to institute suit for the enforcement of any such payment on or after such respective dates or redemption date, shall not be impaired or affected without the consent of such holder and by accepting a Debenture hereunder it is expressly understood, intended and covenanted by the taker and holder of every Debenture with every other such taker and holder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures. For the protection and enforcement of the provisions of this Section 7.4, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 7.5. Rights and Remedies Cumulative; Delay or Omission Not Waiver. (a) Except as otherwise provided in Section 2.9, all powers and remedies given by this Article VII to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such Debentures. (b) No delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. Section 7.6. Control by Debentureholders. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding, determined in accordance with Section 10.4, shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that such direction shall not be in conflict with any rule of law or with this Indenture. Subject to the provisions of 28 35 Section 9.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding affected thereby, determined in accordance with Section 10.4, may on behalf of the holders of all of the Debentures waive any past default in the performance of any of the covenants contained herein and its consequences, except (i) a default in the payment of the principal of or interest on, any of the Debentures as and when the same shall become due by the terms of such Debentures otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal has been deposited with the Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants contained in Section 5.6; or (iii) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the holder of each Outstanding Debenture affected; provided, however, that if the Debentures are held by the Trust or a trustee of the Trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such waiver or modification to such waiver; provided further, that if the consent of the holder of each Outstanding Debenture is required, such waiver shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such waiver. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 7.7. Undertaking To Pay Costs. All parties to this Indenture agree, and each holder of any Debentures by such holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 7.8 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders holding more than 10% in aggregate principal amount of the Outstanding Debentures, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of or interest on the Debentures, on or after the respective due dates expressed in such Debenture or established pursuant to this Indenture. 29 36 ARTICLE VIII Form of Debenture and Original Issue Section 8.1. Form of Debenture. The Debenture and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the forms contained as Exhibit A attached hereto and incorporated herein by reference. Section 8.2. Original Issue of Debentures. Debentures in the aggregate principal amount of $25,773,500 may, upon execution of this Indenture, be executed by the Company and delivered to the Trustee for authentication. If the Underwriters exercise their Option and there is an Option Closing Date (as such terms are defined in that certain Underwriting Agreement, dated ______________, 1997, by and among the Company, the Trust and Stifel, Nicolaus & Company, Incorporated for itself and as representative of the Underwriters named therein) then, on such Option Closing Date, Debentures in the additional aggregate principal amount of $3,866,000 may be executed by the Company and delivered to the Trustee for authentication. In either such event, the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its Chairman, its Vice Chairman, its President, or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE IX Concerning the Trustee Section 9.1. Certain Duties and Responsibilities of Trustee. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform with respect to the Debentures such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants shall be read into this Indenture against the Trustee. In case an Event of Default has occurred that has not been cured or waived, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (i) the duties and obligations of the Trustee shall with respect to the Debentures be determined solely by the express provisions of this 30 37 Indenture, and the Trustee shall not be liable with respect to the Debentures except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may with respect to the Debentures conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Debentures at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Debentures; and (4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. Section 9.2. Notice of Defaults. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Debentures, the Trustee shall transmit by mail to all holders of the Debentures, as their names and addresses appear in the Debenture Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal or interest (including any Additional Interest) on any Debenture, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of the directors and/or Responsible Officers of the Trustee determines in good faith that the withholding of such notice is in the interests of the holders of such Debentures; and provided, further, that in the case of any default of the character specified in Section 7.1(a)(iii), no such notice to holders of Debentures need be sent until at least 30 days after the occurrence thereof. 31 38 For the purposes of this Section 9.2, the term "default" means any event which is, or after notice or lapse of time or both, would become, an Event of Default with respect to the Debentures. Section 9.3. Certain Rights of Trustee. Except as otherwise provided in Section 9.1: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by a Board Resolution or an instrument signed in the name of the Company by the President or any Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer thereof (unless other evidence in respect thereof is specifically prescribed herein); (c) The Trustee shall not be deemed to have knowledge of a default or an Event of Default, other than an Event of Default specified in Section 7.1(a)(i); or (ii), unless and until it receives written notification of such Event of Default from the Company or by holders of at least 25% of the aggregate principal amount of the Debentures at the time Outstanding; (d) The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted hereunder in good faith and in reliance thereon; (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders, pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (that has not been cured or waived) to exercise with respect to the Debentures such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (f) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security, or other papers or documents, unless requested in writing so to do by the holders of not less than a majority in principal amount of the Outstanding Debentures (determined as provided in Section 10.4); provided, however, that if the 32 39 payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; and (h) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 9.4. Trustee Not Responsible for Recitals, Etc. (a) The Recitals contained herein and in the Debentures shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture, or for the use or application of any moneys received by any paying agent other than the Trustee. Section 9.5. May Hold Debentures. The Trustee or any Paying Agent or Debenture Registrar for the Debentures, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, Paying Agent or Debenture Registrar. Section 9.6. Moneys Held in Trust. Subject to the provisions of Section 13.5, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree with the Company to pay thereon. Section 9.7. Compensation and Reimbursement. (a) The Company covenants and agrees to pay to the Trustee, and the Trustee shall be entitled to, such reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), as the Company and the 33 40 Trustee may from time to time agree in writing, for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and, except as otherwise expressly provided herein, the Company shall pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. (b) The obligations of the Company under this Section 9.7 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Section 9.8. Reliance on Officers' Certificate. Except as otherwise provided in Section 9.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof. Section 9.9. Disqualification; Conflicting Interests. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. Section 9.10. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee with respect to the Debentures issued hereunder which shall at all times be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or other Person permitted to act as trustee by the Commission, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal, state, territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the 34 41 purposes of this Section 9.10, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.10, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.11. Section 9.11. Resignation and Removal; Appointment of Successor. (a) The Trustee or any successor hereafter appointed, may at any time resign by giving written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee with respect to Debentures by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures, or any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 9.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any one of the following shall occur: (i) the Trustee shall fail to comply with the provisions of Section 9.9 after written request therefor by the Company or by any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.10 and shall fail to resign after written request therefor by the Company or by any such Debentureholder; or (iii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy proceeding, or a receiver of the Trustee or of its property shall be appointed or consented to, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee with respect to all Debentures and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 9.9, unless the Trustee's duty to resign is stayed as provided herein, any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, on behalf of that holder and all others similarly situated, petition any court of competent jurisdiction for the removal of 35 42 the Trustee and the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding may at any time remove the Trustee by so notifying the Trustee and the Company and may appoint a successor Trustee with the consent of the Company. (d) Any resignation or removal of the Trustee and appointment of a successor trustee with respect to the Debentures pursuant to any of the provisions of this Section 9.11 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.12. (e) Any successor trustee appointed pursuant to this Section 9.11 may be appointed with respect to the Debentures, and at any time there shall be only one Trustee with respect to the Debentures. Section 9.12. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor trustee with respect to the Debentures, every successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts referred to in paragraph (a) of this Section 9.12. (c) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article IX. (d) Upon acceptance of appointment by a successor trustee as provided in this Section 9.12, the Company shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. If the Company fails to transmit such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be transmitted at the expense of the Company. 36 43 Section 9.13. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be qualified under the provisions of Section 9.9 and eligible under the provisions of Section 9.10, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. Section 9.14. Preferential Collection of Claims Against the Company. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein. ARTICLE X Concerning the Debentureholders Section 10.1. Evidence of Action by Holders. (a) Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such majority or specified percentage have joined therein may be evidenced by any instrument or any number of instruments of similar tenor executed by such holders of Debentures in Person or by agent or proxy appointed in writing. (b) If the Company shall solicit from the Debentureholders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for the determination of Debentureholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Debentureholders of record at the close of business on the record date shall be deemed to be Debentureholders for the purposes of determining whether Debentureholders of the requisite proportion of Outstanding Debentures have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Outstanding Debentures shall be computed as of the record date; provided, however, that no such 37 44 authorization, agreement or consent by such Debentureholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. Section 10.2. Proof of Execution by Debentureholders. Subject to the provisions of Section 9.1, proof of the execution of any instrument by a Debentureholder (such proof shall not require notarization) or his agent or proxy and proof of the holding by any Person of any of the Debentures shall be sufficient if made in the following manner: (a) The fact and date of the execution by any such Person of any instrument may be proved in any reasonable manner acceptable to the Trustee. (b) The ownership of Debentures shall be proved by the Debenture Register of such Debentures or by a certificate of the Debenture Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section 10.2 as it shall deem necessary. Section 10.3. Who May Be Deemed Owners. Prior to the due presentment for registration of transfer of any Debenture, the Company, the Trustee, any Paying Agent, any Authenticating Agent and any Debenture Registrar may deem and treat the Person in whose name such Debenture shall be registered upon the books of the Company as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal of and interest on such Debenture (subject to Section 2.3) and for all other purposes; and neither the Company nor the Trustee nor any Paying Agent nor any Authenticating Agent nor any Debenture Registrar shall be affected by any notice to the contrary. Section 10.4. Certain Debentures Owned by Company Disregarded. In determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent or waiver under this Indenture, the Debentures that are owned by the Company or any other obligor on the Debentures or by any Person directly or indirectly controlling or controlled by or under common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debentures that the Trustee actually knows are so owned shall be so disregarded. The Debentures so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 10.4, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not a Person directly or indirectly controlling or controlled by or under direct or indirect common 38 45 control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 10.5. Actions Binding on Future Debentureholders. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 10.1, of the taking of any action by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder of a Debenture that is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice with the Trustee, and upon proof of holding as provided in Section 10.2, revoke such action so far as concerns such Debenture. Except as aforesaid any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange therefor, on registration of transfer thereof or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Debentures. ARTICLE XI Supplemental Indentures Section 11.1. Supplemental Indentures Without the Consent of Debentureholders. In addition to any supplemental indenture otherwise authorized by this Indenture, the Company and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect), without the consent of the Debentureholders, for one or more of the following purposes: (a) to cure any ambiguity, defect, or inconsistency herein, or in the Debentures; (b) to comply with Article X; (c) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (d) to add to the covenants of the Company for the benefit of the holders of all or any of the Debentures or to surrender any right or power herein conferred upon the Company; (e) to add to, delete from, or revise the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, authentication, and delivery of Debentures, as herein set forth; 39 46 (f) to make any change that does not adversely affect the rights of any Debentureholder in any material respect; (g) to provide for the issuance of and establish the form and terms and conditions of the Debentures, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or of the Debentures, or to add to the rights of the holders of the Debentures; (h) qualify or maintain the qualification of this Indenture under the Trust Indenture Act; or (i) to evidence a consolidation or merger involving the Company as permitted under Section 12.1. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time Outstanding, notwithstanding any of the provisions of Section 11.2. Section 11.2. Supplemental Indentures with Consent of Debentureholders. With the consent (evidenced as provided in Section 10.1) of the holders of not less than a majority in aggregate principal amount of the Debentures at the time Outstanding, the Company, when authorized by Board Resolutions, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner not covered by Section 11.1 the rights of the holders of the Debentures under this Indenture; provided, however, that no such supplemental indenture shall without the consent of the holders of each Debenture then Outstanding and affected thereby, (i) extend the fixed maturity of any Debentures, reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture; provided further, that if the Debentures are held by the Trust or a trustee of the Trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such supplemental indenture; provided further, that if the consent of the holder of each Outstanding Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such supplemental indenture. It shall not be necessary for the consent of the Debentureholders affected thereby under this Section 11.2 to approve the particular form of 40 47 any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 11.3. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 11.4. Debentures Affected by Supplemental Indentures. Debentures affected by a supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article XI, may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which the Debentures may be listed, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures then Outstanding. Section 11.5. Execution of Supplemental Indentures. (a) Upon the request of the Company, accompanied by its Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Debentureholders required to consent thereto as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. The Trustee, subject to the provisions of Sections 9.1, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article XI is authorized or permitted by, and conforms to, the terms of this Article XI and that it is proper for the Trustee under the provisions of this Article XI to join in the execution thereof. (b) Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section 11.5, the Trustee shall transmit by mail, first class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Debentureholders as their names and addresses appear upon the Debenture Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. 