-----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, T5j6h2iygTgJZNmCAvmgG8BvGKoAw4Oqp9PNJZDthMvWOv3bbtIsq6+uJJh7hE/w zIC1oAuB+xTxiDKSVA9STw== /in/edgar/work/20000629/0000950124-00-004030/0000950124-00-004030.txt : 20000920 0000950124-00-004030.hdr.sgml : 20000920 ACCESSION NUMBER: 0000950124-00-004030 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE VALLEY BAN CORP CENTRAL INDEX KEY: 0000901842 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 481070996 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-34328 FILM NUMBER: 665337 BUSINESS ADDRESS: STREET 1: 11935 RILEY CITY: OVERLAND PARK STATE: KS ZIP: 66225 BUSINESS PHONE: 9133381000 MAIL ADDRESS: STREET 1: 11935 RILEY CITY: OVERLAND PARK STATE: KS ZIP: 66225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BVBC CAPITAL TRUST I CENTRAL INDEX KEY: 0001110171 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-34328-01 FILM NUMBER: 665338 BUSINESS ADDRESS: STREET 1: C/O BLUE VALLEY BAN CORP STREET 2: 11935 RILEY CITY: OVERLAND PARK STATE: KS ZIP: 66225 BUSINESS PHONE: 9133381000 MAIL ADDRESS: STREET 1: C/O BLUE VALLEY BAN CORP STREET 2: 11935 RILEY CITY: OVERLAND PARK STATE: KS ZIP: 66225 S-1/A 1 s-1a.txt AMENDMENT NO. 3 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 2000. REGISTRATION NOS. 333-34328 333-34328-01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Securities & Exchange Commission Washington, D.C. 20549 ------------------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 BLUE VALLEY BAN CORP KANSAS (Exact name of registrant as specified in its (State or other jurisdiction of incorporation charter) or organization) 6022 48-1070996 (Primary Standard Industrial Classification (I.R.S. Employer Identification No.) Code Number) BVBC CAPITAL TRUST I DELAWARE (Exact name of registrant as specified in its (State or other jurisdiction of incorporation charter) or organization) 6022 48-1229554 (Primary Standard Industrial Classification (I.R.S. Employer Identification No.) Code Number)
11935 RILEY, OVERLAND PARK, KANSAS 66225-6128; (913) 338-1000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Robert D. Regnier, Chief Executive Officer Blue Valley Ban Corp 11935 Riley Overland Park, Kansas 66225-6128 (913) 338-1000 with copies to: Steven F. Carman, Esq Thomas C. Erb, Esq. Blackwell Sanders Peper Martin LLP Lewis, Rice & Fingersh, L.C. Two Pershing Square 500 North Broadway 2300 Main Street, Suite 1000 St. Louis, Missouri 63102 Kansas City, Missouri 64108 (314) 444-7600 (816) 983-8000
(Name, address, including zip code, and telephone number, including area code, of agent for service) 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 being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, check the following box. [ ] THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. Subject To Completion, Dated , 2000 PROSPECTUS [BLUE VALLEY BAN CORP LOGO] 1,250,000 TRUST PREFERRED SECURITIES BVBC CAPITAL TRUST I % CUMULATIVE TRUST PREFERRED SECURITIES FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED ON A SUBORDINATED BASIS BY BLUE VALLEY BAN CORP ------------------------ BVBC Capital Trust I is offering 1,250,000 trust preferred securities. No public market currently exists for the trust preferred securities. The trust preferred securities generally consist of an indirect beneficial interest in our % junior subordinated debentures. The junior subordinated debentures have the same payment terms as the trust preferred securities and will be purchased and held by BVBC Capital Trust I using the proceeds of this offering. A brief description of the trust preferred securities can be found under "Prospectus Summary -- The Offering" in this prospectus. We have applied to have the trust preferred securities listed for trading on the American Stock Exchange under the symbol "BLV.Pr ." Trading is expected to commence on or prior to delivery of the trust preferred securities. ------------------------ YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 6 BEFORE INVESTING IN THE TRUST PREFERRED SECURITIES. ------------------------ THE TRUST PREFERRED SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS, OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. ------------------------
PER TRUST PREFERRED SECURITY TOTAL ------------------ ----------- Public Offering Price....................................... $8.00 $10,000,000 Proceeds to BVBC Capital Trust I............................ $8.00 $10,000,000
This is a firm commitment underwriting. We will pay underwriting commissions of $ per trust preferred security, or a total of $ , for arranging the investment in our junior subordinated debentures. We have granted the underwriter the right to purchase up to an additional 187,500 trust preferred securities to cover over-allotments, if any. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. STIFEL, NICOLAUS & COMPANY INCORPORATED Date of this Prospectus is , 2000 3 [BLUE VALLEY MAP] 4 PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the trust preferred securities being sold in this offering and other consolidated financial statements and related notes appearing elsewhere in this prospectus. Unless we indicate otherwise, all information in this prospectus (1) reflects the four-for-one stock split of our common stock effective as of January 20, 2000, and (2) assumes no exercise of the underwriter's over-allotment option to purchase up to an additional 187,500 trust preferred securities from BVBC Capital Trust I. BLUE VALLEY We organized Blue Valley and our wholly-owned subsidiary, Bank of Blue Valley, in 1989 to provide banking services to closely-held businesses, their owners, professionals and individuals in Johnson County, Kansas, a high growth, demographically attractive area within the Kansas City, Missouri -- Kansas Metropolitan Statistical Area. Our focus has been to take advantage of the current and anticipated growth in our market area as well as to serve the needs of small and mid-sized commercial borrowers -- customers that we believe currently are underserved as a result of banking consolidation in the industry generally and within our market specifically. We have experienced significant internal growth since our inception. In addition, in 1994, we acquired the deposits of a branch of a failed savings and loan institution to augment our internal growth and expand into an additional market which management believed was attractive. In 1994, we also completed the construction of our current headquarters in Overland Park, Kansas. We currently have three banking locations in Johnson County, Kansas, including our main office in Overland Park, a full-service office in Olathe, Kansas, and a supermarket banking facility in Shawnee, Kansas. We plan to open an additional full-service office in Shawnee, Kansas in the third quarter of 2000. FINANCIAL SUMMARY
COMPOUND GROWTH OR AVERAGE FOR THE FIVE YEARS THREE MONTHS ENDED ENDED MARCH 31, DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------- --------------- ---------------------------------------------------- 2000 1999 1999(1) 1999 1998 1997 1996 1995 -------- -------- --------------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net income........................ $ 833 $ 655 39.91% $ 3,083 $ 2,816 $ 2,286 $ 1,622 $ 1,049 Earnings per share (diluted)...... 0.38 0.30 27.59% 1.42 1.35 1.22 0.85 0.70 Total assets...................... 333,662 261,351 26.82% 332,613 253,724 201,644 162,739 132,794 Total loans....................... 254,325 186,038 36.65% 250,410 161,444 127,308 101,323 71,791 Total deposits.................... 278,861 218,383 25.70% 268,145 209,824 170,792 139,929 112,614 Total stockholders' equity........ 19,627 17,476 30.08% 18,869 17,016 13,464 10,100 8,761 Return on average total assets.... 1.03% 1.03% 1.14% 1.08% 1.28% 1.30% 1.13% 0.89% Return on average total stockholders' equity............ 17.54% 15.43% 18.46% 17.43% 18.98% 20.62% 17.79% 17.46%
- --------------- (1) For the period indicated, these figures represent compound annual growth rate of net income, earnings per share (diluted), total assets, total loans, total deposits and total stockholders' equity, and average annual return on average total assets and average total stockholders' equity. 1 5 BUSINESS STRATEGY Since our founding, we have strived to increase stockholder value by executing a community banking strategy tailored to provide our customers with competitive financial products and services, our employees with the opportunity to share in our financial success and our community with a stable, growth oriented employer. To further our primary business objectives, we have identified the following business strategies: - We intend to grow and diversify our loan portfolio by aggressively marketing new customers, cross-marketing our existing customers and expanding our loan product offerings. - We intend to grow our residential mortgage loan origination, investment brokerage, trust services and other lines of business and to develop additional sources of non-interest income. - We intend to continue to emphasize controlling the expenses necessary to facilitate our growth as a community bank with diversified and developing lines of business. - We intend to expand our presence within our market area, primarily by considering opening new branches and establishing new ATMs and, to the extent that opportunities present themselves, by considering acquisition opportunities within our market area and in contiguous areas. We believe that our primary strengths are our: - high level of customer service standards, - growth opportunities in our primary market area, - market perception as an independent community bank focused on serving the needs of our market, as compared to a regional or national bank, and - experienced senior management team. BVBC TRUST BVBC Trust is a newly created Delaware business trust. We created BVBC Trust to offer the trust preferred securities and to purchase our junior subordinated debentures. BVBC Trust has a term of 35 years, but may dissolve earlier as provided in its trust agreement. The principal executive offices of Blue Valley and BVBC Trust are located at 11935 Riley, Overland Park, Kansas 66225-6128. The main telephone number for both Blue Valley and BVBC Trust is (913) 338-1000. Our Internet address is http://www.bankbv.com. 2 6 THE OFFERING Securities offered......... BVBC Trust is offering 1,250,000 of its trust preferred securities to the public, and will sell its common securities to Blue Valley. Together, the trust preferred securities and the common securities are referred to as trust securities. BVBC Trust will use the proceeds from the sale of trust securities to buy from Blue Valley a series of % junior subordinated debentures due September 30, 2030, which will have the same payment terms as the trust preferred securities. Quarterly distributions are payable to you on the trust preferred securities............... The distributions payable on each preferred security will: - be fixed at a rate per year of %; - accrue from the date of issuance of the trust preferred securities; and - be payable quarterly on March 31, June 30, September 30 and December 31 of each year that the trust preferred securities are outstanding, beginning on September 30, 2000, subject to our right to defer distributions on the trust preferred securities. Blue Valley and BVBC Trust have rights to defer distributions to you on the trust preferred securities............... BVBC Trust will defer distributions on the trust preferred securities if Blue Valley defers interest payments on the junior subordinated debentures. Blue Valley generally has the right to defer interest payments on the junior subordinated debentures for up to 20 consecutive quarters. During any deferral period, you will still accumulate the right to receive distributions when subsequently made at the annual rate of %, plus you will earn interest at the annual rate of %, compounded quarterly, on any unpaid distributions. You will still be taxed, even if distributions on the trust preferred securities are deferred................. If distributions on the trust preferred securities are deferred, you will be required to accrue interest income in the form of original issue discount and include it in your gross income for United States federal income tax purposes. See "Risk Factors -- If we elect to defer interest payments on the junior subordinated debentures, you may have to include interest in your taxable income before you receive cash," "Description of the Junior Subordinated Debentures -- Option to Extend Interest Payment Period" and "Material Federal Income Tax Consequences -- Interest Income and Original Issue Discount." Your trust preferred securities will be redeemed by BVBC Trust when the junior subordinated debentures mature........ The junior subordinated debentures will mature on September 30, 2030. BVBC Trust will redeem your trust preferred securities upon the stated maturity date of the junior subordinated debentures or earlier if they are prepaid. 3 7 If the junior subordinated debentures are prepaid, your trust preferred securities will be redeemed................. Blue Valley may prepay the junior subordinated debentures prior to maturity: - on or after September 30, 2005; or - at any time upon events occurring that may have a significant adverse effect on the benefits to Blue Valley of having the trust preferred securities outstanding. Upon any prepayment of the junior subordinated debentures, your trust preferred securities will be redeemed at the liquidation amount of $8 per preferred security plus any accrued and unpaid distributions to the date of redemption. See "Description of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley" and "Description of the Junior Subordinated Debentures -- Redemption." At its option, Blue Valley may require you to exchange your trust preferred securities for its junior subordinated debentures.. Blue Valley has the right at any time to dissolve BVBC Trust. Upon a dissolution of BVBC Trust, after satisfaction of liabilities to creditors, if any, of BVBC Trust, you will receive junior subordinated debentures in exchange for the principal amount of your holdings in trust preferred securities, plus accrued and unpaid interest equal to the accrued and unpaid distributions on the trust preferred securities. See "Description of the Trust Preferred Securities -- Distribution of Junior Subordinated Debentures." Your trust preferred securities are fully and unconditionally guaranteed by Blue Valley on a subordinated basis.................... Blue Valley will fully, irrevocably and unconditionally guarantee the trust preferred securities on a subordinated basis. However, if Blue Valley does not make a payment on the junior subordinated debentures, BVBC Trust will not have sufficient funds to make payments on the trust preferred securities and the guarantee will not apply. See "Description of the Trust Preferred Securities Guarantee." Your trust preferred securities rank lower in payment priority compared to other obligations of Blue Valley.............. Blue Valley's obligations under its trust preferred securities guarantee, the junior subordinated debentures and other governing documents described in this prospectus are unsecured and rank junior in right of payment to all current and future senior and subordinated debt of Blue Valley. In addition, because Blue Valley is a holding company, all existing and future liabilities of any Blue Valley subsidiary will rank prior to all obligations of Blue Valley relating to the trust preferred securities and the junior subordinated debentures. There is no limit on the amount of these liabilities or the amount of other trust preferred 4 8 securities or other junior subordinated debentures of Blue Valley or its subsidiaries that may be issued in the future. You will have limited voting rights.............. As a holder of trust preferred securities, you have only limited voting rights. See "Description of the Trust Preferred Securities -- Voting Rights; Amendment of the Trust Agreement." There is no established market for the trust preferred securities..... No public trading market currently exists for the trust preferred securities. We have applied to have the trust preferred securities approved for listing on the American Stock Exchange under the trading symbol "BLV.Pr." See "Market for the Trust Preferred Securities." No rating.................. The trust preferred securities have not been rated by any nationally recognized statistical rating organization. Use of proceeds............ We intend to use the net proceeds from this offering as follows: - repay approximately $7.3 million of debt outstanding as of April 30, 2000, under our bank stock loan; and - retain the remainder for general corporate purposes, including investments from time to time in the Bank in the form of additional capital and possible future acquisitions. We have no agreements or understandings at this time for any acquisitions, and we cannot be sure whether any acquisitions will ever occur. RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------- ------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ----- ----- ----- ----- ----- ----- ----- Ratio of Earnings to Fixed Charges(1) Including interest on deposits............................ 1.35x 1.39x 1.41x 1.46x 1.47x 1.44x 1.33x Excluding interest on deposits............................ 3.42x 4.32x 4.36x 5.32x 6.50x 5.20x 3.25x Pro Forma Ratio of Earnings to Fixed Charges(2) Including interest on deposits............................ 1.34x -- 1.39x -- -- -- -- Excluding interest on deposits............................ 3.00x -- 3.26x -- -- -- --
- --------------- (1) For purposes of calculating the ratio of earnings to fixed charges, earnings consists of income before taxes plus interest expense. Fixed charges consist of interest expense. (2) For purposes of calculating the pro forma ratio of earnings to fixed charges, earnings consists of income before taxes plus pro forma interest expense. Pro forma interest expense consists of historical interest expense plus (1) interest expense on the junior subordinated debentures assuming that we issued a total principal amount of $10 million at 10.0% at the beginning of the period minus (2) historical interest expense on the $7.3 million of our debt under our bank stock loan that we intend to retire with the proceeds from this offering. 5 9 RISK FACTORS In addition to the other information in this prospectus, you should carefully consider the following factors before investing in the common stock or the trust preferred securities. RISK FACTORS RELATING TO BLUE VALLEY IF WE ARE UNABLE TO IMPLEMENT ASPECTS OF OUR GROWTH STRATEGY, OUR BUSINESS MAY BE ADVERSELY AFFECTED. The key components of our growth strategy are growing and diversifying our loan portfolio, increasing our non-interest income and expanding our presence within our market area. Our failure to execute successfully any or all of these components could adversely affect our financial performance and our ability to meet our strategic objectives. Our ability to achieve these key components is subject to the following risks: - To grow our loan portfolio, we plan to aggressively cross-market our lending products and services to existing and new customers of our deposit and other services. The business of lending is extremely competitive, and we cannot be sure whether we will be able to successfully cross-market our lending products and services to our other customers. See "-- If we are not able to effectively compete in the highly competitive banking industry, our business will be adversely affected." To diversify our loan portfolio, me must be able to correctly identify new lending products that will provide us with an acceptable return on a risk-adjusted basis. Our senior management may not be able to successfully identify these products or effectively manage the integration of products that we have not previously offered. - We also plan to increase our non-interest income by expanding our mortgage, trust and investment brokerage businesses. In a rising interest rate environment, our ability to increase our fee income from mortgage originations is likely to be adversely affected because fewer customers will refinance their existing residential mortgage loans. We have offered trust services since 1996 and investment brokerage services since 1999. These lines of our business are still in the formative stages of their growth, their present contributions to our revenues and net income are currently minimal, and we cannot be sure whether we will ever derive significant revenues from these areas. - In order to expand our presence within our market area through the establishment of new branches or ATMs, we must be able to correctly identify profitable or growing markets. If we attempt to implement our strategy by acquiring existing branches of other institutions, our success will depend on our ability to identify acquisition opportunities that will complement our banking operations, and our ability to successfully integrate their operations with ours. In either case, we cannot be sure whether we will be able to identify suitable opportunities for further expansion or to successfully execute our expansion plans. OUR OPERATIONS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO MAINTAIN AND INCREASE OUR DEPOSIT BASE AND SECURE ADEQUATE FUNDING. We fund our banking and lending activities primarily through demand, savings and time deposits and, to a lesser extent, lines of credit, sale/repurchase facilities from various financial institutions, and Federal Home Loan Bank borrowings. The success of our business plan depends in part on our ability to maintain and increase our deposit base and our ability to maintain access to other funding sources. Our inability to obtain funding on favorable terms, on a timely basis, or at all, would adversely affect our operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." THE LOSS OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT OUR OPERATIONS. We are a relatively small organization and depend on the services of all of our employees. Our growth and development to date has depended in a large part on a few key employees who have primary 6 10 responsibility for maintaining personal relationships with our largest customers. The unexpected loss of services of one or more of these key employees could have a material adverse effect on our operations. Our key employees are Robert D. Regnier, John K. Doull, Mark A. Fortino, Nancy A. Taylor, Penny T. Hershman and Bonnie M. McConnaughy. Each of these persons are officers of the Bank. We do not have employment or non-compete agreements with any of these key employees. We carry a $1 million "key person" life insurance policy on the life of Mr. Regnier. CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR EARNINGS AND COST OF FUNDS. Changes in interest rates affect our operating performance and financial condition in diverse ways. A substantial part of our profitability depends on the difference between the rates we receive on loans and investments and the rates we pay for deposits and other sources of funds. Our net interest spread will depend on many factors that are partly or entirely outside our control, including competition, federal monetary and fiscal policies, and economic conditions generally. Historically, net interest spreads for many financial institutions have widened and narrowed in response to these and other factors, which are often collectively referred to as "interest rate risk." We intend to try to minimize our exposure to interest rate risk, but we will be unable