41 48 ARTICLE XII Successor Corporation Section 12.1. Company May Consolidate, Etc. Nothing contained in this Indenture or in any of the Debentures shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company, as the case may be), or successive consolidations or mergers in which the Company, as the case may be, or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property of the Company, as the case may be, or its successor or successors as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company, as the case may be, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and agrees that, (i) upon any such consolidation, merger, sale, conveyance, transfer or other disposition, the due and punctual payment, in the case of the Company, of the principal of and interest on all of the Debentures, according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company as the case may be, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company, as the case may be, shall have been merged, or by the entity which shall have acquired such property; (ii) in case the Company consolidates with or merges into another Person or conveys or transfers its properties and assets substantially then as an entirety to any Person, the successor Person is organized under the laws of the United States or any state or the District of Columbia; and (iii) immediately after giving effect thereto, an Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. Section 12.2. Successor Corporation Substituted. (a) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and interest on all of the Debentures Outstanding and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named as the Company herein, and thereupon the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Debentures. (b) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. 42 49 (c) Nothing contained in this Indenture or in any of the Debentures shall prevent the Company from merging into itself or acquiring by purchase or otherwise all or any part of the property of any other Person (whether or not affiliated with the Company). Section 12.3. Evidence of Consolidation, Etc. to Trustee. The Trustee, subject to the provisions of Section 9.1, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article XII. ARTICLE XIII Satisfaction and Discharge Section 13.1. Satisfaction and Discharge of Indenture. If at any time: (a) the Company shall have delivered to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures that shall have been destroyed, lost or stolen and that shall have been replaced or paid as provided in Section 2.9) and Debentures for whose payment money or Governmental Obligations have theretofore been deposited in trust or segregated and held in trust by the Company (and thereupon repaid to the Company or discharged from such trust, as provided in Section 13.5); or (b) all such Debentures not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit or cause to be deposited with the Trustee as trust funds the entire amount in moneys or Governmental Obligations sufficient or a combination thereof, sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay at maturity or upon redemption all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company; then this Indenture shall thereupon cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.7 and 9.10, that shall survive until the date of maturity or redemption date, as the case may be, and Sections 9.6 and 13.5, that shall survive to such date and thereafter, and the Trustee, on demand of the Company and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. Section 13.2. Discharge of Obligations. If at any time all Debentures not heretofore delivered to the Trustee for cancellation or that have not become due and payable as described in Section 13.1 shall have been paid by the Company by depositing irrevocably with the Trustee as trust funds moneys or an amount of Governmental Obligations sufficient in the opinion of a nationally recognized certified public accounting firm to pay at maturity or upon redemption all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to 43 50 become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then after the date such moneys or Governmental Obligations, as the case may be, are deposited with the Trustee, the obligations of the Company under this Indenture shall cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6, 9.10 and 13.5 hereof that shall survive until such Debentures shall mature and be paid. Thereafter, Sections 9.6 and 13.5 shall survive. Section 13.3. Deposited Moneys To Be Held in Trust. All monies or Governmental Obligations deposited with the Trustee pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available for payment as due, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the holders of the Debentures for the payment or redemption of which such moneys or Governmental Obligations have been deposited with the Trustee. Section 13.4. Payment of Monies Held by Paying Agents. In connection with the satisfaction and discharge of this Indenture, all moneys or Governmental Obligations then held by any Paying Agent under the provisions of this Indenture shall, upon demand of the Company, be paid to the Trustee and thereupon such Paying Agent shall be released from all further liability with respect to such moneys or Governmental Obligations. Section 13.5. Repayment to Company. Any monies or Governmental Obligations deposited with any Paying Agent or the Trustee, or then held by the Company in trust, for payment of principal of or interest on the Debentures that are not applied but remain unclaimed by the holders of such Debentures for at least two years after the date upon which the principal of or interest on such Debentures shall have respectively become due and payable, shall be repaid to the Company, as the case may be, on May 31 of each year or (if then held by the Company) shall be discharged from such trust; and thereupon the Paying Agent and the Trustee shall be released from all further liability with respect to such moneys or Governmental Obligations, and the holder of any of the Debentures entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company for the payment thereof. ARTICLE XIV Immunity of Incorporators, Stockholders, Officers and Directors Section 14.1. No Recourse. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of the Debentures, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any predecessor or successor corporation, either directly or through 44 51 the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures. ARTICLE XV Miscellaneous Provisions Section 15.1. Effect on Successors and Assigns. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind their respective successors and assigns, whether so expressed or not. Section 15.2. Actions by Successor. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. Section 15.3. Surrender of Company Powers. The Company by instrument in writing executed by appropriate authority of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company, and thereupon such power so surrendered shall terminate both as to the Company, as the case may be, and as to any successor corporation. Section 15.4. Notices. Except as otherwise expressly provided herein any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited first class postage prepaid in a post-office letterbox addressed (until another address is filed in writing by the Company with the Trustee), as follows: c/o Stifel Financial Corp., 500 North Broadway, 45 52 St. Louis, Missouri 63102-2188, Attention: Chief Financial Officer. Any notice, election, request or demand by the Company or any Debentureholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the Corporate Trust Office of the Trustee. Section 15.5. Governing Law. This Indenture and each Debenture shall be deemed to be a contract made under the internal laws of the State of Missouri and for all purposes shall be construed in accordance with the laws of said State. Section 15.6. Treatment of Debentures as Debt. It is intended that the Debentures shall be treated as indebtedness and not as equity for federal income tax purposes. The provisions of this Indenture shall be interpreted to further this intention. Section 15.7. Compliance Certificates and Opinions. (a) Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. (b) Each certificate or opinion of the Company provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture shall include (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as, in the opinion of such Person, is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 15.8. Payments on Business Days. In any case where the date of maturity of interest or principal of any Debenture or the date of redemption of any Debenture shall not be a Business Day, then payment of interest or principal may (subject to Section 2.5) be made on the next succeeding Business Day with the same force and effect as if made on the nominal date of maturity or redemption, and no interest shall accrue for the period after such nominal date. 46 53 Section 15.9. Conflict with Trust Indenture Act. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. Section 15.10. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Section 15.11. Separability. In case any one or more of the provisions contained in this Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of the Debentures, but this Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 15.12. Assignment. The Company shall have the right at all times to assign any of its respective rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company, provided that, in the event of any such assignment, the Company shall remain liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto. Section 15.13. Acknowledgment of Rights; Right of Setoff. (a) The Company acknowledges that, with respect to any Debentures held by the Trust or a trustee of the Trust, if the Property Trustee fails to enforce its rights under this Indenture as the holder of the Debentures held as the assets of the Trust, any holder of Preferred Securities may institute legal proceedings directly against the Company to enforce such Property Trustee's rights under this Indenture without first instituting any legal proceedings against such Property Trustee or any other person or entity. Notwithstanding the foregoing, and notwithstanding the provisions of Section 7.4(a) hereof, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), the Company acknowledges that a holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due date specified in the Debentures. 47 54 (b) Notwithstanding anything to the contrary contained in this Indenture, the Company shall have the right to setoff any payment it is otherwise required to make hereunder in respect of any Trust Securities to the extent that the Company has previously made, or is concurrently making, a payment to the holder of such Trust Securities under the Guarantee or in connection with a proceeding for enforcement of payment of the principal of or interest on the Debentures directly brought by holders of any Trust Securities. ARTICLE XVI Subordination of Debentures Section 16.1. Agreement to Subordinate. The Company covenants and agrees, and each holder of Debentures issued hereunder by such holder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article XVI; and each holder of a Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of and interest on all Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Debt, Subordinated Debt and Additional Senior Obligations (collectively, "Senior Indebtedness") to the extent provided herein, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article XVI shall prevent the occurrence of any default or Event of Default hereunder. Section 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior Obligations. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company, or in the event that the maturity of any Senior Indebtedness of the Company has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption payments) of or interest on the Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding sentence of this Section 16.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. 48 55 Section 16.3. Liquidation; Dissolution; Bankruptcy. (a) Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal or interest on the Debentures; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Debentures or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XVI, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holders of Debentures or to the Trustee. (b) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. (c) For purposes of this Article XVI, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XVI with respect to the Debentures to the payment of all Senior Indebtedness of the Company, as the case may be, that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment; and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization 49 56 or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 16.3 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.7. Section 16.4. Subrogation. (a) Subject to the payment in full of all Senior Indebtedness of the Company, the rights of the holders of the Debentures shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Senior Indebtedness until the principal of and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the holders of the Debentures or the Trustee would be entitled except for the provisions of this Article XVI, and no payment over pursuant to the provisions of this Article XVI to or for the benefit of the holders of such Senior Indebtedness by holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article XVI are and are intended solely for the purposes of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of such Senior Indebtedness on the other hand. (b) Nothing contained in this Article XVI or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors (other than the holders of Senior Indebtedness of the Company), and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness of the Company, as the case may be, nor shall anything herein or therein prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XVI of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. (c) Upon any payment or distribution of assets of the Company referred to in this Article XVI, the Trustee, subject to the provisions of Article IX, and the holders of the 50 57 Debentures shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XVI. Section 16.5. Trustee To Effectuate Subordination. Each holder of Debentures by such holder's acceptance thereof authorizes and directs the Trustee on such holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XVI and appoints the Trustee such holder's attorney-in-fact for any and all such purposes. Section 16.6. Notice by the Company. (a) The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI. Notwithstanding the provisions of this Article XVI or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 9.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 16.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Debenture), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. (b) The Trustee, subject to the provisions of Section 9.1, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article XVI, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee 51 58 as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XVI, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 16.7. Rights of the Trustee; Holders of Senior Indebtedness. (a) The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XVI in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. The Trustee's right to compensation and reimbursement of expenses as set forth in Section 9.7 shall not be subject to the subordination provisions of the Article XVI. (b) With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XVI, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Section 9.1, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to holders of Debentures, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article XVI or otherwise. Section 16.8. Subordination May Not Be Impaired. (a) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. (b) Without in any way limiting the generality of Section 16.8(a), the holders of Senior Indebtedness of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the holders of the Debentures, without incurring responsibility to the holders of the Debentures and without impairing or releasing the subordination provided in this Article XVI or the obligations hereunder of the holders of the Debentures to the holders of such Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person 52 59 liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STIFEL FINANCIAL CORP. By ------------------------------------------------------------- Name: ----------------------------------------------------------- Title: ---------------------------------------------------------- Attest: - - ------------------------------------------- ---------------------------- as Trustee By ------------------------------------------------------------- Name: ----------------------------------------------------------- Title: ---------------------------------------------------------- Attest: - - -------------------------------------------
53 60 STATE OF _________ ) ) ss COUNTY OF __________ ) On this ______ day of ______________________, 1997, before me appeared ___________________, to me personally known, who, being by me duly sworn, did say that he is the _____________________ of STIFEL FINANCIAL CORP., and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said _____________________________, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and state the day and year last above written. ______________________________ Notary Public My term expires: [seal] COMMONWEALTH OF ) ) ss COUNTY OF ) On this ______ day of ______________________, 1997, before me appeared ______________________________________, to me personally known, who, being by me duly sworn, did say that he is the ___________________________ of _________________________, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said ______________________________________, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and commonwealth the day and year last above written. ______________________________ Notary Public My term expires: [seal] 54 61 EXHIBIT A (FORM OF FACE OF DEBENTURE) No. _____________________________ $_______________________ CUSIP No. _______________________