to eliminate it. In our banking operations, we are subject to interest rate risk on loans held in our portfolio arising from mismatches between the dollar amount of repricing or maturing assets and liabilities. These mismatches are referred to as the "interest rate sensitivity gap," which is measured in terms of the ratio of the interest rate sensitivity gap to total assets. A higher level of assets repricing or maturing than liabilities over a given time frame is considered asset-sensitive and is reflected as a positive gap. In contrast, a higher level of liabilities repricing or maturing than assets over a given time frame is considered liability-sensitive and is reflected as a negative gap. As of December 31, 1999, we had a negative interest rate sensitivity gap. A negative gap will generally enhance earnings in a falling interest rate environment and will negatively impact earnings in a rising interest rate environment. A positive gap will generally enhance earnings in a rising interest rate environment and negatively impact earnings in a falling interest rate environment. In addition, in a rising interest rate environment, our fee income is likely to be adversely affected because fewer residential mortgage loans will be refinanced. Fluctuations in interest rates are not predictable or controllable. Although we have attempted to structure our asset and liability management strategies to mitigate the impact on net interest income of changes in market interest rates, we can not give any assurance that a sudden or significant change in prevailing interest rates will not have a material adverse effect on our operating results. BECAUSE OUR BUSINESS IS CONCENTRATED IN THE KANSAS CITY METROPOLITAN AREA, A DOWNTURN IN THE KANSAS CITY ECONOMY MAY ADVERSELY AFFECT OUR BUSINESS. Our success is dependent to a significant extent upon the general economic conditions in the Kansas City metropolitan area, including Johnson County, Kansas, and, in particular, the conditions for the medium-sized and small-sized businesses that are the focus of our customer base. Although currently the economy in these areas is favorable, we do not know whether these conditions will continue. Adverse changes in economic conditions in the Kansas City metropolitan area, including Johnson County, Kansas, could impair our ability to collect loans, reduce our growth rate and have a negative effect on our overall financial condition. A DECREASE IN THE DEMAND FOR HOUSING IN OUR MARKET AREA MAY ADVERSELY AFFECT OUR EARNINGS. As of March 31, 2000, approximately $77.4 million, or 30.42%, of our loan portfolio consisted of residential mortgage loans and construction loans for residential builders, primarily in Johnson County, Kansas. The demand for housing in Johnson County is influenced by a number of factors, including prevailing interest rates, inflation, levels of regional commercial activity, consumer preferences for suburban housing, and the continuing presence of significant employers in the Johnson County region. A change in any of these factors, or in factors that we do not anticipate, could cause the demand for housing in Johnson County to decline. Because of our focus on residential mortgage loans and construction loans for 7 11 residential builders, if this occurs we could experience significant losses in our loan portfolio and a material decrease in our earnings. IF OUR ALLOWANCE FOR LOAN LOSSES IS INSUFFICIENT TO ABSORB LOSSES IN OUR LOAN PORTFOLIO, IT WILL ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Some borrowers may not repay loans that we make to them. This risk is inherent in the banking business. Like all financial institutions, we maintain an allowance for loan losses to absorb probable loan losses in our loan portfolio. However, we cannot predict loan losses with certainty, and we cannot assure you that our allowance will be sufficient. Loan losses in excess of our reserves would have an adverse effect on our financial condition and results of operations. In addition, various regulatory agencies, as an integral part of the examination process, periodically review our loan portfolio. These agencies may require us to add to the allowance for loan losses based on their judgments and interpretations of information available to them at the time of their examinations. If these agencies require us to increase our allowance for loan losses, our earnings will be adversely affected in the period in which the increase occurs. Our indirect automobile loan portfolio and our lease portfolio, which were approximately $34.7 million and $29.3 million, or 13.66% and 11.50%, respectively, of our loan portfolio as of March 31, 2000, may present a greater risk of loss than our other loan categories. The underlying collateral for our indirect automobile loans and our leases may depreciate rapidly and may not provide an adequate source of repayment if we were required to repossess the collateral. We cannot be sure whether our levels of charge-offs for indirect automobile loans and leases in future periods will be consistent with our historical levels of charge-offs for these types of loans and leases. WE MAY INCUR SIGNIFICANT COSTS IF WE FORECLOSE ON ENVIRONMENTALLY CONTAMINATED REAL ESTATE. If we foreclose on a defaulted real estate loan to recover our investment, we may be subject to environmental liabilities in connection with the underlying real property. It is also possible that hazardous substances or wastes may be discovered on these properties during our ownership or after they are sold to a third party. If they are discovered on a property that we have acquired through foreclosure or otherwise, we may be required to remove those substances and clean up the property. We may have to pay for the entire cost of any removal and clean-up without the contribution of any other third parties. We may also be liable to tenants and other users of neighboring properties. These costs or liabilities may exceed the fair value of the property. In addition, we may find it difficult or impossible to sell the property prior to or following any environmental clean-up. IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE BANKING INDUSTRY, OUR BUSINESS WILL BE ADVERSELY AFFECTED. Our business is extremely competitive. Many of our competitors are, or are affiliates of, enterprises that have greater resources, name recognition and market presence than we do. Some of our competitors are not regulated as extensively as we are and, therefore, may have greater flexibility in competing for business. Some of these competitors are subject to similar regulation but have the advantages of established customer bases, higher lending limits, extensive branch networks, numerous ATMs, and more ability to absorb the costs of maintaining technology or other factors. RISK FACTORS RELATING TO THE TRUST PREFERRED SECURITIES MOST OF OUR CURRENT AND FUTURE CREDITORS WILL GET PAID BEFORE BVBC TRUST WILL GET PAID UNDER THE JUNIOR SUBORDINATED DEBENTURES AND BEFORE YOU WILL GET PAID UNDER THE TRUST PREFERRED SECURITIES GUARANTEE. Our obligations under the trust preferred securities guarantee and the junior subordinated debentures are unsecured and will rank junior in priority of payment to any senior and subordinated debt we may incur, which generally includes indebtedness, liabilities or obligations we may have, contingent or 8 12 otherwise. As of April 30, 2000, we had approximately $9.1 million in indebtedness that would rank senior in priority of payment to the junior subordinated debentures. Our obligations under the junior subordinated debentures will also be effectively subordinated to all existing and future liabilities and obligations of the Bank. The trust preferred securities, the junior subordinated debentures and the trust preferred securities guarantee do not limit our ability or the ability of the Bank to incur unlimited future indebtedness, liabilities and obligations, which may rank senior to the junior subordinated debentures and the trust preferred securities guarantee. For more information on our obligations under the trust preferred securities guarantee and the junior subordinated debentures, see "Description of the Trust Preferred Securities Guarantee -- Status of the Trust Preferred Securities Guarantee" and "Description of the Junior Subordinated Debentures -- Subordination of Junior Subordinated Debentures to Senior and Subordinated Debt of Blue Valley." IF WE DO NOT MAKE PAYMENTS UNDER THE JUNIOR SUBORDINATED DEBENTURES, BVBC TRUST WILL BE UNABLE TO PAY DISTRIBUTIONS AND LIQUIDATION AMOUNTS AND THE TRUST PREFERRED SECURITIES GUARANTEE WILL NOT APPLY. The ability of BVBC Trust to pay distributions and, upon redemption, the liquidation amount of $8 per trust preferred security is solely dependent upon our ability to make the related payments on the junior subordinated debentures when due. If we default on our obligation to pay principal of or interest on the junior subordinated debentures, BVBC Trust will not have sufficient funds to pay distributions or the liquidation amount. In that case, you will not be able to rely upon the trust preferred securities guarantee for payment of these amounts because the trust preferred securities guarantee only applies if we make a payment of principal or interest on the junior subordinated debentures. For more information on our obligations under the trust preferred securities guarantee and the junior subordinated debentures, see "Description of the Trust Preferred Securities Guarantee -- Status of the Trust Preferred Securities Guarantee" and "Description of the Junior Subordinated Debentures -- Subordination of Junior Subordinated Debentures to Senior and Subordinated Debt of Blue Valley." WE MAY NOT BE ABLE TO MAKE INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES UNLESS WE RECEIVE DIVIDENDS FROM THE BANK. Substantially all of our assets consist of our investment in the Bank. Thus, our ability to pay interest and principal on the junior subordinated debentures to BVBC Trust depends primarily upon our receipt of cash dividends from the Bank. Dividend payments from the Bank to us are subject to, among other things: - regulatory limitations, generally based on current and retained earnings and capital maintenance requirements, imposed by various bank regulatory agencies; - profitability, financial condition and capital expenditures and other cash flow requirements of the Bank; and - prior claims of creditors of the Bank. IF WE ELECT TO DEFER INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES, YOU MAY HAVE TO INCLUDE INTEREST IN YOUR TAXABLE INCOME BEFORE YOU RECEIVE CASH. It is possible that you will not receive cash distributions on the trust preferred securities for up to 20 consecutive quarters. This will occur if we elect to defer interest payments on the junior subordinated debentures. These periods during which we defer interest payments are referred to as "extension periods." Because you will be required to include interest in your income for United States federal income tax purposes during an extension period irrespective of whether interest is actually paid, you may have to pay taxes before you actually receive the cash distributions. In addition, the market price of the trust preferred securities is likely to be adversely affected if we elect to defer the interest payments. 9 13 An extension period may last for up to 20 consecutive quarters, but not beyond the maturity date of the junior subordinated debentures. We must make payments of all deferred interest upon the earlier of the end of the extension period or the maturity date. This right exists only if no event of default under the junior subordinated debentures has occurred and is continuing. If we exercise this right, BVBC Trust would defer distributions on the trust preferred securities during any extension period. However, you would still accumulate distributions at the annual rate of % of the liquidation amount of $8 per trust preferred security, plus you will earn interest at the annual rate of %, compounded quarterly, on any unpaid distributions. When we pay all the accumulated amounts due to you during an extension period, the extension period will terminate. However, we have the right to begin another extension period under the same terms outlined above. You will also not receive the cash distributions related to any accrued and unpaid interest from BVBC Trust if you sell the trust preferred securities before the end of an extension period. However, you will be required to include accrued interest income as original issue discount for United States federal income tax purposes in respect of your pro rata share of the junior subordinated debentures held by BVBC Trust. While we will take the position that original issue discount will not arise before the first extension period, it is possible that all interest on the junior subordinated debentures would be required to be accounted for as original issue discount. In these circumstances, the receipt of interest would not separately be reported as taxable income. See "Material Federal Income Tax Consequences -- Interest Income and Original Issue Discount" for more information regarding the tax consequences of the trust preferred securities. In the event that we exercise our right to defer interest payments on the junior subordinated debentures, we will be prohibited from paying dividends on our common stock during the extension period. Because we have no history of paying dividends on our common stock, and no intention to do so in the immediate future, the prohibition against paying dividends during an extension period may have less of a deterrent effect on us than on a company with a history of paying dividends on its common stock. Nevertheless, we have no current intention of exercising our right to defer interest payments on the junior subordinated debentures. However, if we exercise our right in the future, the market price of the trust preferred securities is likely to be adversely affected. IF WE REDEEM THE JUNIOR SUBORDINATED DEBENTURES, IT WILL CAUSE A REDEMPTION OF THE TRUST PREFERRED SECURITIES AND YOU MAY NOT BE ABLE TO REINVEST THE PROCEEDS AT THE SAME OR HIGHER RATE OF RETURN. You are subject to the risk that we will redeem the trust preferred securities. If the trust preferred securities are redeemed, you may not be able to reinvest the money you receive upon redemption at a rate that is equal to or higher than the rate of return you receive on the trust preferred securities. Although the junior subordinated debentures have a stated maturity date of September 30, 2030, they may be redeemed by us prior to maturity in the following circumstances: - in whole or in part, beginning on September 30, 2005, at our option; - in whole upon a change in the federal tax laws or a change in the interpretation of the tax laws by the courts or the Internal Revenue Service, which would result in a risk that (1) BVBC Trust may be subject to federal income tax, (2) the interest we pay on the junior subordinated debentures will not be deductible by us for federal income tax purposes, or (3) BVBC Trust is or will be subject to more than a minimal amount of other taxes or governmental charges; - in whole upon a change in the laws or regulations to the effect that BVBC Trust is or will be considered to be an investment company that is required to be registered under the Investment Company Act of 1940; or - in whole upon a change in the laws or regulations if there is a risk that we will not be able to treat all or a substantial portion of the trust preferred securities as Tier 1 (core) capital for purposes of federal banking guidelines. Our exercise of these redemption rights is subject to our receipt of prior approval of federal banking regulators, if required, and would cause an early redemption of the trust preferred securities. For further 10 14 information concerning tax or regulatory events that may trigger redemption of the junior subordinated debentures, resulting in redemption of the trust preferred securities, see "Description of the Trust Preferred Securities -- Redemption." YOU ARE SUBJECT TO REPAYMENT RISK BECAUSE POSSIBLE TAX LAW CHANGES COULD RESULT IN A REDEMPTION OF THE TRUST PREFERRED SECURITIES. Future legislation may be enacted that could adversely affect our ability to deduct our interest payments on the junior subordinated debentures for federal income tax purposes, making redemption of the junior subordinated debentures likely and resulting in a redemption of the trust preferred securities. From time to time, the current administration has proposed federal income tax law changes that would, among other things, generally deny interest deductions to a corporate issuer if the debt instrument has a term exceeding 15 years and if the debt instrument is not reflected as indebtedness on the issuer's consolidated balance sheet. Other proposed tax law changes would have denied interest deductions if the debt instrument had a term exceeding 20 years. These proposals were not enacted into law. Although it is impossible to predict future proposals, if a future proposal of this sort were to become effective in a form applicable to already issued and outstanding securities, we could be precluded from deducting interest on the junior subordinated debentures. Enactment of this type of proposal might in turn give rise to a tax event as described under "Description of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley." You should also be aware that a petition was filed during 1998 in the United States Tax Court as a result of a challenge by the Internal Revenue Service ("IRS") of a taxpayer's treatment as indebtedness of a security issued with characteristics similar to the junior subordinated debentures. Although the IRS agreed to dismissal of the adjustments related to this issue, it could assert similar adjustments against other taxpayers. If these adjustments were proposed and the issue were litigated to a conclusion in which the IRS's position on this matter were sustained, this judicial determination could constitute a tax event that could result in an early redemption of the trust preferred securities. For further information, see "Description of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley," "Description of the Junior Subordinated Debentures -- Redemption" and "Material Federal Income Tax Consequences." DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED SECURITIES MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF YOUR INVESTMENT. Your investment in the trust preferred securities may decrease in value if the junior subordinated debentures are distributed to you in exchange for your trust preferred securities. If the junior subordinated debentures are distributed to you in exchange for your trust preferred securities and we exercise our right to redeem less than all of the junior subordinated debentures, the junior subordinated debentures may not qualify for listing on The American Stock Exchange or another exchange. Although the indenture requires us to use our best efforts to list the junior subordinated debentures on an exchange in the event that they are distributed to you, this requirement will not prevent us from partially redeeming the junior subordinated debentures. Accordingly, we cannot predict the liquidity or market prices for the junior subordinated debentures that may be distributed. The junior subordinated debentures that you receive upon a distribution, or the trust preferred securities you hold pending a distribution, may trade at a discount to the price that you paid to purchase the trust preferred securities, or if the junior subordinated debentures are not listed on an exchange, they may not be actively traded at all. Because you may receive junior subordinated debentures, you must also make an investment decision with regard to these securities. You should carefully review all the information regarding the junior subordinated debentures contained in this prospectus. Under "Material Federal Income Tax Consequences" we discuss applicable United States federal income tax consequences of a distribution of the junior subordinated debentures. 11 15 IN THE EVENT OF A DEFAULT UNDER THE TRUST PREFERRED SECURITIES, YOU MAY BE REQUIRED TO RELY ON THE PROPERTY TRUSTEE OF BVBC TRUST TO ENFORCE YOUR RIGHTS. You may not be able to directly enforce rights against us if an event of default occurs with respect to the junior subordinated debentures. For a listing of events that are events of default, see "Description of the Trust Preferred Securities -- Events of Default; Notice" and "Description of the Junior Subordinated Debentures -- Indenture Events of Default." If an event of default under the junior subordinated debentures occurs and is continuing, this event will also be an event of default under the trust preferred securities. In that case, you generally would first have to rely on the property trustee's enforcement of its rights as holder of the junior subordinated debentures against us. If the property trustee fails to exercise its rights under the junior subordinated debentures, you will then be able to exercise any other remedies available under the junior subordinated debentures. However, if the default arises because we fail to pay interest or principal, except during an extension period, on the junior subordinated debentures, you may proceed directly against us without first relying on the property trustee. LIMITED COVENANTS RELATING TO THE TRUST PREFERRED SECURITIES AND THE JUNIOR SUBORDINATED DEBENTURES WILL NOT NECESSARILY PROTECT YOU. Our obligations as set forth in the governing documents relating to the trust preferred securities and the junior subordinated debentures are limited. As a result, the governing documents will not necessarily protect you in the event of an adverse change in our financial condition or results of operations. The governing documents do not limit our ability or the ability of any of our subsidiaries to incur additional debt. You should not consider the terms of the governing documents to be a significant factor in evaluating whether we will be able to comply with our obligations under the junior subordinated debentures or the trust preferred securities guarantee. WE WILL CONTROL BVBC TRUST AND YOU WILL HAVE LIMITED VOTING RIGHTS. As a holder of trust preferred securities, you have limited voting rights. These rights relate only to the dissolution or termination of BVBC Trust, the modification of the trust preferred securities and removal of the property and indenture trustees of BVBC Trust upon the occurrence of a limited number of events. You will not have any voting rights regarding Blue Valley's business or any matters regarding the administrative trustees. See "Description of the Trust Preferred Securities -- Voting Rights; Amendment of the Trust Agreement" for more information on your limited voting rights. THERE HAS NOT BEEN A PRIOR MARKET FOR THE TRUST PREFERRED SECURITIES, AND AN ACTIVE TRADING MARKET FOR THE TRUST PREFERRED SECURITIES MAY NOT DEVELOP. The trust preferred securities are a new issue of securities with no established trading market. Although we have applied to have the trust preferred securities listed on the American Stock Exchange, a listing does not guarantee that an active trading market for the trust preferred securities will develop. We can give no assurance of the depth of that market or that holders of trust preferred securities will be able to sell their trust preferred securities easily. An inactive or illiquid trading market could adversely affect the price of your trust preferred securities. IF WE EXERCISE OUR RIGHT TO REDEEM LESS THAN ALL