STIFEL FINANCIAL CORP. ___% SUBORDINATED DEBENTURE DUE JUNE 30, 2027 Stifel Financial Corp., a Delaware corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ___________________________________ as Property Trustee for Stifel Financial Capital Trust, or registered assigns, the principal sum of ______________ Dollars ($___________) on June 30, 2027 (the "Stated Maturity"), and to pay interest on said principal sum from [Date of original issuance], 1997, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 31, June 30, September 30 and December 31 of each year commencing September 30, 1997, at the rate of ___% per annum until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a business day, then payment of interest payable on such date shall be made on the next succeeding day that is a business day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Debentures, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the fifteenth day of the month in which the Interest Payment Date occurs unless otherwise provided in the Indenture. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of the Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Exhibit A-1 62 Indenture. The principal of and the interest on this Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the holder of this Debenture is the Property Trustee, the payment of the principal of and interest on this Debenture shall be made at such place and to such account as may be designated by the Trustee. The Stated Maturity may be shortened at any time by the Company to any date not earlier than June 30, 2002, subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. Such date may also be extended at any time at the election of the Company for one or more periods, but in no event to a date later than June 30, 2036, subject to certain limitations described in the Indenture. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions; (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided; and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. Dated ______________________ Exhibit A-2 63 STIFEL FINANCIAL CORP. By:______________________________ Name:____________________________ Title:___________________________ Attest: By: _____________________________ Name: ___________________________ Title: ____________________________
Exhibit A-3 64 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-mentioned Indenture. Dated: ___________________________________, _____________________________ as Trustee or Authentication Agent By ___________________________________ By ___________________________ Authorized Signatory
Exhibit A-4 65 [FORM OF REVERSE OF DEBENTURE] ______________% SUBORDINATED DEBENTURE (CONTINUED) This Debenture is one of the subordinated debentures of the Company (herein sometimes referred to as the "Debentures"), specified in the Indenture, all issued or to be issued under and pursuant to an Indenture dated as of _________, 1997 (the "Indenture") duly executed and delivered between the Company and ___________________________________, as Trustee (the "Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. The Debentures are limited in aggregate principal amount as specified in the Indenture. In certain circumstances because of the occurrence and continuation of a Special Event, this Debenture may become due and payable prior to its stated maturity at the principal amount together with any interest accrued thereon (the "Redemption Price"). The Redemption Price shall be paid prior to 12:00 noon, Eastern Standard Time, time, on the date of such redemption or at such earlier time as the Company determines. The Company shall have the right to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part at any time on or after June 30, 2002 (an "Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Special Event, at a Redemption Price equal to 100% of the principal amount plus any accrued but unpaid interest, to the date of such redemption. Any redemption pursuant to this paragraph shall be made upon not less than 30 days nor more than 60 days notice, at the Redemption Price. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro rata or by lot or by any other method utilized by the Trustee. In the event of redemption of this Debenture in part only, a new Debenture or Debentures for the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of the Debentures except as provided in the Indenture, or reduce the principal amount thereof, or reduce the rate or extend the time of Exhibit A-5 66 payment of interest thereon, without the consent of the holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture then outstanding and affected thereby. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debentures at the time outstanding, on behalf of all of the holders of the Debentures, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in the payment of the principal of or interest on any of the Debentures. Any such consent or waiver by the registered holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or in place hereof, irrespective of whether or not any notation of such consent or waiver is made upon this Debenture). No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Debentures and from time to time to extend the interest payment period of such Debentures for up to 20 consecutive quarters (each, an "Extension Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such Extension Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extension Period. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount shall be issued to the designated transferee or transferees. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and the Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other Exhibit A-6 67 than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Debentures are issuable only in registered form without coupons in denominations of $10 and any integral multiple thereof. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. Exhibit A-7 EX-4.6 3 EX-4.6 1 EXHIBIT 4.6 CERTIFICATE OF TRUST OF STIFEL FINANCIAL CAPITAL TRUST THIS CERTIFICATE OF TRUST OF STIFEL FINANCIAL CAPITAL TRUST (the "Trust"), dated as of June 6, 1997, is being duly executed and filed by WILMINGTON TRUST COMPANY, a Delaware banking corporation, George H. Walker III, Gregory F. Taylor and Charles R. Hartman, each an individual, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). 1. NAME. The name of the business trust formed hereby is Stifel Financial Capital Trust. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective on June 6, 1997. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, has executed this Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, as trustee By: /s/ Norma P. Closs ------------------------------------ Name: Norma P. Closs ------------------------------------ Title: Vice President ------------------------------------ /s/ George H. Walker III ------------------------------------ George H. Walker III, as Trustee /s/ Gregory F. Taylor ------------------------------------ Gregory F. Taylor, as Trustee /s/ Charles R. Hartman ------------------------------------ Charles R. Hartman, as Trustee A-1 EX-4.7 4 TRUST AGREEMENT 1 Exhibit 4.7 TRUST AGREEMENT This TRUST AGREEMENT, dated as of June 6, 1997 (this "Trust Agreement"), among (i) Stifel Financial Corp., a Delaware corporation (the "Depositor"), (ii) Wilmington Trust Company, a Delaware banking corporation, as trustee, and (iii) George H. Walker III, Gregory F. Taylor and Charles R. Hartman, each an individual, as trustees (each of such trustees in (ii) and (iii) a "Trustee" and collectively, the "Trustees"). The Depositor and the Trustees hereby agree as follows: 1. The trust created hereby (the "Trust") shall be known as "STIFEL FINANCIAL CAPITAL TRUST" in which name the Trustees, or the Depositor to the extent provided herein, may engage in the transactions contemplated hereby, make and execute contracts, and sue and be sued. 2. The Depositor hereby assigns, transfers, conveys and sets over the Trustees the sum of $10.00. The Trustees hereby acknowledge receipt of such amount in trust from the Depositor, which amount shall constitute the initial trust estate. The Trustees hereby declare that they will hold the trust estate in trust for the Depositor. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust Act"), and that this document constitutes the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in accordance with the provisions of the Business Trust Act. 3. The Depositor and the Trustees will enter into an amended and restated Trust Agreement, satisfactory to each such party and substantially in the form included as an exhibit to the 1933 Act Registration Statement (as defined below), to provide for the contemplated operation of the Trust created hereby and the issuance of the Preferred Securities and Common Securities referred to therein. Prior to the execution and delivery of such amended and restated Trust Agreement, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery of any licenses, consents or approvals required by applicable law or otherwise. 4. The Depositor and the Trustees hereby authorize and direct the Depositor, as the sponsor of the Trust, (i) to file with the Securities and Exchange Commission (the "Commission") and execute, in each case on behalf of the Trust, (a) the Registration Statement on Form S-2 (the "1933 Act Registration Statement"), including any pre-effective or post-effective amendments to the 1933 Act Registration Statement, relating to the registration under the Securities Act of 1933, as amended, of the Preferred Securities of the Trust and possibly certain other securities and (b) a Registration Statement on Form 8-A (the "1934 Act Registration Statement") (including all pre-effective and post-effective amendments thereto) relating to the registration of the Preferred Securities of the Trust under the Securities Exchange Act of 1934, as amended; (ii) to file with The Nasdaq Stock Market's National Market, The New York Stock 2 Exchange or any other national stock exchange (each, an "Exchange") and execute on behalf of the Trust one or more listing applications and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on any of the Exchanges; (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or blue sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or desirable; and (iv) to execute on behalf of the Trust that certain Underwriting Agreement relating to the Preferred Securities, among the Trust, the Depositor and the several Underwriters named therein, substantially in the form included as an exhibit to the 1933 Act Registration Statement. In the event that any filing referred to in clauses (i), (ii) and (iii) above is required by the rules and regulations of the Commission, an Exchange or state securities or blue sky laws, to be executed on behalf of the Trust by one or more of the Trustees, each of the Trustees, in its or his capacity as a Trustee of the Trust, is hereby authorized and, to the extent so required, directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that Wilmington Trust Company in its capacity as a Trustee of the Trust shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and regulations of the Commission, the Exchange or state securities or blue sky laws. In connection with the filings referred to above, the Depositor and George H. Walker III, Gregory F. Taylor and Charles R. Hartman, each as Trustees and not in their individual capacities, hereby constitutes and appoints George H. Walker III, Gregory F. Taylor and Charles R. Hartman, and each of them, as its true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the Depositor or such Trustee or in the Depositor's or such Trustees' name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, the Exchange and administrators of the state securities or blue sky laws, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as the Depositor or such Trustee might or could to in person, hereby ratifying and confirming all that said attorneys-in- fact and agents or any of them, or their respective substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Trust Agreement may be executed in one or more counterparts. 6. The number of Trustees initially shall be four and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Depositor which may increase or decrease the number of Trustees; provided, however, that to the extent required by the Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable Delaware law. Subject to the foregoing, the Depositor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon 30 days' prior notice to the Depositor. 2 3 7. This Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws of principles). IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written. STIFEL FINANCIAL CORP. as Depositor By: /s/ George H. Walker III -------------------------------------------- Name: George H. Walker III Title: Chairman of the Board WILMINGTON TRUST COMPANY as Trustee By: /s/ Norma P. Closs Name: Norma P. Closs --------------------------------------- Title: Vice President -------------------------------------- /s/ George H. Walker III -------------------------------------------- George H. Walker III as Trustee /s/ George H. Walker III -------------------------------------------- Gregory F. Taylor as Trustee /s/ Charles R. Hartman -------------------------------------------- Charles R. Hartman as Trustee 3 EX-4.8 5 FORM OF AMENDED AND RESTATED TRUST 1 Exhibit 4.8 ================================================================================ --------------------------- AMENDED AND RESTATED TRUST AGREEMENT AMONG STIFEL FINANCIAL CORP., AS DEPOSITOR ___________________________________, AS PROPERTY TRUSTEE WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE, AND THE ADMINISTRATIVE TRUSTEES NAMED HEREIN DATED AS OF _________________________, 1997 ================================================================================ 2 TABLE OF CONTENTS Page ---- ARTICLE I Defined Terms......................................................2 Section 101. Definitions...............................................2 ARTICLE II Establishment of the Trust........................................9 Section 201. Name......................................................9 Section 202. Office of the Delaware Trustee; Principal Place of Business..................................................9 Section 203. Initial Contribution of Trust Property; Organizational Expenses..................................10 Section 204. Issuance of the Preferred Securities.....................10 Section 205. Issuance of the Common Securities; Subscription and Purchase of Debentures...................................10 Section 206. Declaration of Trust.....................................11 Section 207. Authorization To Enter into Certain Transactions.........11 Section 208. Assets of Trust..........................................15 Section 209. Title to Trust Property..................................15 ARTICLE III Payment Account.................................................15 Section 301. Payment Account..........................................15 ARTICLE IV Distributions; Redemption........................................15 Section 401. Distributions............................................15 Section 402. Redemption...............................................16 Section 403. Subordination of Common Securities.......................18 Section 404. Payment Procedures.......................................18 Section 405. Tax Returns and Reports..................................19 Section 406. Payment of Taxes, Duties, Etc. of the Trust..............19 Section 407. Payments Under Indenture.................................19 ARTICLE V Trust Securities Certificates.....................................19 Section 501. Initial Ownership........................................19 Section 502. The Trust Securities Certificates........................19 Section 503. Execution, Authentication and Delivery of Trust Securities Certificates..................................20 Section 504. Registration of Transfer and Exchange of Preferred Securities Certificates..................................20 Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates..................................21 Section 506. Persons Deemed Securityholders...........................22 Section 507. Access to List of Securityholders' Names and Addresses................................................22 Section 508. Maintenance of Office or Agency..........................22 Section 509. Appointment of Paying Agent..............................23 Section 510. Ownership of Common Securities by Depositor..............23 i 3 Section 511. Preferred Securities Certificates........................23 Section 512. [Intentionally Omitted]..................................24 Section 513. [Intentionally Omitted]..................................24 Section 514. Rights of Securityholders................................24 ARTICLE VI Acts of Securityholders; Meetings; Voting........................25 Section 601. Limitations on Voting Rights.............................25 Section 602. Notice of Meetings.......................................26 Section 603. Meetings Of Preferred Securityholders....................26 Section 604. Voting Rights............................................26 Section 605. Proxies, Etc.............................................26 Section 606. Securityholder Action by Written Consent.................27 Section 607. Record Date for Voting and Other Purposes................27 Section 608. Acts of Securityholders..................................27 Section 609. Inspection of Records....................................28 ARTICLE VII Representations and Warranties..................................28 Section 701. Representations and Warranties of the Bank and the Property Trustee.........................................28 Section 702. Representations and Warranties of the Delaware Bank and the Delaware Trustee.................................29 Section 703. Representations and Warranties of Depositor..............31 ARTICLE VIII Trustees.......................................................31 Section 801. Certain Duties and Responsibilities......................31 Section 802. Certain Notices..........................................32 Section 803. Certain Rights of Property Trustee.......................33 Section 804. Not Responsible for Recitals or Issuance of Securities...............................................35 Section 805. May Hold Securities......................................35 Section 806. Compensation; Indemnity; Fees............................35 Section 807. Corporate Property Trustee Required; Eligibility of Trustees.................................................36 Section 808. Conflicting Interests....................................36 Section 809. Co-Trustees and Separate Trustee.........................36 Section 810. Resignation and Removal; Appointment of Successor........38 Section 811. Acceptance of Appointment by Successor...................39 Section 812. Merger, Conversion, Consolidation or Succession to Business.................................................40 Section 813. Preferential Collection of Claims Against Depositor or Trust.................................................40 Section 814. Reports by Property Trustee..............................40 Section 815. Reports to the Property Trustee..........................41 Section 816. Evidence of Compliance with Conditions Precedent.........41 Section 817. Number of Trustees.......................................41 Section 818. Delegation of Power......................................41 Section 819. Voting...................................................42 ii 4 ARTICLE IX Termination, Liquidation and Merger..............................42 Section 901. Termination upon