OF THE JUNIOR SUBORDINATED DEBENTURES, THE TRUST PREFERRED SECURITIES MAY CEASE TO BE LISTED ON AN EXCHANGE. Beginning September 30, 2005, we have the right to redeem the junior subordinated debentures in whole or in part. If we elect to redeem less than all of the junior subordinated debentures, BVBC Trust will redeem a proportionate part of the trust preferred securities. The trust preferred securities may cease to qualify for listing on the American Stock Exchange and may not qualify for listing on another exchange 12 16 or The Nasdaq Stock Market in the event of a partial redemption. Although the trust agreement requires the administrative trustees to use their best efforts to maintain the listing of the trust preferred securities on the American Stock Exchange or another exchange, this requirement will not prevent us from causing a partial redemption of the trust preferred securities. TRADING CHARACTERISTICS OF THE TRUST PREFERRED SECURITIES MAY CREATE ADVERSE TAX CONSEQUENCES FOR YOU. The trust preferred securities may trade at a price that does not reflect the value of accrued but unpaid interest on the underlying junior subordinated debentures. If you dispose of your trust preferred securities between record dates for payments on the trust preferred securities, you may have adverse tax consequences. Under these circumstances, you will be required to include accrued but unpaid interest on the junior subordinated debentures allocable to the trust preferred securities through the date of disposition in your income as ordinary income if you use the accrual method of accounting or if this interest represents original issue discount. If interest on the junior subordinated debentures is included in income under the original issue discount provisions, you would add this amount to your adjusted tax basis in your share of the underlying junior subordinated debentures deemed disposed. If your selling price is less than your adjusted tax basis, which will include all accrued but unpaid original issue discount interest included in your income, you could recognize a capital loss which, subject to limited exceptions, cannot be applied to offset ordinary income for federal income tax purposes. See "Material Federal Income Tax Consequences" for more information on possible adverse tax consequences to you. THE TRUST PREFERRED SECURITIES AND THE JUNIOR SUBORDINATED DEBENTURES ARE NOT INSURED, AND YOU ARE SUBJECT TO THE RISK OF LOSS OF PRINCIPAL. Neither the trust preferred securities nor the junior subordinated debentures are insured by the Bank Insurance Fund, the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or any other governmental agency. As a result, you will not be able to rely on any third party for payment if we default on our obligations. CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This prospectus may contain forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. Forward-looking statements relate to future events or to our future financial performance. In some cases, you can identify forward-looking statements by terminology like "may," "will," "should," "expects," "plans," "intends," "anticipates," "could," "believes," "estimates," "predicts," "objective," "potential," "projection," "forecast," "goal" or similar expressions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of factors more fully described in the "Risk Factors" section and elsewhere in this prospectus. Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future events or results. Except as may be required under federal law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur. 13 17 USE OF PROCEEDS We will receive proceeds from the sale of our junior subordinated debentures to BVBC Trust. BVBC Trust will purchase our junior subordinated debentures with proceeds from the sale of the trust preferred securities. The net proceeds to us from the sale of the junior subordinated debentures, after deducting underwriting commissions and estimated offering expenses, will be approximately $9.2 million, or $10.6 million if the underwriter's over-allotment option is exercised in full. We intend to use the net proceeds as follows: - repay approximately $7.3 million of debt outstanding as of April 30, 2000 under our bank stock loan, which accrues interest at the rate of prime minus 1%, and matures on July 31, 2000; and - retain the remainder for general corporate purposes, including investments from time to time in the Bank in the form of additional capital and possible future acquisitions. We have no agreements or understandings at this time for any acquisitions, and we cannot be sure whether any acquisitions will ever occur. MARKET FOR THE TRUST PREFERRED SECURITIES We have applied to have the trust preferred securities listed on the American Stock Exchange under the symbol "BLV.Pr." We are not sure, however, whether an active and liquid trading market will develop, or if developed, will continue. The public offering price and distribution rate have been determined by negotiations among our representatives and the underwriters, and the public offering price of the trust preferred securities may not be indicative of the market price following the offering. See "Underwriting." ACCOUNTING TREATMENT For financial reporting purposes, we will treat BVBC Trust as our subsidiary. Accordingly, we will include the accounts of BVBC Trust in our consolidated financial statements. We will include the trust preferred securities as debt in our consolidated balance sheets, and will include appropriate disclosures about the trust preferred securities, the trust preferred securities guarantee and the junior subordinated debentures in the notes to our consolidated financial statements. For financial reporting purposes, we will record distributions on the trust preferred securities as interest expense in our consolidated statements of income. Future reports of Blue Valley filed under the Securities Exchange Act of 1934 will include a footnote to the consolidated financial statements stating that: - BVBC Trust is a wholly-owned subsidiary of Blue Valley; - the sole asset of BVBC Trust is the junior subordinated debentures, specifying the principal amount, interest rate and maturity date of the junior subordinated debentures; and - the obligations of Blue Valley described in this prospectus, in the aggregate, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by Blue Valley of the obligations of BVBC Trust under the trust preferred securities. BVBC Trust will not file separate reports under the Securities Exchange Act. 14 18 CAPITALIZATION The following table sets forth (a) our historical capitalization at March 31, 2000; and (b) our adjusted capitalization after giving effect to this offering and the use of net proceeds as described in "Use of Proceeds" above, and assuming the underwriter's over-allotment option was not exercised.
MARCH 31, 2000 ---------------------------- AS ADJUSTED ACTUAL FOR THIS OFFERING ------- ----------------- (DOLLARS IN THOUSANDS) SHORT-TERM AND LONG-TERM DEBT: Borrowed money(1)........................................... $ 9,137 $ 1,874 Guaranteed preferred beneficial interests in Blue Valley's junior subordinated debentures(2)......................... -- 10,000 ------- ------- Total short-term and long-term debt....................... 9,137 11,874 STOCKHOLDERS' EQUITY: Common stock, par value $1.00 per share; 15,000,000 shares authorized; 2,141,720 shares issued and outstanding....... 2,142 2,142 Additional paid-in capital.................................. 5,277 5,277 Retained earnings........................................... 13,290 13,290 Unrealized depreciation on available-for-sale securities, net....................................................... (1,082) (1,082) ------- ------- Total stockholders' equity................................ 19,627 19,627 ------- ------- Total capitalization...................................... 28,764 31,501 CAPITAL RATIOS:(3)(4)(5) Ratio of equity to total assets............................. 5.88% 5.85% Risk-based capital ratios: Total capital to risk-weighted assets ratio............... 8.28 11.92 Tier 1 capital to risk-weighted assets ratio.............. 7.03 9.54 Tier 1 capital to average assets ratio (leverage ratio)... 5.94 8.06
- --------------- (1) Does not include deposits, Federal Home Loan Bank borrowings or securities sold under agreements to repurchase. (2) In connection with the issuance of the guaranteed preferred beneficial interest in Blue Valley's junior subordinated debentures, we estimate we will incur expenses of $800,000 (including underwriter's commissions of $500,000). (3) The capital ratios, as adjusted, are computed including the total estimated net proceeds from the sale of the trust preferred securities, in a manner consistent with Federal Reserve guidelines. (4) Federal Reserve guidelines for calculation of Tier 1 capital limits the amount of cumulative trust preferred securities which can be included in Tier 1 capital to 25% of total Tier 1 capital. Approximately $6.9 million of the trust preferred securities offered hereby will be included as Tier 1 capital for Blue Valley. The balance of the trust preferred securities offered hereby will be included as Tier 2 capital for Blue Valley. (5) Unrealized depreciation on available-for-sale securities, net, is not included in calculating regulatory capital ratios. 15 19 SELECTED CONSOLIDATED FINANCIAL DATA The following table presents our consolidated financial data as of and for the three months ended March 31, 2000 and 1999 and the five years ended December 31, 1999, and should be read in conjunction with the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each of which is included elsewhere in this prospectus. The selected statements of condition and statements of income data, insofar as they relate to the five years in the five-year period ended December 31, 1999, have been derived from our audited consolidated financial statements. The selected financial data for the three months ended March 31, 2000 and 1999, are derived from our unaudited interim consolidated financial statements.
AS OF AND FOR THE ---------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) SELECTED STATEMENT OF INCOME DATA INTEREST INCOME: Loans, including fees................ $ 6,273 $ 4,027 $ 20,422 $ 14,608 $ 12,000 $ 9,100 $ 6,689 Federal funds sold and interest-bearing deposits.......... 38 152 431 396 276 315 822 Securities........................... 753 713 2,755 2,814 2,275 2,231 1,682 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total interest income.............. 7,064 4,892 23,608 17,818 14,551 11,646 9,193 ---------- ---------- ---------- ---------- ---------- ---------- ---------- INTEREST EXPENSE: Interest-bearing demand deposits..... 185 120 644 348 296 267 235 Savings and money market deposit accounts........................... 1,242 527 3,156 1,637 1,353 1,256 1,081 Other time deposits.................. 1,524 1,582 6,032 6,247 4,985 3,668 2,859 Funds borrowed....................... 504 294 1,372 973 624 605 720 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total interest expense............. 3,455 2,523 11,204 9,205 7,258 5,796 4,895 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income................ 3,609 2,369 12,404 8,613 7,293 5,850 4,298 Provision for loan losses............ 465 300 2,144 1,061 660 648 370 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses.................. 3,144 2,069 10,260 7,552 6,633 5,202 3,928 ---------- ---------- ---------- ---------- ---------- ---------- ---------- NON-INTEREST INCOME: Loans held for sale fee income....... 232 459 1,623 1,329 439 232 129 NSF charges & service fees........... 131 136 553 598 499 402 327 Other service charges................ 237 64 659 157 107 79 60 Realized gain on securities available-for-sale................. -- -- 3 112 8 71 -- Other income......................... 75 56 186 450 401 424 344 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total non-interest income.......... 675 715 3,024 2,646 1,454 1,208 860 NON-INTEREST EXPENSE: Salaries and employee benefits....... 1,409 997 4,578 3,312 2,304 1,803 1,444 Occupancy............................ 257 198 894 748 663 581 508 FDIC and other insurance............. 29 25 113 121 86 290 163 General & administrative............. 903 588 3,095 1,815 1,603 1,196 1,053 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total non-interest expense......... 2,598 1,808 8,680 5,996 4,656 3,870 3,168 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes........... 1,221 976 4,604 4,202 3,431 2,540 1,620 Income tax provision............... 388 321 1,521 1,386 1,145 918 571 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income......................... $ 833 $ 655 $ 3,083 $ 2,816 $ 2,286 $ 1,622 $ 1,049 ========== ========== ========== ========== ========== ========== ========== PER SHARE DATA Basic earnings....................... $ 0.39 $ 0.31 $ 1.45 $ 1.36 $ 1.24 $ 0.88 $ 0.72 Diluted earnings..................... 0.38 0.30 1.42 1.35 1.22 0.85 0.70 Dividends............................ -- -- -- -- -- -- -- Book value basic (at end of period)............................ 9.16 8.20 8.83 7.99 6.64 5.49 4.77 Weighted average common shares outstanding: Basic.............................. 2,140,929 2,130,396 2,131,372 2,065,400 1,843,288 1,836,796 1,447,300 Diluted............................ 2,175,301 2,149,084 2,166,008 2,084,088 1,867,844 1,912,876 1,494,324
16 20
AS OF AND FOR THE -------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) SELECTED FINANCIAL CONDITION DATA (AT END OF PERIOD): Total securities................................ $ 51,733 $ 45,116 $ 48,646 $ 53,427 $ 40,247 $ 36,588 $ 35,496 Total loans..................................... 254,325 186,038 250,410 161,444 127,308 101,323 71,791 Total assets.................................... 333,662 261,351 332,613 253,724 201,644 162,739 132,794 Total deposits.................................. 278,861 218,383 268,145 209,824 170,792 139,929 112,614 Funds borrowed.................................. 32,190 23,561 43,177 25,142 16,298 11,904 10,423 Total stockholders' equity...................... 19,627 17,476 18,869 17,016 13,464 10,100 8,761 Trust assets under administration............... 20,976 14,309 19,436 13,099 8,241 3,081 -- SELECTED FINANCIAL RATIOS AND OTHER DATA: Performance Ratios: Net interest margin (1)......................... 4.84% 4.15% 4.77% 4.30% 4.66% 4.57% 4.13% Non-interest income to average assets........... 0.83 1.12 1.06 1.20 0.83 0.84 0.73 Non-interest expense to average assets.......... 3.20 2.84 3.04 2.72 2.66 2.69 2.68 Net overhead ratio (2).......................... 2.37 1.72 1.98 1.52 1.83 1.85 1.95 Efficiency ratio (3)............................ 60.64 58.63 56.26 53.26 53.23 54.83 61.42 Return on average assets (4).................... 1.03 1.03 1.08 1.28 1.30 1.13 0.89 Return on average equity (5).................... 17.54 15.43 17.43 18.98 20.62 17.79 17.46 Asset Quality Ratios: Non-performing loans to total loans............. 0.74% 0.63% 0.21% 0.84% 0.33% 0.40% 0.68% Allowance for possible loan losses to: Total loans................................... 1.57 1.37 1.52 1.45 1.27 1.26 1.16 Non-performing loans.......................... 211.04 218.12 710.80 171.88 380.71 312.50 172.37 Net charge-offs to average total loans.......... 0.46 0.21 0.32 0.23 0.27 0.24 0.23 Non-performing assets to total assets........... 0.66 0.62 0.22 0.55 0.61 0.28 0.64 Balance Sheet Ratios: Loans to deposits............................... 91.20% 85.19% 93.39% 76.94% 74.54% 72.41% 63.75% Average interest-earning assets to average interest-bearing liabilities.................. 113.23 117.25 116.11 116.57 114.55 114.76 110.84 Capital Ratios: Total equity to total assets.................... 5.88% 6.69% 5.67% 6.71% 6.68% 6.21% 6.60% Total capital to risk-weighted assets ratio..... 8.28 9.02 8.07 9.62 9.87 8.91 9.58 Tier 1 capital to risk-weighted assets ratio.... 7.03 7.77 6.82 8.37 8.65 7.72 8.48 Tier 1 capital to average assets ratio.......... 5.94 6.15 5.80 6.13 6.28 5.57 5.50 Ratio of Earnings to Fixed Charges (6) Including interest on deposits.................. 1.35x 1.39x 1.41x 1.46x 1.47x 1.44x 1.33x Excluding interest on deposits.................. 3.42 4.32 4.36 5.32 6.50 5.20 3.25 Pro Forma Ratio of Earnings to Fixed Charges (7) Including interest on deposits.................. 1.34x -- 1.39x -- -- -- -- Excluding interest on deposits.................. 3.00 -- 3.26 -- -- -- --
- --------------- (1) Net interest income divided by average interest-earning assets. (2) Non-interest expense less non-interest income divided by average total assets. (3) Non-interest expense divided by the sum of net interest income plus non-interest income. (4) Net income divided by average total assets. (5) Net income divided by average common equity. (6) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before taxes plus interest expense. Fixed charges consist of interest expense. (7) For purposes of calculating the pro forma ratio of earnings to fixed charges, earnings consists of income before taxes plus pro forma interest expense. Pro forma interest expense consists of historical interest expense plus (1) interest expense on the junior subordinated debentures assuming that we issued a total principal amount of $10 million at 10.0% at the beginning of such period minus (2) historical interest expense on the $7.3 million of our debt under our bank stock loan that we intend to retire with the proceeds from this offering. 17 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following presents management's discussion and analysis of our financial condition and results of operations as of the dates and for the periods indicated. You should read this discussion in conjunction with our "Selected Consolidated Financial Data," our consolidated financial statements and the accompanying notes, and the other financial data contained elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of various factors, including those discussed in "Risk Factors" contained elsewhere in this prospectus. See "Cautionary Note on Forward-Looking Statements." GENERAL Over the past five years, we have achieved significant growth in assets, increased our deposit base, and increased earnings. Our focus has primarily been on real estate development, home construction, indirect consumer lending and small business lending, with an emphasis on customer service so as to attract and retain core deposits. This strategy, paired with rapid population growth in Johnson County, Kansas, has been key to our success. For the five years ended December 31, 1999: - our loans grew at a 36.65% compound annual rate; - our net income grew at a 39.91% compound annual rate and our earnings per share grew at a 27.59% compound annual rate; - our annual return on average equity has averaged 18.46%; - our annual return on average assets has averaged 1.14%; - our ratio of non-performing assets to total assets declined from 0.64% to 0.22%; and - our ratio of net charge-offs to average total loans has averaged less than 0.26%. During the three months ended and as of March 31, 2000: - our loans increased by $3.9 million, or 1.56%, from December 31, 1999; - our earnings per share increased by 26.67%, as compared to the prior year first quarter; - our annualized return on average equity was 17.54%; - our annualized return on average assets was 1.03%; - our ratio of non-performing assets to total assets was 0.66%; and - our ratio of net charge-offs to average total loans was 0.46%. The population of Johnson County, Kansas has grown from approximately 327,000 to 417,000, or 28%, between 1987 and 1997. This represents 55% of the total increase in the 11-county Kansas City, Missouri-Kansas Metropolitan Statistical Area and 61% of the increase in the entire State of Kansas. Between 1986 and 1996, Johnson County's economy created 99,000 jobs and added over 4,000 businesses, representing over half of the Kansas City metropolitan statistical area's total growth. In addition, we believe that the recent consolidation in the banking industry that has occurred in our market area has generated significant opportunities for the remaining independent community banks, including the Bank, to serve those customers who still desire the level of customer service that we believe is not available at many larger regional and national banks. A major contributor to our asset growth since 1995 has been strong growth in all of our major loan categories. Our growth is not attributable to any single loan category, but has come from a number of diverse loan products. We have become less concentrated in any one area with commercial loans, being our largest portfolio, decreasing from 46.40% of our portfolio at December 31, 1995, to 25.70% at 18 22 March 31, 2000. This diversification has occurred through growth in commercial real estate loans and residential real estate loans, as well as personal/consumer loans. Our growth in profitability over the five years ended December 31, 1999 reflects conservative loan underwriting practices resulting in net charge-off ratios averaging less than 0.26%. Our net charge-off ratio during the three months ended March 31, 2000 was 0.46% on an annualized basis. This ratio was higher than our historical average because we implemented a more aggressive charge-off policy during the first quarter of the current year. Management intends to vigorously pursue collection on all items. Our efficiency ratios have averaged below 56% during the five years ended December 31, 1999, however for the three months ended March 31, 2000 our efficiency ratio increased to 60.64%. Because salary increases for our officers are effective January 1 of each year, our first quarter efficiency ratio is typically higher than our annual efficiency ratio. For example, our efficiency ratio for the three months ended March 31, 1999 was 58.63%, but for the year ended December 31, 1999 it was 56.26% In addition, strong growth of non-interest income to average assets from 0.73% in 1995 to 1.06% in 1999, has significantly contributed to our profitability over this period. Due to increases in market interest rates which resulted in lower residential mortgage loan originations, our non-interest income to average assets for the three months ended March 31, 2000 decreased to 0.83% on an annualized basis. Our net interest margin has remained between 4.13% and 4.77% from 1995 to 1999 and was 4.84% during the three months ended March 31, 2000. Our net interest income and net interest margin have also benefited from a ratio of loans to deposits that has increased from a low of 63.75% in 1995 to a high of 93.39% in 1999, and a growing number of non-interest bearing deposits. Our loan to deposit ratio was 91.20% at March 31, 2000. Our funding philosophy has been to increase deposits from retail and commercial deposit sources as necessary to fund loans within the limits of the Bank's capital base. Although a higher loan-to-deposit ratio potentially limits the Bank's liquidity, our portfolio of available-for-sale securities and various lines of credit have provided adequate sources of liquidity when needed. Our level of non-performing assets reflects the Bank's conservative underwriting policies, has resulted in low levels of nonaccrual loans, and has reduced the costs of resolving non-performing assets. Over the five years ended December 31, 1999, non-performing loans to total loans averaged below 0.50%, net charge-offs to average total loans averaged below 0.26%, and non-performing assets to total assets averaged below 0.46%. Generally, banks benefit from lower levels of non-performing loans