Expiration Date.........................42 Section 902. Early Termination........................................42 Section 903. Termination..............................................42 Section 904. Liquidation..............................................43 Section 905. Mergers, Consolidations, Amalgamations or Replacements of the Trust................................44 ARTICLE X Miscellaneous Provisions..........................................45 Section 1001. Limitation of Rights of Securityholders.................45 Section 1002. Amendment...............................................45 Section 1003. Separability............................................46 Section 1004. Governing Law...........................................46 Section 1005. Payments Due on Non-Business Day........................47 Section 1006. Successors..............................................47 Section 1007. Headings................................................47 Section 1008. Reports, Notices and Demands............................47 Section 1009. Agreement Not To Petition...............................48 Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act.....................................................48 Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and Indenture...........................................49 iii 5 CROSS-REFERENCE TABLE Section of Section of Amended Trust Indenture Act and Restated of 1939, as amended Trust Agreement - - ------------------- --------------- 310(a)(1)...................................................................807 310(a)(2)...................................................................807 310(a)(3)...................................................................807 310(a)(4)............................................................207(a)(ii) 310(b)......................................................................808 311(a)......................................................................813 311(b)......................................................................813 312(a)......................................................................507 312(b)......................................................................507 312(c)......................................................................507 313(a)...................................................................814(a) 313(a)(4)................................................................814(b) 313(b)...................................................................814(b) 313(c).....................................................................1008 313(d)...................................................................814(c) 314(a)......................................................................815 314(b)...........................................................Not Applicable 314(c)(1)...................................................................816 314(c)(2)...................................................................816 314(c)(3)........................................................Not Applicable 314(d)...........................................................Not Applicable 314(e).................................................................101, 816 315(a)...........................................................801(a), 803(a) 315(b)................................................................802, 1008 315(c)...................................................................801(a) 315(d).................................................................801, 803 316(a)(2)........................................................Not Applicable 316(b)...........................................................Not Applicable 316(c)......................................................................607 317(a)(1)........................................................Not Applicable 317(a)(2)........................................................Not Applicable 317(b)......................................................................509 318(a).....................................................................1010 Note: This Cross-Reference Table does not constitute part of this Agreement and shall not affect any interpretation of any of its terms or provisions. iv 6 AMENDED AND RESTATED TRUST AGREEMENT AMENDED AND RESTATED TRUST AGREEMENT, dated as of _________, 1997, among (i) STIFEL FINANCIAL CORP., a Delaware corporation (including any successors or assigns, the "Depositor"), (ii) ___________________________________, a trust company duly organized and existing under the laws of the ______________ of _____________, as property trustee (the "Property Trustee" and, in its separate corporate capacity and not in its capacity as Property Trustee, the "Bank"), (iii) WILMINGTON TRUST COMPANY, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, as Delaware trustee (the "Delaware Trustee," and, in its separate corporate capacity and not in its capacity as Delaware Trustee, the "Delaware Bank") (iv) GEORGE H. WALKER III, an individual, GREGORY F. TAYLOR, an individual, and CHARLES R. HARTMAN, an individual, each of whose address is c/o Stifel Financial Corp., 500 North Broadway, St. Louis, Missouri 63102-2188, (each an "Administrative Trustee" and collectively the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees referred to collectively as the "Trustees"), and (v) the several Holders (as hereinafter defined). RECITALS WHEREAS, the Depositor, the Delaware Trustee, and George H. Walker III, Gregory F. Taylor and Charles R. Hartman, each as an Administrative Trustee, have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act (as hereinafter defined) by the entering into of that certain Trust Agreement, dated as of _________, 1997 (the "Original Trust Agreement"), and by the execution and filing by the Delaware Trustee, the Depositor and the Administrative Trustees with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on ______________, 1997, the form of which is attached as Exhibit A; and WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and the Administrative Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities (as defined herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance and sale of the Preferred Securities (as defined herein) by the Trust pursuant to the Underwriting Agreement (as defined herein); (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Debentures (as defined herein); and (iv) the appointment of the Trustees; NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders (as defined herein), hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: 7 ARTICLE I DEFINED TERMS SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article I have the meanings assigned to them in this Article I and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 608. "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of additional interest accrued on interest in arrears and paid by the Depositor on a Like Amount of Debentures for such period. "Additional Interest" has the meaning specified in Section 1.1 of the Indenture. "Administrative Trustee" means each of George H. Walker III, Gregory F. Taylor and Charles R. Hartman, solely in his capacity as Administrative Trustee of the Trust formed and continued hereunder and not in his individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (b) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (c) a partnership in which the specified Person is a general partner; (d) any officer or director of the specified Person; and (e) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Authenticating Agent" means an authenticating agent with respect to the Preferred Securities appointed by the Property Trustee pursuant to Section 503. 2 8 "Bank" has the meaning specified in the Preamble to this Trust Agreement. "Bankruptcy Event" means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises adjudging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of or in respect of such Person under the United States Bankruptcy Code of 1978, as amended, or any other similar applicable federal or state law, and the continuance of any such decree or order unvacated and unstayed for a period of 90 days; or the commencement of an involuntary case under the United States Bankruptcy Code of 1978, as amended, in respect of such Person, which shall continue undismissed for a period of 90 days or entry of an order for relief in such case; or the entry of a decree or order of a court having jurisdiction in the premises for the appointment on the ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in bankruptcy or insolvency of such Person or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 90 days; or (b) the institution by such Person of proceedings to be adjudicated a voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy proceeding against it, or the filing by such Person of a petition or answer or consent seeking liquidation or reorganization under the United States Bankruptcy Code of 1978, as amended, or other similar applicable Federal or State law, or the consent by such Person to the filing of any such petition or to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of such Person or of its property, or shall make a general assignment for the benefit of creditors. "Bankruptcy Laws" has the meaning specified in Section 1009. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the appropriate Trustee. "Business Day" means a day other than a Saturday or Sunday, a day on which banking institutions in the City of New York are authorized or required by law, executive order or regulation to remain closed, or a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate of Trust" means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended or restated from time to time. "Closing Date" means the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. 3 9 "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $10 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Corporate Trust Office" means the office at which, at any particular time, the corporate trust business of the Property Trustee or the Debenture Trustee, as the case may be, shall be principally administered, which office at the date hereof, in each such case, is located at _____________________________________ Attention: _________________. "Debenture Event of Default" means an "Event of Default" as defined in Section 7.1 of the Indenture. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Trustee" means ___________________________________, a banking corporation company organized under the laws of the ________________ of ______________ and any successor thereto, as trustee under the Indenture. "Debentures" means the $29,639,500 aggregate principal amount of the Depositor's ____% Subordinated Debentures due 2027, issued pursuant to the Indenture. "Delaware Bank" has the meaning specified in the Preamble to this Trust Agreement. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to time. "Delaware Trustee" means the commercial bank or trust company identified as the "Delaware Trustee" in the Preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the Preamble to this Trust Agreement. "Distribution Date" has the meaning specified in Section 401(a). 4 10 "Distributions" means amounts payable in respect of the Trust Securities as provided in Section 401. "Early Dissolution Event" has the meaning specified in Section 902. "Event of Default" means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the occurrence of a Debenture Event of Default; or (b) default by the Trust or the Property Trustee in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Trust or the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clause (b) or (c), above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Trustee or Trustees by the Holders of at least 25% in aggregate Liquidation Amount of the Outstanding Preferred Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) the occurrence of a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 60 days thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time. "Expiration Date" has the meaning specified in Section 901. "Extension Period" has the meaning specified in Section 4.1 of the Indenture. "Guarantee" means the Preferred Securities Guarantee Agreement executed and delivered by the Depositor and ___________________________________, as trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the holders of the Preferred Securities, as amended from time to time. 5 11 "Indenture" means the Indenture, dated as of _______________, 1997, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time pertaining to the Debentures of the Depositor. "Investment Company Act," means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture and the proceeds of which shall be used to pay the Redemption Price of such Trust Securities; and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. Each Debenture distributed pursuant to clause (6) above shall carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Debenture. "Liquidation Amount" means the stated amount of $10 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 904(a). "Liquidation Distribution" has the meaning specified in Section 904(d). "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary, of the Depositor, and delivered to the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 816 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and 6 12 (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means an opinion in writing of legal counsel, who may be counsel for the Trust, the Property Trustee, the Delaware Trustee or the Depositor, but not an employee of any thereof, and who shall be reasonably acceptable to the Property Trustee. "Original Trust Agreement" has the meaning specified in the Recitals to this Trust Agreement. "Outstanding", when used with respect to Preferred Securities, means, as of the date of determination, all Preferred Securities theretofore executed and delivered under this Trust Agreement, except: (a) Preferred Securities theretofore canceled by the Property Trustee or delivered to the Property Trustee for cancellation; (b) Preferred Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Preferred Securities; provided that, if such Preferred Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and (c) Preferred Securities which have been paid or in exchange for or in lieu of which other Preferred Securities have been executed and delivered pursuant to Sections 504, 505 and 511; provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Preferred Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Preferred Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Preferred Securities that such Trustee knows to be so owned shall be so disregarded; and (b) the foregoing shall not apply at any time when all of the outstanding Preferred Securities are owned by the Depositor, one or more of the Trustees and/or any such Affiliate. Preferred Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustees the pledgee's right so to act with respect to such Preferred Securities and the Pledgee is not the Depositor or any other Obligor upon the Preferred Securities or a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Depositor or any Affiliate of the Depositor. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 509 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures shall be held and 7 13 from which the Property Trustee shall make payments to the Securityholders in accordance with Sections 401 and 402. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $10 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate", means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit E. "Property Trustee" means the commercial bank or trust company identified as the "Property Trustee," in the Preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust heretofore formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, paid by the Depositor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. "Relevant Trustee" shall have the meaning specified in Section 810. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 504. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person is a beneficial owner within the meaning of the Delaware Business Trust Act. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Trust Agreement and any 8 14 such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939, as amended, is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures; (b) the rights of the Property Trustee under the Guarantee; (c) any cash on deposit in, or owing to, the Payment Account; and (d) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriting Agreement" means the Underwriting Agreement, dated as of ____________, 1997, among the Trust, the Depositor and the Underwriters named therein. ARTICLE II ESTABLISHMENT OF THE TRUST SECTION 201. NAME. The Trust created and continued hereby shall be known as "Stifel Financial Capital Trust," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may engage in the transactions contemplated hereby, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS. The address of the Delaware Trustee in the State of Delaware is c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the 9 15 Depositor. The principal executive office of the Trust is c/o Stifel Financial Corp., 500 North Broadway, St. Louis, Missouri 63102-2188, Attention: Chief Financial Officer. SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES. The Trustees acknowledge receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES. On __________, 1997, the Depositor and an Administrative Trustee, on behalf of the Trust and pursuant to the Original Trust Agreement, executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver in accordance with the Underwriting Agreement, Preferred Securities Certificates, registered in the name of the Persons entitled thereto, in an aggregate amount of 2,500,000 Preferred Securities having an aggregate Liquidation Amount of $25,000,000 against receipt of the aggregate purchase price of such Preferred Securities of $25,000,000, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. If the underwriters exercise their Option and there is an Option Closing Date (as such terms are defined in the Underwriting Agreement), then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver in accordance with the Underwriting Agreement, Preferred Securities Certificates, registered in the name of the Persons entitled thereto, in an aggregate amount of up to 375,000 Preferred Securities having an aggregate Liquidation Amount of up to $3,750,000 against receipt of the aggregate purchase price of such Preferred Securities of $3,750,000, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF DEBENTURES. (a) Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of 77,350 Common Securities having an aggregate Liquidation Amount of $773,500 against payment by the Depositor of such amount. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor, Debentures, registered in the name of the Property Trustee on behalf of the Trust and having an aggregate principal amount equal to $25,773,500, and, in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $25,773,500. 10 16 (b) If the underwriters exercise the Option and there is an Option Closing Date, then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of 11,600 Common Securities having an aggregate Liquidation Amount of up to $116,000 against payment by the Depositor of such amount. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor, Debentures, registered in the name of the Trust and having an aggregate principal amount of up to $3,866,000, and, in satisfaction of the purchase price of such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the amount received from one of the Administrative Trustees pursuant to the last sentence of Section 204. SECTION 206. DECLARATION OF TRUST. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures; and (b) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it shall hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section 207 and Article VIII, and in accordance with the following provisions (i) and (ii), the Administrative Trustees shall have the authority to enter into all transactions and agreements determined by the Administrative Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Administrative Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Administrative Trustee, acting singly or jointly, shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement and such other agreements 11 17 or documents as may be necessary or desirable in connection with the purposes and function of the Trust; (C) assisting in the registration of the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act; (D) assisting in the listing of the Preferred Securities upon The Nasdaq Stock Market's National Market, the New York Stock Exchange or such other securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Exchange Act, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (E) the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (F) the appointment of a Paying Agent, Authenticating Agent and Securities Registrar in accordance with this Trust Agreement; (G) to the extent provided in this Trust Agreement, dissolution and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (H) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Preferred Securities or to enable the Trust to effect the purposes for which the Trust was created; and (I) the taking of any action incidental to the foregoing as the Administrative Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Debentures; 12 18 (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account; (D) the distribution of amounts owed to the Securityholders in respect of the Trust Securities in accordance with the terms of this Trust Agreement; (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, the dissolution and liquidation of the Trust; (I) after an Event of Default, the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); (J) registering transfers of the Trust Securities in accordance with this Trust Agreement; and (K) except as otherwise provided in this Section 207(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 207(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement; (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein; (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes; (iv) incur any indebtedness for borrowed money or issue any other debt; or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. 13 19 (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on the appropriate form in relation to the Preferred Securities and the Debentures, including any amendments thereto; (ii) the determination of the States in which to take appropriate action to qualify or, register for sale all or part of the Preferred Securities and to do any and all such acts, other than actions which must be taken by or on behalf of the Trust, and advise the Trustees of actions they must take on behalf of the Trust, and prepare for execution and filing any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to The Nasdaq Stock Market's National Market, the New York Stock Exchange or any other national stock exchanges or other organizations for listing upon notice of issuance of any Preferred Securities and to file or cause an Administrative Trustee to file thereafter with such exchange or organization such notifications and documents as may be necessary from time to time; (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust shall not be deemed to be an "investment company" required to be registered under the Investment Company Act, shall be classified as a "grantor trust" and not as an association taxable as a corporation for United States federal income tax purposes and so that the Debentures shall be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, subject to Section 1002, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law or this Trust Agreement, that 14 20 each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes. SECTION 208. ASSETS OF TRUST. The assets of the Trust shall consist of the Trust Property. SECTION 209. TITLE TO TRUST PROPERTY. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Securityholders in accordance with this Trust Agreement. ARTICLE III PAYMENT ACCOUNT SECTION 301. PAYMENT ACCOUNT. (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof. ARTICLE IV DISTRIBUTIONS; REDEMPTION SECTION 401. DISTRIBUTIONS. (a) Distributions on the Trust Securities shall be cumulative, and shall accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from September 30, 1997, and, except during any Extension Period with respect to the Debentures, shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on September 30, 1997. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force 15 21 and effect as if made on such date (each date on which distributions are payable in accordance with this Section 401(a), a "Distribution Date"). (b) The Trust Securities represent undivided beneficial interests in the Trust Property. Distributions on the Trust Securities shall be payable at a rate of ___% per annum of the Liquidation Amount of the Trust Securities. The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30 day months. During any Extension Period with respect to the Debentures, Distributions on the Preferred Securities shall be deferred for a period equal to the Extension Period. The amount of Distributions payable for any period shall include the Additional Amounts, if any. (c) Distributions on the Trust Securities shall be made by the Property Trustee solely from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and immediately available by 12:30 p.m. on each Distribution Date in the Payment Account for the payment of such Distributions. (d) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be 15th day of the month in which the Distribution is payable. SECTION 402. REDEMPTION. (a) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust shall be required to redeem a Like Amount of Trust Securities at the Redemption Price. (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Securities Register. The Property Trustee shall have no responsibility for the accuracy of any CUSIP number contained in such notice. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the aggregate Liquidation Amount of the particular Trust Securities to be redeemed; and 16 22 (v) that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Trust Security to be redeemed and that Distributions thereon shall cease to accumulate on and after said date. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has immediately available funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 402(c), the Property Trustee shall deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and shall give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Securities Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption shall cease, except the right of such Securityholders to receive the Redemption Price and any Distribution payable on or prior to the Redemption Date, but without interest, and such Trust Securities shall cease to be Outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities shall continue to accumulate, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date shall be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Securities shall be made to the record holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be the date 15 days prior to the relevant Redemption Date. (f) Subject to Section 403(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, 17 23 by such method (including, without limitation, by lot) as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $10 or an integral multiple of $10 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $10. The Property Trustee shall promptly notify the Securities Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities which has been or is to be redeemed. SECTION 403. SUBORDINATION OF COMMON SECURITIES. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 402(f), pro rata among the Common Securities and the Preferred Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Preferred Securities then called for redemption, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Preferred Securities then due and payable. (b) In the case of the occurrence of any Event of Default resulting from a Debenture Event of Default, the Holder of Common Securities shall be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities shall have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities shall have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities shall have the right to direct the Property Trustee to act on their behalf. SECTION 404. PAYMENT PROCEDURES. Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register. Payments in respect of 18 24 the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder. SECTION 405. TAX RETURNS AND REPORTS. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service form required to be filed in respect of the Trust in each taxable year of the Trust; and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required to be furnished to such Securityholder or the information required to be provided on such form. The Administrative Trustees shall provide the Depositor with a copy of all such returns and reports promptly after such filing or furnishing. The Property Trustee shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST. Upon receipt under the Debentures of Additional Interest, the Property Trustee, at the direction of an Administrative Trustee or the Depositor, shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. SECTION 407. PAYMENTS UNDER INDENTURE. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment such Holder has directly received under the Indenture pursuant to Section 514(b) or (c) hereof. ARTICLE V TRUST SECURITIES CERTIFICATES SECTION 501. INITIAL OWNERSHIP. Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 203 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. SECTION 502. THE TRUST SECURITIES CERTIFICATES. The Preferred Securities Certificates shall be issued in minimum denominations of $10 Liquidation Amount and integral multiples of $10 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $10 Liquidation Amount and integral multiples thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by 19 25 manual or facsimile signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 504 and 511. SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST SECURITIES CERTIFICATES. (a) On the Closing Date and on the date on which the Underwriter exercises the Option, as applicable (the "Option Closing Date"), the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 204 and 205, to be executed on behalf of the Trust by at least one of the Administrative Trustees and delivered to or upon the written order of the Depositor, signed by its Chief Executive Officer, President, any Vice President, the Treasurer or any Assistant Treasurer without further corporate action by the Depositor, in authorized denominations. (b) A Preferred Securities Certificate shall not be valid until authenticated by the manual signature of an authorized signatory of the Property Trustee. The signature shall be conclusive evidence that the Preferred Securities Certificate has been authenticated under this Trust Agreement. Each Preferred Security Certificate shall be dated the date of its authentication. (c) Upon the written order of the Trust signed by the Administrative Trustee, the Property Trustee shall authenticate and make available for delivery the Preferred Securities Certificates. (d) The Property Trustee may appoint an Authenticating Agent acceptable to the Trust to authenticate the Preferred Securities. An Authenticating Agent may authenticate the Preferred Securities whenever the Property Trustee may do so. Each reference in this Trust Agreement to authentication by the Property Trustee includes authentication by such agent. An Authenticating Agent has the same rights as the Property Trustee to deal with the Depositor or the Trust. SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES CERTIFICATES. (a) The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 508, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (herein referred to as the "Securities Register") in which the registrar designated by the Depositor (the "Securities Registrar"), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Preferred Securities Certificates and Common Securities Certificates 20 26 (subject to Section 510 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Property Trustee shall be the initial Securities Registrar. (b) Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 508, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for redemption. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Preferred Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 508. (c) Every Preferred Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Property Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Preferred Securities Certificate surrendered for registration of transfer or exchange shall be canceled and subsequently disposed of by the Property Trustee in accordance with its customary practice. The Trust shall not be required to (i) issue, register the transfer of, or exchange any Preferred Securities during a period beginning at the opening of business 15 calendar days before the date of mailing of a notice of redemption of any Preferred Securities called for redemption and ending at the close of business on the day of such mailing; or (ii) register the transfer of or exchange any Preferred Securities so selected for redemption, in whole or in part, except the unredeemed portion of any such Preferred Securities being redeemed in part. (d) No service charge shall be made for any registration of transfer or exchange of Preferred Securities Certificates, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Preferred Securities Certificates. SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate; and (b) there shall be delivered to the Securities Registrar, the Property Trustee and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and 21 27 denomination. In connection with the issuance of any new Trust Securities Certificate under this Section 505, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section 505 shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. SECTION 506. PERSONS DEEMED SECURITYHOLDERS. The Trustees, the Paying Agent and the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES. At any time when the Property Trustee is not also acting as the Securities Registrar, the Administrative Trustees or the Depositor shall furnish or cause to be furnished to the Property Trustee (a) semi-annually on or before January 15 and July 15 in each year, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Securityholders as of the most recent record date; and (b) promptly after receipt by any Administrative Trustee or the Depositor of a request therefor from the Property Trustee in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, in each case to the extent such information is in the possession or control of the Administrative Trustees or the Depositor and is not identical to a previously supplied list or has not otherwise been received by the Property Trustee in its capacity as Securities Registrar. The rights of Securityholders to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities, and the corresponding rights of the Trustee shall be as provided in the Trust Indenture Act. Each Holder, by receiving and holding a Trust Securities Certificate, and each owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION 508. MAINTENANCE OF OFFICE OR AGENCY. The Administrative Trustees shall maintain in a location or locations designated by the Administrative Trustees, an office or offices or agency or agencies where Preferred Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities Certificates may be served. The Administrative Trustees initially designate the Corporate Trust Office of the Property Trustee, _________________________, ____________________________, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. 22 28 SECTION 509. APPOINTMENT OF PAYING AGENT. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee must be acceptable to the Administrative Trustees and the Depositor. The Paying Agent shall make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent shall hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and, upon removal of a Paying Agent, such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 801, 803 and 806 shall apply to the Property Trustee also in its role as Paying Agent, for so long as the Property Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Trust Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR. On the Closing Date, the Depositor shall acquire and retain beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, any attempted transfer of the Common Securities (other than a transfer in connection with a merger or consolidation of the Depositor into another corporation pursuant to Section 12.1 of the Indenture) shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE". SECTION 511. PREFERRED SECURITIES CERTIFICATES. (a) Each owner shall receive a Preferred Securities Certificate representing such owner's interest in such Preferred Securities. Upon the issuance of Preferred Securities Certificates, the Trustees shall recognize the record holders of the Preferred Securities 23 29 Certificates as Securityholders. The Preferred Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by the execution thereof by the Administrative Trustees or any one of them. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. SECTION 512. [INTENTIONALLY OMITTED] SECTION 513. [INTENTIONALLY OMITTED] SECTION 514. RIGHTS OF SECURITYHOLDERS. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 209, and the Securityholders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights. When issued and delivered to Holders of the Preferred Securities against payment of the purchase price therefor, the Preferred Securities shall be fully paid and nonassessable interests in the Trust. The Holders of the Preferred Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. (b) For so long as any Preferred Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have such right by a notice in writing to the Depositor and the Debenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. (c) For so long as any Preferred Securities remain outstanding, if, upon a Debenture Event of Default arising from the failure to pay interest or principal on the Debentures, the Holders of any Preferred Securities then Outstanding shall, to the fullest extent permitted by law, have the right to directly institute proceedings for enforcement of payment to such Holders of principal of or interest on the Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holders. 