by realizing more of the interest income accrued on the loan portfolio and enjoying a greater ability to rely on internal growth to fund new loans. As of March 31, 2000, non-performing loans to total loans was 0.74%, net charge-offs to average total loans was 0.46% and non-performing assets to total assets was 0.66%. All three of these ratios were above historical averages due in part to: - a more aggressive charge-off policy we implemented in the first quarter of the current year; and - rising fuel prices, which contributed to defaults in the Bank's portfolio of over-the-road truck and trailer leases. The over-the-road truck and trailer lease portfolio is approximately $5.0 million, or 1.97%, of the $254.3 million loan portfolio as of March 31, 2000. Our philosophy has been to value non-performing loans at their estimated collectible value and to aggressively manage these situations. Generally, the Bank maintains its allowance for loan losses in excess of its non-performing loans. Over the five years ended December 31, 1999, our ratio of allowance for loan losses to non-performing loans averaged 349.65%. As of March 31, 2000, our ratio of allowance for loan losses to non-performing loans was 211.04%. We fund our operations primarily through demand, savings and time deposits and, to a lesser extent, lines of credit, sale/repurchase facilities from various financial institutions, and Federal Home Loan Bank borrowings. In 1999, our total deposits increased by $58 million to $268 million from $210 million. A significant portion of this increase was a result of a new deposit product, our "short-term parking account," introduced by the Bank in the fourth quarter of 1998. This account, which pays a higher yield than our 19 23 other money market account, requires a minimum balance of $10,000 and allows depositors to access their funds only on the 15th and last day of each month. NET INCOME Three months ended March 31, 2000 and 1999. Net income for the three months ended March 31, 2000 was $833,000, a 27.18% increase over the $655,000 earned in the prior year first quarter. The principal contributor to our increase in net income during the current year first quarter was an increase of $1.2 million, or 52.34%, in net interest income. Diluted earnings per share increased 26.67% to $0.38 in the current year first quarter from $0.30 in the prior year first quarter. Years ended December 31, 1999 and 1998. Net income for 1999 was $3.1 million, a 9.48% increase over the $2.8 million earned in 1998. The principal contributors to our increase in net income during 1999 were an increase of $3.8 million, or 44.01%, in additional net interest income and an increase of $294,000, or 22.12%, in additional fee income from loans held for sale that we originated and sold in the secondary market. Diluted earnings per share increased 5.19% to $1.42 in 1999 from $1.35 in 1998. The growth of diluted earnings per share of 5.19% was less than the growth of net income of 9.48% due to 81,920 more diluted shares being outstanding at December 31, 1999 compared with December 31, 1998. We had more diluted shares as a result of stock options being exercised as well as 64,000 additional options being granted in 1999. Years ended December 31, 1998 and 1997. Net income for 1998 was $2.8 million, a 23.18% increase over the $2.3 million earned in 1997. The improvement in 1998 net income was primarily the result of an increase of $1.3 million, or 18.10%, in net interest income and an increase of $890,000, or 202.73%, in loans held for sale fee income. As a result, diluted earnings per share increased 10.66% to $1.35 in 1998 from $1.22, in 1997. The growth of diluted earnings per share of 10.66% was less than the growth of net income of 18.10% due to 216,244 more diluted shares being outstanding at December 31, 1998 compared with December 31, 1997. We had more diluted shares as a result of stock options being exercised as well as 65,516 additional options being granted in 1998. Two industry measures of the performance by a banking institution are its return on average assets, referred to as "ROA," and return on average stockholders' equity, referred to as "ROE." ROA measures net income in relation to average total assets and indicates a company's ability to employ its resources profitably. During the three months ended March 31, 2000, our ROA was 1.03% (on an annualized basis), compared to 1.08% for fiscal year 1999, 1.28% for fiscal year 1998 and 1.30% for fiscal year 1997. This decrease in ROA is partially attributable to our increased investment in infrastructure during this period to support our future growth. In addition, the strong asset growth rate of Blue Valley, with assets increasing at a 25.47% compound annualized rate for this time period which exceeded the compound annualized growth rate in net income during the same period, contributed to the decrease in ROA. ROE is determined by dividing net income by average stockholders' equity and indicates how effectively a company can generate net income on the capital invested by its stockholders. For the three months ended March 31, 2000, our ROE was 17.54% (on an annualized basis), compared to 17.43% for fiscal year 1999, 18.98% for fiscal year 1998 and 20.62% for fiscal year 1997. While earnings increased in 1999 and in 1998, ROE decreased in 1999 and 1998. This decrease in ROE is partially attributable to our increased investment in infrastructure during this period. In addition, the $5.9 million of additional equity added through earnings, as well as $723,000 added through 109,660 options being exercised during the same time period, contributed to the decrease in ROE. NET INTEREST INCOME The primary component of our net income is our net interest income. Net interest income is determined by the spread between the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities, as well as the relative amounts of such assets and liabilities. Net interest margin is determined by dividing net interest income by average interest-earning assets. 20 24 Three months ended March 31, 2000 and 1999. Net interest income for the three months ended March 31, 2000 increased to $3.6 million from $2.4 million in the prior year first quarter, a $1.2 million, or 52.34%, increase. This increase was primarily the result of a $67.7 million increase in average interest- earning assets, which more than offset a $66.9 million increase in average interest-bearing liabilities. Additionally, the increase in our cost of funds was less than the increase in the average rate we received on our average interest-earning assets. Our net interest margin improved to 4.84% during the current year first quarter, from 4.15% during the prior year first quarter. One of the major contributors to the improvement in our net interest margin was interest of $555,000 earned on a purchased lease portfolio on average outstanding leases of $5.4 million, for a yield of 40.98%. We expect our interest income from these purchased leases to decline over the next two years as the portfolio matures. Without the interest income generated from this portfolio, the net interest margin would have been 4.18%. Interest income for the current year first quarter was $7.1 million, an increase of $2.2 million, or 44.40%, from $4.9 million in the prior year first quarter, primarily as a result of a $67.7 million, or 28.52%, growth in interest-earning assets. Excluding the interest income generated from the purchased lease portfolio discussed above, the yield on average interest-earning assets increased to 8.82% in 2000 from 8.46% in 1999, which combined with the increase in volume, resulted in the $2.2 million increase in interest income in the current year period, as compared to the prior year period. Interest income on available-for-sale securities increased by $40,000, and the annualized tax-equivalent yield on our investment portfolio increased 58 basis points in the current year period as compared to the prior year period. Interest expense for the current year first quarter was $3.5 million, up $1.0 million, or 36.94%, from $2.5 million in the prior year first quarter. We attribute the increase to a $52.9 million, or 29.58%, increase in our average interest-bearing deposits as well as a $14.1 million, or 59.54%, increase in other interest-bearing liabilities, including FHLB borrowings and increased borrowings under our bank stock loan. Overall, rates paid on average interest-bearing liabilities increased to 5.16% in the current year period from 5.06% in the prior year period, an increase of 10 basis points. Years ended December 31, 1999 and 1998. Net interest income for 1999 increased to $12.4 million from $8.6 million in 1998, a $3.8 million, or 44.01%, increase. This increase was primarily the result of a $59.7 million increase in average interest-earning assets, which more than offset a $52.1 million increase in average interest-bearing liabilities. Additionally, the decline in our cost of funds was greater than the decline in the average rate we received on our average interest-earning assets. Our net interest margin improved to 4.77%, from 4.30% during 1998. One of the major contributors to the improvement in our net interest margin was interest of $2.0 million earned on a purchased lease portfolio on average outstanding leases of $8.2 million, for a yield of 26.72%. We expect our interest income from these purchased leases to decline over the next two years as the portfolio matures. Without the interest income generated from this portfolio, the net interest margin would have been 4.14%. Interest income for 1999 was $23.6 million, an increase of $5.8 million, or 32.50%, from $17.8 million in 1998, primarily as a result of a $59.7 million, or 29.05%, growth in interest-earning assets. Excluding the interest income generated from the purchased lease portfolio discussed above, the yield on average interest-earning assets declined from 8.78% in 1998 to 8.50%. However, the increase in volume more than offset this 28 basis point decline in yield, resulting in the $5.8 million increase in interest income from 1998 to 1999. Interest income on available-for-sale securities decreased by $59,000, and the tax-equivalent yield on our investment portfolio decreased 15 basis points in 1999 as compared to 1998. This resulted from our sale in 1998 of higher-yielding, callable debt securities, which appeared to us likely to be called due to the then-prevailing interest rate environment. Interest expense for 1999 was $11.2 million, up $2.0 million, or 21.72%, from $9.2 million in 1998. We attribute the increase to a $42.4 million, or 26.88%, increase in our average balances of interest-bearing deposits as well as a $9.7 million, or 52.57%, increase in other interest-bearing liabilities, including FHLB borrowings and increased borrowings under our bank stock loan. Overall, rates paid on average interest-bearing liabilities decreased to 4.91% in 1999 from 5.22% in 1998, a decline of 31 basis points. The 21 25 additional deposits generated by the introduction of our short-term parking account were used to fund a portion of our loan growth. The remaining funds were obtained from other deposit products, as well as advances from the FHLB. Years ended December 31, 1998 and 1997. Net interest income for 1998 increased to $8.6 million from $7.3 million in 1997, a $1.3 million, or 18.10%, increase. This increase was primarily the result of a $45.7 million increase in average interest-earning assets, which offset a $36.8 million increase in average interest-bearing liabilities. Although the net interest margin decreased to 4.30% in 1998 from 4.66% in 1997, the additional volume generated more net interest income. Interest income for 1998 was $17.8 million, an increase of $3.2 million, or 22.45%, up from $14.6 million in 1997, primarily as a result of growth in interest-earning assets. Yields on interest-earning assets declined 42 basis points to 8.78% from 9.20% in 1997. Loan interest and fee income increased to $14.6 million from $12.0 million because of the greater volume of loans outstanding. These additional loans were funded by deposit growth as well as advances from the FHLB. The tax-equivalent yield on our investment portfolio remained constant at 6.39% for both 1998 and 1997. However, interest income on available-for-sale securities increased by $539,000 as a result of growth in the portfolio. Interest expense for 1998 was $9.2 million, up $1.9 million, or 26.83%, from $7.3 million in 1997. We attribute the increase to growth in our deposit base, as well as increases in other funding sources such as the FHLB. Overall, rates paid on average interest-bearing liabilities remained constant at 5.22% in 1998 compared with 5.21% in 1997, or 1 basis point difference. Average Balance Sheets. The following table sets forth for the periods and as of the dates indicated, information regarding our average balances of assets and liabilities as well as the dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities and the resultant yields or costs. Ratio, yield and rate information are based on average daily balances where available; otherwise, average monthly balances have been used. Nonaccrual loans are included in the calculation of average balances for loans for the periods indicated. 22 26 AVERAGE BALANCES, YIELDS AND RATES