24 30 ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING SECTION 601. LIMITATIONS ON VOTING RIGHTS. (a) Except as provided in this Section 601, in Sections 514, 810 and 1002 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. (b) So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures; (ii) waive any past default which is waivable under Article VII of the Indenture; (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each Holder of outstanding Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each holder of Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Outstanding Preferred Securities, except by a subsequent vote of the Holders of the Outstanding Preferred Securities. The Property Trustee shall notify each Holder of the Outstanding Preferred Securities of any notice of default received from the Debenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that the Trust shall continue to be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes on account of such action. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the Trust Agreement or otherwise; or (ii) the dissolution of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred Securities as a class shall be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. No amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would cease to be classified as a grantor trust or would be classified as an association taxable as a corporation for United States federal income tax purposes. 25 31 SECTION 602. NOTICE OF MEETINGS. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 1008 to each Preferred Securityholder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS. (a) No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Securityholders to vote on any matter in respect of which Preferred Securityholders are entitled to vote upon the written request of the Preferred Securityholders of 25% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which the Preferred Securityholders are entitled to vote. (b) Preferred Securityholders of record of 50% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. (c) If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding more than a majority of the Preferred Securities (based upon their aggregate Liquidation Amount) held by the Preferred Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. SECTION 604. VOTING RIGHTS. Securityholders shall be entitled to one vote for each $10 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. SECTION 605. PROXIES, ETC. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy, shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. When Trust Securities are held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in 26 32 respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and, the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Securityholders holding more than a majority of all Outstanding Trust Securities (based upon their aggregate Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing (based upon their aggregate Liquidation Amount). SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. SECTION 608. ACTS OF SECURITYHOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 801) conclusive in favor of the Trustees, if made in the manner provided in this Section 608. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person 27 33 executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. (c) The ownership of Preferred Securities shall be proved by the Securities Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. (e) Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. (f) A Securityholder may institute a legal proceeding directly against the Depositor under the Guarantee to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee (as defined in the Guarantee), the Trust or any Person. SECTION 609. INSPECTION OF RECORDS. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection and copying by Securityholders and their authorized representatives during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE PROPERTY TRUSTEE. The Bank and the Property Trustee, each severally on behalf of and as to itself, as of the date hereof, and each successor Property Trustee at the time of the successor Property Trustee's acceptance of its appointment as Property Trustee hereunder (the term "Bank" being used to refer to such successor Property Trustee in its separate corporate capacity) hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Bank is a trust company duly organized, validly existing and in good standing under the laws of the ____________________ of __________________; 28 34 (b) the Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and constitutes the valid and legally binding agreement of the Property Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Property Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee and does not require any approval of stockholders of the Bank and such execution, delivery and performance shall not (i) violate the Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Bank is a party or by which it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the ____________________ of ____________________, as the case may be, governing the banking or trust powers of the Bank or the Property Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Bank; (e) neither the authorization, execution or delivery by the Property Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking or trust powers of the Bank or the Property Trustee, as the case may be, under the laws of the United States or the ____________________ of ____________________; and (f) there are no proceedings pending or, to the best of the Property Trustee's knowledge, threatened against or affecting the Bank or the Property Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND THE DELAWARE TRUSTEE. The Delaware Bank and the Delaware Trustee, each severally on behalf of and as to itself, as of the date hereof, and each successor Delaware Trustee at the time of the successor Delaware Trustee's acceptance of appointment as Delaware Trustee hereunder (the term "Delaware Bank" being used to refer to such successor Delaware Trustee in its separate corporate 29 35 capacity), hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Delaware Bank is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Delaware Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Delaware Trustee and constitutes the valid and legally binding agreement of the Delaware Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Delaware Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Delaware Trustee and does not require any approval of stockholders of the Delaware Bank and such execution, delivery and performance shall not (i) violate the Delaware Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Delaware Bank or the Delaware Trustee is a party or by which it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking or trust powers of the Delaware Bank or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Delaware Bank or the Delaware Trustee; (e) neither the authorization, execution or delivery by the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Delaware Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking or trust powers of the Delaware Bank or the Delaware Trustee, as the case may be, under the laws of the United States or the State of Delaware; and (f) there are no proceedings pending or, to the best of the Delaware Trustee's knowledge, threatened against or affecting the Delaware Bank or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Delaware Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. 30 36 SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. The Depositor hereby represents and warrants for the benefit of the Securityholders that: (a) the Trust Securities Certificates issued on the Closing Date or the Option Closing Date, if applicable, on behalf of the Trust have been duly authorized and, shall be, as of such date or dates, if applicable, duly and validly executed, issued and delivered by the Administrative Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders shall be, as of such date or dates, if applicable, entitled to the benefits of this Trust Agreement; and (b) there are no taxes, fees or other governmental charges payable by the Trust (or the Trustees on behalf of the Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by the Bank, the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement. ARTICLE VIII TRUSTEES SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. No Administrative Trustee nor the Delaware Trustee shall be liable for its act or omissions hereunder except as a result of its own gross negligence or willful misconduct. The Property Trustee's liability shall be determined under the Trust Indenture Act. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section 801. To the extent that, at law or in equity, the Delaware Trustee or an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, the Delaware Trustee or such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Delaware Trustee or the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Delaware Trustee and the Administrative Trustees, as the case may be. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property 31 37 to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. With respect to the relationship of each Securityholder and the Trustee, each Securityholder, by its acceptance of a Trust Security, agrees that it shall look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 801(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 301 and except to the extent otherwise required by law; and (v) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the negligence, default or misconduct of the Administrative Trustees or the Depositor. SECTION 802. CERTAIN NOTICES. (a) Within 5 Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to 32 38 the extent provided in Section 1008, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. For purposes of this Section 802 the term "Event of Default" means any event that is, or after notice or lapse of time or both would become, an Event of Default. (b) The Administrative Trustees shall transmit, to the Securityholders in the manner and to the extent provided in Section 1008, notice of the Depositor's election to begin or further extend an Extension Period on the Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Debentures pursuant to the Indenture as originally executed. SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the provisions of Section 801: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action; or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with other provisions contained herein; or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Preferred Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within 10 Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than 2 Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an 33 39 Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement, any filing under tax or securities laws or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Property Trustee may consult with counsel of its choice (which counsel may be counsel to the Depositor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and, in accordance with such advice, such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action; (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received; and (iii) shall be protected in acting in accordance with such instructions; and (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under 34 40 the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The Recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. SECTION 805. MAY HOLD SECURITIES. Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 808 and 813 and except as provided in the definition of the term "Outstanding" in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. SECTION 806. COMPENSATION; INDEMNITY; FEES. The Depositor agrees: (a) to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct); and (c) to indemnify each of the Trustees or any predecessor Trustee for, and to hold the Trustees harmless against, any loss, damage, claims, liability, penalty or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except any such expense, disbursement or advance as may 35 41 be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct). No Trustee may claim any Lien or charge on any Trust Property as a result of any amount due pursuant to this Section 806. SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES. (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section 807, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section 807, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VIII. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware; or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. SECTION 808. CONFLICTING INTERESTS. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE. (a) Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor shall have power to appoint, and upon the written request of the Property Trustee, the Depositor shall for such purpose join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved 36 42 by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section 809. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section 809 shall either be (i) a natural person who is at least 21 years of age and a resident of the United States; or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. (b) Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged, and delivered by the Depositor. (c) Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (i) The Trust Securities shall be executed and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (ii) The rights, powers, duties and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (iii) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 809, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have the power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to 37 43 effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 809. (iv) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (v) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (vi) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article VIII shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 811. (b) Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Securityholders. If the instrument of acceptance by the successor Trustee required by Section 811 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. (c) Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). An Administrative Trustee may be removed by the Common Securityholder at any time. (d) If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees with respect to the Trust Securities and the Trust, and the successor Trustee shall comply with the applicable requirements of Section 811. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and is continuing, the Preferred Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Preferred Securities then Outstanding 38 44 delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees with respect to the Trust Securities and the Trust, and such successor Trustee shall comply with the applicable requirements of Section 811. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to an Administrative Trustee, shall promptly appoint a successor Administrative Trustee or Administrative Trustees with respect to the Trust Securities and the Trust, and such successor Administrative Trustee or Administrative Trustees shall comply with the applicable requirements of Section 811. If no successor Relevant Trustee with respect to the Trust Securities shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 811, any Securityholder who has been a Securityholder of Trust Securities on behalf of himself and all others similarly situated may petition a court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. (e) The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 1008 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. (f) Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Administrative Trustees if there are at least two of them; or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 807). SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Relevant Trustee with respect to the Trust Securities and the Trust, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an instrument hereto wherein each successor Relevant Trustee shall accept such appointment and which shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and upon the execution and delivery of such instrument the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust 39 45 Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. (b) Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the immediately preceding paragraph, as the case may be. (c) No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article VIII. SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article VIII, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST. If and when the Property Trustee or the Delaware Trustee shall be or become a creditor of the Depositor or the Trust (or any other obligor upon the Debentures or the Trust Securities), the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor or Trust (or any such other obligor). SECTION 814. REPORTS BY PROPERTY TRUSTEE. (a) The Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee, its actions under this Trust Agreement and the property and funds in its possession as Property Trustee as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with The Nasdaq Stock Market's National Market, and/or the New York Stock Exchange, and each national securities exchange or other organization upon which the Trust Securities are listed, and also with the Commission and the Depositor. 40 46 SECTION 815. REPORTS TO THE PROPERTY TRUSTEE. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. SECTION 817. NUMBER OF TRUSTEES. (a) The number of Trustees shall be five, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 817(a), or if the number of Trustees is increased pursuant to Section 817(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 810. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 810, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. SECTION 818. DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 207(a); and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or 41 47 otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 819. VOTING. Except as otherwise provided in this Trust Agreement, the consent or approval of the Administrative Trustees shall require consent or approval by not less than a majority of the Administrative Trustees, unless there are only two, in which case both must consent. ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER SECTION 901. DISSOLUTION UPON EXPIRATION DATE. Unless earlier dissolved, the Trust shall automatically dissolve on March 31, 2051 (the "Expiration Date") subject to distribution of the Trust Property in accordance with Section 904. SECTION 902. EARLY DISSOLUTION. The first to occur of any of the following events is an "Early Dissolution Event:" (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor; (b) delivery of written direction to the Property Trustee by the Depositor at any time (which direction is wholly optional and within the discretion of the Depositor) to dissolve the Trust and distribute the Debentures to Securityholders in exchange for the Preferred Securities in accordance with Section 904; (c) the redemption of all of the Preferred Securities in connection with the redemption of all of the Debentures; and (d) the entrance of an order for dissolution of the Trust by a court of competent jurisdiction. SECTION 903. TERMINATION. The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 904, or upon the redemption of all of the Trust Securities pursuant to Section 402, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders; and (d) the filing of a Certificate of Cancellation by the Administrative Trustee under the Delaware Business Trust Act. 42 48 SECTION 904. LIQUIDATION. (a) If an Early Dissolution Event specified in clause (a), (b), or (d) of Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 904(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities shall no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange shall be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or, if Section 904(d) applies, receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 902(c) or 904(d) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 902(c) or 904(d) applies, after the Liquidation Date, (i) the Trust Securities shall no longer be deemed to be outstanding; (ii) certificates representing a Like Amount of Debentures shall be issued to holders of Trust Securities Certificates upon surrender of such certificates to the Administrative Trustees or their agent for exchange; (iii) the Depositor shall use its reasonable efforts to have the Debentures listed on The Nasdaq Stock Market's National Market, the New York Stock Exchange or on such other securities exchange or other organization as the Preferred Securities are then listed or traded; (iv) any Trust Securities Certificates not so surrendered for exchange shall be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal shall be made to holders of Trust Securities Certificates with respect to such Debentures); and (v) all rights of Securityholders holding Trust Securities shall cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. 43 49 (d) In the event that, notwithstanding the other provisions of this Section 904, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be dissolved, wound-up or terminated, by the Property Trustee in such manner as the Property Trustee determines. In such event, on the date of the dissolution of the Trust, Securityholders shall be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The holder of the Common Securities shall be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities. SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except pursuant to this Section 905. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, the Trust may merge with or into, consolidate, amalgamate, be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Preferred Securities; or (b) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise; (ii) the Depositor expressly appoints a trustee of such successor entity possessing substantially the same powers and duties as the Property Trustee as the holder of the Debentures; (iii) the Successor Securities are listed or traded, or any Successor Securities shall be listed or traded upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed, if any; (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect; (v) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect; and (b) following such 44 50 merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity shall be required to register as an "investment company" under the Investment Company Act; and (vi) the Depositor owns all of the Common Securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee, the Debentures, the Indenture, this Trust Agreement and the Expense Agreement. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS. The death or incapacity of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such Person or any Securityholder for such Person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding-up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. SECTION 1002. AMENDMENT. (a) This Trust Agreement may be amended from time to time by the Trustees and the Depositor, without the consent of any Securityholders, (i) as provided in Section 811 with respect to acceptance of appointment by a successor Trustee; (ii) to cure any ambiguity, correct or supplement any provision herein or therein which may be inconsistent with any other provision herein or therein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, that shall not be inconsistent with the other provisions of this Trust Agreement; or (iii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust shall be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust shall not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (ii), such action shall not adversely affect in any material respect the interests of any Securityholder, and any amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 601(c) or Section 1002(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor (i) with the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding; and (ii) upon receipt by the Trustees of an 45 51 Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment shall not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an "investment company" under the Investment Company Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 603 or 606 hereof), this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date; or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 603 or 606 hereof), this paragraph (c) of this Section 1002 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an "investment company" under the Investment Company Act or to fail or cease to be classified as a grantor trust for United States federal income tax purposes. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. SECTION 1003. SEPARABILITY. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1004. GOVERNING LAW. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE 46 52 CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF MISSOURI (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day which is a Business Day, with the same force and effect as though made on the date fixed for such payment, and no distribution shall accumulate thereon for the period after such date. SECTION 1006. SUCCESSORS. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee(s), including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article XII of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. SECTION 1007. HEADINGS. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. SECTION 1008. REPORTS, NOTICES AND DEMANDS. Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Preferred Securityholder, to such Preferred Securityholder as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to Stifel Financial Corp., 500 North Broadway, St. Louis, Missouri 63102-2188 Attention: Chief Financial Officer, facsimile no.: (314) 342-2097. Any notice to Preferred Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that purpose. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee to __________________________________, _____________________________________, 47 53 ______, Attention: Corporate Trust Department; (b) with respect to the Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration; and (c) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention: Administrative Trustees of Stifel Financial Capital Trust." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. SECTION 1009. AGREEMENT NOT TO PETITION. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and 1 day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 1009, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor (which expense shall be paid prior to the filing), it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom. The provisions of this Section 1009 shall survive the termination of this Trust Agreement. SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or to be excluded, as the case may be. (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. 48 54 SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. STIFEL FINANCIAL CORP. By --------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- -----------------------------------------, as Property Trustee By --------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- WILMINGTON TRUST COMPANY, as Delaware Trustee By --------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 49 55 ----------------------------------------------- George H. Walker III, as Administrative Trustee ----------------------------------------------- Gregory F. Taylor, as Administrative Trustee ----------------------------------------------- Charles R. Hartman, as Administrative Trustee 50 56 EXHIBIT A CERTIFICATE OF TRUST OF STIFEL FINANCIAL CAPITAL TRUST THIS CERTIFICATE OF TRUST OF STIFEL FINANCIAL CAPITAL TRUST (the "Trust"), dated as of June 6, 1997, is being duly executed and filed by WILMINGTON TRUST COMPANY, a Delaware banking corporation, George H. Walker III, Gregory F. Taylor and Charles R. Hartman, each an individual, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). 1. NAME. The name of the business trust formed hereby is Stifel Financial Capital Trust. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective on June 6, 1997. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, has executed this Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, as trustee By: ------------------------------------ Name: ------------------------------------ Title: ------------------------------------ ------------------------------------ George H. Walker III, as Trustee ------------------------------------ Gregory F. Taylor, as Trustee ------------------------------------ Charles R. Hartman, as Trustee A-1 57 EXHIBIT B [Intentionally Omitted] B-1 58 EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE CERTIFICATE NUMBER ________. NUMBER OF COMMON SECURITIES CERTIFICATE EVIDENCING COMMON SECURITIES OF STIFEL FINANCIAL CAPITAL TRUST COMMON SECURITIES STIFEL FINANCIAL CAPITAL TRUST, a statutory business trust created under the laws of the (LIQUIDATION AMOUNT $10 PER COMMON SECURITY) State of Delaware (the "Trust"), hereby certifies that Stifel Financial Corp. (the "Holder") is the registered owner of ________________ (_____) common securities of the Trust representing undivided beneficial interests in the assets of the Trust and designated the ___% Common Securities (liquidation amount $10 per Common Security) (the "Common Securities"). In accordance with Section 510 of the Trust Agreement (as defined below), the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences, and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of _______________, 1997, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of the Common Securities as set forth therein. The Trust shall furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this _____ day of __________, 1997. STIFEL FINANCIAL CAPITAL TRUST By: ----------------------------------------------- Name: Title: Administrative Trustee C-1 59 EXHIBIT D AGREEMENT AS TO EXPENSES AND LIABILITIES AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of _____________, 1997, between STIFEL FINANCIAL CORP., a Delaware corporation ("the Company"), and STIFEL FINANCIAL CAPITAL TRUST, a Delaware business trust (the "Trust"). RECITALS WHEREAS, the Trust intends to issue its common securities (the "Common Securities") to, and receive Debentures from, the Company and to issue and sell up to 2,875,000 _____% Cumulative Trust Preferred Securities (the "Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of ____________, 1997, as the same may be amended from time to time (the "Trust Agreement"); WHEREAS, the Company shall directly or indirectly own all of the Common Securities of the Trust and shall issue the Debentures; NOW, THEREFORE, in consideration of the purchase by each holder of the Preferred Securities, which purchase the Company hereby agrees shall benefit the Company and which purchase the Company acknowledges shall be made in reliance upon the execution and delivery of this Agreement, the Company, including in its capacity as holder of the Common Securities, and the Trust hereby agree as follows: ARTICLE I SECTION 1.1. GUARANTEE BY THE COMPANY Subject to the terms and conditions hereof, the Company, including in its capacity as holder of the Common Securities, hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the full payment when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, "Obligations" means any costs, expenses or liabilities of the Trust other than obligations of the Trust to pay to holders of any Preferred Securities or other similar interests in the Trust the amounts due such holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof. SECTION 1.2. TERM OF AGREEMENT This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Preferred Securities (whether upon redemption, liquidation, exchange or otherwise); and (b) the date on which there are no D-1 60 Beneficiaries remaining; provided, however, that this Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time any holder of Preferred Securities or any Beneficiary must restore payment of any sums paid under the Preferred Securities, under any obligation, under the Preferred Securities Guarantee Agreement dated the date hereof by the Company and ___________________________________ as guarantee trustee, or under this Agreement for any reason whatsoever. This Agreement is continuing, irrevocable, unconditional and absolute. SECTION 1.3. WAIVER OF NOTICE The Company hereby waives notice of acceptance of this Agreement and of any obligation to which it applies or may apply, and the Company hereby waives presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 1.4. NO IMPAIRMENT The obligations, covenants, agreements and duties of the Company under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the extension of time for the payment by the Trust of all or any portion of the obligations or for the performance of any other obligation under, arising out of, or in connection with, the obligations; (b) any failure, omission, delay or lack of diligence on the part of the Beneficiaries to enforce, assert or exercise any right, privilege, power or remedy conferred on the Beneficiaries with respect to the obligations or any action on the part of the Trust granting indulgence or extension of any kind; or (c) the voluntary or involuntary dissolution, liquidation, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust. There shall be no obligation of the Beneficiaries to give notice to, or obtain the consent of, the Company with respect to the happening of any of the foregoing. SECTION 1.5. ENFORCEMENT A Beneficiary may enforce this Agreement directly against the Company, and the Company waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against the Company. D-2 61 ARTICLE II SECTION 2.1. BINDING EFFECT All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the Beneficiaries. SECTION 2.2. AMENDMENT So long as there remains any Beneficiary or any Preferred Securities of any series are outstanding, this Agreement shall not be modified or amended in any manner adverse to such Beneficiary or to the holders of the Preferred Securities. SECTION 2.3. NOTICES Any notice, request or other communication required or permitted to be given hereunder shall be given in writing by delivering the same by facsimile transmission (confirmed by mail), telex, or by registered or certified mail, addressed as follows (and if so given, shall be deemed given when mailed or upon receipt of an answer back, if sent by telex): Stifel Financial Capital Trust c/o Stifel Financial Corp., 500 North Broadway, St. Louis, Missouri 63102-2188. Facsimile No.: (314) 342-2097 Attention: Chief Financial Officer. Stifel Financial Corp., 500 North Broadway, St. Louis, Missouri 63102-2188. Facsimile No.: (314) 342-2097 Attention: Chief Financial Officer. SECTION 2.4 This agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Missouri (without regard to conflict of laws principles). THIS AGREEMENT is executed as of the day and year first above written. STIFEL FINANCIAL CORP. By:________________________________ Name: Title: STIFEL FINANCIAL CAPITAL TRUST By:________________________________ Name: Title: Administrative Trustee D-3 EXHIBIT E 62 EXHIBIT E Certificate Number Number of Preferred Securities P- Certificate Evidencing Preferred Securities of Stifel Financial Capital Trust % Cumulative Trust Preferred Securities (liquidation amount $10 per Preferred Security) Stifel Financial Capital Trust, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that ______________ (the "Holder") is the registered owner of _____ preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust and designated the __________% Cumulative Trust Preferred Securities (liquidation amount $10 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 504 of the Trust Agreement. The designations, rights, privileges, restrictions, preferences, and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of _____________, 1997, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Preferred Securities Guarantee Agreement entered into by Stifel Financial Corp., a Delaware corporation, and ___________________________________, as guarantee trustee, dated as of _______________, 1997 (the "Guarantee"), to the extent provided therein. The Trust shall furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this _____day of _______________, 1997. STIFEL FINANCIAL CAPITAL TRUST By: -------------------------------------------- Name: Title: Administrative Trustee E-1 63 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the _____% Cumulative Trust Preferred Securities described in the within-mentioned Amended and Restated Trust Agreement. Dated: , STIFEL FINANCIAL CAPITAL TRUST - - --------------------------------------- as Authentication Agent and Registrar By By ------------------------------------- ---------------------------------- Authorized Signatory Administrative Trustee EX-4.11 6 FORM OF PREFERRED SECURITIES GUARANTEE 1 Exhibit 4.11 ================================================================================ PREFERRED SECURITIES GUARANTEE AGREEMENT BY AND BETWEEN STIFEL FINANCIAL CORP. AND ----------------------------------- _______________, 1997 ================================================================================ 2 TABLE OF CONTENTS Page ---- ARTICLE I Definitions And Interpretation.....................................1 Section 1.1. Definitions And Interpretation............................1 ARTICLE II Trust Indenture Act...............................................4 Section 2.1. Trust Indenture Act; Application..........................4 Section 2.2. Lists Of Holders Of Securities............................5 Section 2.3. Reports By The Preferred Guarantee Trustee................5 Section 2.4. Periodic Reports To Preferred Guarantee Trustee...........5 Section 2.5. Evidence Of Compliance With Conditions Precedent..........5 Section 2.6. Events Of Default; Waiver.................................5 Section 2.7. Event Of Default; Notice..................................6 Section 2.8. Conflicting Interests.....................................6 ARTICLE III Powers, Duties And Rights Of Preferred Guarantee Trustee.........6 Section 3.1. Powers And Duties Of The Preferred Guarantee Trustee......6 Section 3.2. Certain Rights Of Preferred Guarantee Trustee.............8 Section 3.3. Not Responsible For Recitals Or Issuance Of Guarantee....10 ARTICLE IV Preferred Guarantee Trustee......................................10 Section 4.1. Preferred Guarantee Trustee; Eligibility.................10 Section 4.2. Appointment, Removal And Resignation Of Preferred Guarantee Trustee........................................11 ARTICLE V Guarantee.........................................................11 Section 5.1. Guarantee................................................11 Section 5.2. Waiver Of Notice And Demand..............................12 Section 5.3. Obligations Not Affected.................................12 Section 5.4. Rights Of Holders........................................13 Section 5.5. Guarantee Of Payment.....................................13 Section 5.6. Subrogation..............................................13 Section 5.7. Independent Obligations..................................13 ARTICLE VI Limitation Of Transactions; Subordination........................14 Section 6.1. Limitation On Transactions...............................14 Section 6.2. Ranking..................................................14 ARTICLE VII Termination.....................................................14 Section 7.1. Termination..............................................14 ARTICLE VIII Indemnification................................................14 Section 8.1. Exculpation..............................................14 Section 8.2. Indemnification..........................................15 i 3 ARTICLE IX Miscellaneous....................................................15 Section 9.1. Successors And Assigns...................................15 Section 9.2. Amendments...............................................15 Section 9.3. Notices..................................................16 Section 9.4. Benefit..................................................16 Section 9.5. Governing Law............................................16 ii 4 CROSS-REFERENCE TABLE Section of Trust Indenture Act Section of of 1939, as amended Indenture - - ------------------- --------- 310(a)...................................................................4.1(a) 310(b)..............................................................4.1(c), 2.8 310(c)...........................................................Not Applicable 311(a)...................................................................2.2(b) 311(b)...................................................................2.2(b) 311(c)...........................................................Not Applicable 312(a).................................................................. 2.2(a) 312(b).................................................................. 2.2(b) 313........................................................................ 2.3 314(a)......................................................................2.4 314(b)...........................................................Not Applicable 314(c)......................................................................2.5 314(d)...........................................................Not Applicable 314(e).............................................................1.1, 2.5,3.2 314(f).................................................................2.1, 3.2 315(a)...................................................................3.1(d) 315(b)......................................................................2.7 315(c)......................................................................3.1 315(d)...................................................................3.1(d) 316(a)............................................................1.1, 2.6, 5.4 316(b)......................................................................5.3 317(a)......................................................................3.1 317(b)...........................................................Not Applicable 318(a)......................................................................2.1 318(b)......................................................................2.1 318(c)...................................................................2.1(b) Note: This Cross-Reference Table does not constitute part of this Agreement and shall not affect the interpretation of any of its terms or provisions. iii 5 PREFERRED SECURITIES GUARANTEE AGREEMENT THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities Guarantee"), dated as of ___________, 1997, is executed and delivered by STIFEL FINANCIAL CORP., a Delaware corporation (the "Guarantor"), and ___________________________________, a trust company organized and existing under the laws of the Commonwealth of Massachusetts, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of Stifel Financial Capital Trust, a Delaware statutory business trust (the "Trust"). RECITALS WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust Agreement"), dated as of ___________, 1997, among the trustees of the Trust named therein, the Guarantor, as depositor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof up to 2,875,000 preferred securities, having an aggregate liquidation amount of up to $28,750,000, designated the ________% Cumulative Trust Preferred Securities (the "Preferred Securities"); WHEREAS, as incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Preferred Securities Guarantee, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Preferred Securities Guarantee for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1. DEFINITIONS AND INTERPRETATION. In this Preferred Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) terms defined in the Trust Agreement as at the date of execution of this Preferred Securities Guarantee have the same meaning when used in this Preferred Securities Guarantee; 6 (c) a term defined anywhere in this Preferred Securities Guarantee has the same meaning throughout; (d) all references to "the Preferred Securities Guarantee" or "this Preferred Securities Guarantee" are to this Preferred Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Preferred Securities Guarantee, unless otherwise specified; (f) a term defined in the Trust Indenture Act has the same meaning when used in this Preferred Securities Guarantee, unless otherwise defined in this Preferred Securities Guarantee or unless the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "Business Day" means any day other than a day on which federal or state banking institutions in New York, New York are authorized or required by law, executive order or regulation to close or a day on which the Corporate Trust Office of the Preferred Guarantee Trustee is closed for business. "Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Preferred Securities Guarantee is located at Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department. "Covered Person" means any Holder or beneficial owner of Preferred Securities. "Debentures" means the ____% Subordinated Debentures due June 30, 2027, of the Debenture Issuer held by the Property Trustee of the Trust. "Debenture Issuer" means the Guarantor. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Preferred Securities Guarantee. "Guarantor" means Stifel Financial Corp., a Delaware corporation. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions that are required to be paid on such Preferred Securities, to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all 2 7 accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), to the extent the Trust has funds available therefor, with respect to any Preferred Securities called for redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution of the Trust (other than in connection with the distribution of Debentures to the Holders in exchange for Preferred Securities as provided in the Trust Agreement), the lesser of (a) the aggregate of the Liquidation Amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Trust shall have funds available therefor (the "Liquidation Distribution"), and (b) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust. "Holder" shall mean any holder, as registered on the books and records of the Trust, of any Preferred Securities; provided, however, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee. "Indenture" means the Indenture dated as of _____________, 1997, among the Debenture Issuer and ___________________________________, as trustee, and any indenture supplemental thereto pursuant to which Subordinated Debentures of the Debenture Issuer are to be issued to the Property Trustee of the Trust. "Liquidation Distribution" has the meaning provided therefor in the definition of Guarantee Payments. "Majority in Liquidation Amount of the Preferred Securities" means the holders of more than 50% of the Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all of the Preferred Securities. "Officers' Certificate" means, with respect to any Person, a certificate signed by two authorized officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Preferred Securities Guarantee shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and 3 8 (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee Trustee" means ___________________________________, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee. "Redemption Price" has the meaning provided therefor in the definition of Guarantee Payments. "Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice-president, any assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939, as amended, is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939, as so amended. ARTICLE II TRUST INDENTURE ACT SECTION 2.1. TRUST INDENTURE ACT; APPLICATION. (a) This Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Preferred Securities Guarantee and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. 4 9 SECTION 2.2. LISTS OF HOLDERS OF SECURITIES. (a) In the event the Preferred Guarantee Trustee is not also the Securities Registrar, the Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Preferred Securities (the "List of Holders") as of such date, (i) within 1 Business Day after January 1 and June 30 of each year, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Preferred Guarantee Trustee; provided, that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE. On or before July 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6. EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in Liquidation Amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this 5 10 Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7. EVENT OF DEFAULT; NOTICE. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Preferred Securities, notices of all Events of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice; provided, that the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Preferred Securities. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Preferred Guarantee Trustee shall have received written notice, or of which a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of the Trust Agreement shall have obtained actual knowledge. SECTION 2.8. CONFLICTING INTERESTS. The Trust Agreement shall be deemed to be specifically described in this Preferred Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE. (a) This Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders of the Preferred Securities, and the Preferred Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any Person except a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee for the benefit of the Holders of the Preferred Securities. 6 11 (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Preferred Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Preferred Securities Guarantee shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guarantee Trustee and conforming to the requirements of this Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Preferred Securities Guarantee; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in Liquidation Amount of the Preferred Securities relating to the time, method and place of conducting any proceeding 7 12 for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee; and (iv) no provision of this Preferred Securities Guarantee shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it. SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to the provisions of Section 3.1: (i) the Preferred Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Guarantor contemplated by this Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever, in the administration of this Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor; (iv) the Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof); (v) the Preferred Guarantee Trustee may consult with counsel, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Preferred Securities Guarantee from any court of competent jurisdiction; 8 13 (vi) the Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Preferred Securities Guarantee; (vii) the Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action; (x) whenever in the administration of this Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in Liquidation Amount of the Preferred Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (b) No provision of this Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or 9 14 exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The Recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Preferred Securities Guarantee. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY. (a) There shall at all times be a Preferred Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. 10 15 SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. (e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee. (f) Upon termination of this Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE SECTION 5.1. GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. 11 16 SECTION 5.2. WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3. OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary dissolution, liquidation, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) any failure or omission to receive any regulatory approval or consent required in connection with the Preferred Securities (or the common equity securities issued by the Trust); (g) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or 12 17 (h) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4. RIGHTS OF HOLDERS. (a) The Holders of a Majority in Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee. (b) Any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Preferred Securities Guarantee, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person. SECTION 5.5. GUARANTEE OF PAYMENT. This Preferred Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6. SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof. 13 18 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1. LIMITATION ON TRANSACTIONS. So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default under this Preferred Securities Guarantee, an Event of Default under the Trust Agreement or during an Extended Interest Payment Period (as defined in the Indenture), then (a) the Guarantor shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock and (b) the Guarantor shall not make any payment of interest or principal on or repay, repurchase or redeem any debt securities issued by the Guarantor which rank pari passu with or junior to the Debentures other than payments under this Preferred Securities Guarantee and (c) the Guarantor shall not redeem, purchase or acquire less than all of the Outstanding Debentures or any of the Preferred Securities. SECTION 6.2. RANKING. This Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, (ii) pari passu with the most senior preferred securities or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred securities or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.1. TERMINATION. This Preferred Securities Guarantee shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) upon full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Trust, or (iii) upon distribution of the Debentures to the Holders of the Preferred Securities. Notwithstanding the foregoing, this Preferred Securities Guarantee shall continue to be effective or shall be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. ARTICLE VIII INDEMNIFICATION SECTION 8.1. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in 14 19 good faith in accordance with this Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Preferred Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.2. INDEMNIFICATION. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 8.2 shall survive the termination of this Preferred Securities Guarantee. ARTICLE IX MISCELLANEOUS SECTION 9.1. SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.2. AMENDMENTS. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Preferred Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in Liquidation Amount of the Preferred Securities. The provisions of Article VI of the Trust Agreement with respect to meetings of Holders of the Preferred Securities apply to the giving of such approval. 15 20 SECTION 9.3. NOTICES. All notices provided for in this Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): ------------------------------ ------------------------------ ------------------------------ ------------------------------ (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): Stifel Financial Corp. 500 North Broadway St. Louis, Missouri 63102-2188 Attention: Chief Financial Officer (c) If given to any Holder of Preferred Securities, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4. BENEFIT. This Preferred Securities Guarantee is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Preferred Securities. SECTION 9.5. GOVERNING LAW. THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MISSOURI. 16 21 This Preferred Securities Guarantee is executed as of the day and year first above written. STIFEL FINANCIAL CORP. as Guarantor By --------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- -------------------------------------------, as Preferred Guarantee Trustee By --------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 17 EX-23.1 7 CONSENT OF DELOITTE AND TOUCHE 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Stifel Financial Corp. on Form S-2 of our reports dated February 25, 1997, appearing in and incorporated by reference in the Annual Report on Form 10-K of Stifel Financial Corp. for the year ended December 31, 1996 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP St. Louis, Missouri June 6, 1997 EX-23.2 8 CONSENT OF COOPERS AND LYBRAND 1 EXHIBIT 23.2 [COOPERS & LYBRAND LETTERHEAD] STIFEL FINANCIAL CORP. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this registration statement of Stifel Financial Corp. and Subsidiaries on Form S-2, of our report dated February 25, 1996 on our audits of the consolidated financial statements and financial statement schedules of Stifel Financial Corp. and Subsidiaries as of December 31, 1995 and for the years ended December 31, 1995 and 1994, which report is included in the Company's Annual Report on Form 10-K. We also consent to the reference to our firm under the caption "Experts." /s/ COOPERS & LYBRAND L.L.P. St. Louis, Missouri June 5, 1997 -----END PRIVACY-ENHANCED MESSAGE-----