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------------------------------------------- ----------------------------- 2000 1999 1999 ----------------------------- ----------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE -------- -------- ------- -------- -------- ------- -------- -------- ------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) ASSETS Federal funds sold........... $ 2,798 $ 38 5.46% $ 13,616 $ 152 4.53% $ 9,482 $ 431 4.55% Investment securities -- taxable...... 34,757 579 6.70 36,942 546 5.99 33,422 2,087 6.24 Investment securities -- non- taxable(1)................. 14,539 233 6.45 14,609 223 6.19 14,399 895 6.22 Mortgage loans held for sale....................... 935 20 8.60 1,658 31 7.58 1,413 112 7.93 Loans, net of unearned discount and fees.......... 251,913 6,253 9.98 170,440 3,996 9.51 206,310 20,310 9.84 -------- ------ -------- ------ -------- Total earning assets..... 304,942 7,123 9.39 237,265 4,948 8.46 265,026 23,835 8.99 -------- ------ -------- ------ -------- Cash and due from banks -- non-interest bearing.................... 12,143 7,375 9,883 Allowance for possible loan losses..................... (3,637) (2,531) (2,842) Premises and equipment, net........................ 5,560 5,392 5,505 Other assets................. 7,548 10,292 7,723 -------- -------- -------- Total assets............. $326,556 $257,793 $285,295 ======== ======== ======== YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1998 1997 ----------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE -------- -------- ------- -------- -------- ------- (DOLLARS IN THOUSANDS) ASSETS Federal funds sold........... $ 7,786 $ 396 5.09% $ 5,063 $ 276 5.45% Investment securities -- taxable...... 33,836 2,191 6.48 28,834 1,846 6.40 Investment securities -- non- taxable(1)................. 13,502 835 6.18 9,080 575 6.33 Mortgage loans held for sale....................... 2,026 138 6.81 795 56 7.04 Loans, net of unearned discount and fees.......... 148,221 14,470 9.76 115,939 11,944 10.30 -------- -------- Total earning assets..... 205,371 18,030 8.78 159,711 14,697 9.20 -------- -------- Cash and due from banks -- non-interest bearing.................... 7,689 6,425 Allowance for possible loan losses..................... (2,069) (1,516) Premises and equipment, net........................ 4,776 4,408 Other assets................. 4,491 6,163 -------- -------- Total assets............. $220,258 $175,191 ======== ========
23 27
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------------------------------------------- ----------------------------- 2000 1999 1999 ----------------------------- ----------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE -------- -------- ------- -------- -------- ------- -------- -------- ------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY Deposits-interest bearing: Interest-bearing demand accounts................. $ 22,883 $ 185 3.25% $ 13,820 $ 120 3.52% $ 19,260 $ 644 3.34% Savings and money market deposits................. 102,703 1,242 4.86 54,453 527 3.92 74,535 3,156 4.23 Time deposits.............. 105,946 1,524 5.79 110,408 1,582 5.81 106,366 6,032 5.67 -------- ------ -------- ------ -------- ------- Total interest-bearing deposits............... 231,532 2,951 5.13 178,681 2,229 5.06 200,161 9,832 4.91 -------- ------ -------- ------ -------- ------- Short-term borrowings........ 25,892 339 5.27 11,663 128 4.45 16,122 690 4.28 Long-term debt............... 11,886 165 5.58 12,017 166 5.60 11,973 682 5.70 -------- ------ -------- ------ -------- ------- Total interest-bearing liabilities............ 269,310 3,455 5.16 202,361 2,523 5.06 228,256 11,204 4.91 -------- ------ -------- ------ -------- ------- Non-interest bearing deposits................... 35,719 36,186 37,314 Other liabilities............ 2,430 2,025 2,034 Stockholders' equity......... 19,097 17,221 17,691 -------- -------- -------- Total liabilities and stockholders' equity... $326,556 $257,793 $285,295 ======== ======== ======== Net interest income/spread... $3,668 4.23% $2,425 3.40% $12,631 4.08% ====== ==== ====== ==== ======= ==== Net interest margin.......... 4.84% 4.15% 4.77% ==== ==== ==== YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1998 1997 ----------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE -------- -------- ------- -------- -------- ------- (DOLLARS IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY Deposits-interest bearing: Interest-bearing demand accounts................. $ 12,620 $ 348 2.76% $ 10,661 $ 296 2.78% Savings and money market deposits................. 41,001 1,637 3.99 34,490 1,353 3.92 Time deposits.............. 104,141 6,247 6.00 82,683 4,985 6.03 -------- ------ -------- ------- Total interest-bearing deposits............... 157,762 8,232 5.22 127,834 6,634 5.19 -------- ------ -------- ------- Short-term borrowings........ 12,192 591 4.85 9,372 458 4.89 Long-term debt............... 6,223 382 6.14 2,215 166 7.50 -------- ------ -------- ------- Total interest-bearing liabilities............ 176,177 9,205 5.22 139,421 7,258 5.21 -------- ------ -------- ------- Non-interest bearing deposits................... 27,567 22,098 Other liabilities............ 1,678 2,588 Stockholders' equity......... 14,836 11,084 -------- -------- Total liabilities and stockholders' equity... $220,258 $175,191 ======== ======== Net interest income/spread... $8,825 3.56% $ 7,439 3.99% ====== ==== ======= ===== Net interest margin.......... 4.30% 4.66% ==== =====
- --------------- (1) Presented on a full tax-equivalent basis assuming a tax rate of 34%. 24 28 Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase or decrease related to changes in balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: - changes in volume, reflecting changes in volume multiplied by the prior period rate; and - changes in rate, reflecting changes in rate multiplied by the prior period volume. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate. CHANGES IN INTEREST INCOME AND EXPENSE VOLUME AND RATE VARIANCES
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ---------------------------- --------------------------------------------------------- 2000 COMPARED TO 1999 1999 COMPARED TO 1998 1998 COMPARED TO 1997 ---------------------------- ---------------------------- -------------------------- CHANGE CHANGE CHANGE CHANGE CHANGE CHANGE DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL RATE VOLUME CHANGE RATE VOLUME CHANGE RATE VOLUME CHANGE ------ -------- -------- ------ -------- -------- ------ -------- ------ (IN THOUSANDS) (IN THOUSANDS) Federal funds sold............. $ 42 $ (156) $ (114) $ (33) $ 68 $ 35 $ (17) $ 137 $ 120 Investment securities -- taxable........ 61 (28) 33 (78) (26) (104) 23 322 345 Investment securities -- non- taxable(1)................... 11 (1) 10 5 55 60 (13) 273 260 Mortgage loans held for sale... 5 (16) (11) 31 (57) (26) (2) 84 82 Loans, net of unearned discount..................... 251 2,006 2,257 120 5,720 5,840 (586) 3,112 2,526 ---- ------ ------ ----- ------ ------ ----- ------ ------ Total interest income........ 370 1,805 2,175 45 5,760 5,805 (595) 3,928 3,333 ---- ------ ------ ----- ------ ------ ----- ------ ------ Interest-bearing demand accounts..................... (8) 73 65 84 212 296 (2) 54 52 Savings and money market deposits..................... 156 559 715 104 1,415 1,519 25 259 284 Time deposits.................. 12 (70) (58) (352) 137 (215) (25) 1,287 1,262 Short-term borrowings.......... 29 182 211 (56) 155 99 (4) 137 133 Long-term debt................. 2 (3) (1) (25) 325 300 (24) 240 216 ---- ------ ------ ----- ------ ------ ----- ------ ------ Total interest expense....... 191 741 932 (245) 2,244 1,999 (30) 1,977 1,947 ---- ------ ------ ----- ------ ------ ----- ------ ------ Net interest income............ $179 $1,064 $1,243 $ 290 $3,516 $3,806 $(565) $1,951 $1,386 ==== ====== ====== ===== ====== ====== ===== ====== ======
- --------------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. PROVISION FOR LOAN LOSSES We make provisions for loan losses in amounts management deems necessary to maintain the allowance for loan losses at an appropriate level. During the three months ended March 31, 2000, we provided $465,000 for loan losses, as compared to $300,000 for the three months ended March 31, 1999. The provision for loan losses increased to $2.1 million in 1999 from $1.1 million in 1998, or 102.07%, while the loan portfolio increased to $250.4 million in 1999 from $161.4 million in 1998, or 55.11%. The provision for loan losses increased to $1.1 million in 1998 from $660,000 in 1997, or 60.76%, while the loan portfolio increased to $161.4 million in 1998 from $127.3 million in 1997, or 26.81%. The adequacy of the allowance is analyzed monthly based on internal loan reviews and quality measurements of our loan portfolio. The Bank computes its allowance by assigning specific reserves to impaired loans, and then applies a general reserve based on a loss factor applied to the rest of the loan portfolio. The loss factor is determined based on such items as management's evaluation of risk in the portfolio, local economic conditions, and historical loss experience. The Bank has for many years used several different calculations to confirm the results of the allowance calculation, including an historical loss ratio calculation, a comparison to peer group ratios, as well as regulatory calculation formulas. To further assist in confirming the results of the above-described allowance computation, during 1999, the Bank refined its risk grading 25 29 system by developing associated reserve factors for each risk grade. Although a relatively new computation for the Bank, and currently used only to confirm the allowance computation, management believes this methodology could become the tool used to compute the allowance in the future. The allowance for loan losses as a percentage of loans increased to 1.57% at March 31, 2000, as compared to 1.52% in 1999, 1.45% in 1998, 1.27% in 1997 and 1.26% in 1996. We increased the allowance for loan losses in the three months ended March 31, 2000, and in 1999 and 1998 based upon an analysis of several factors, including the changing loan mix and overall growth in the loan portfolio. Two of our loan portfolios that carry higher risk, personal and leases, grew a combined $41.6 million, or 124.26%. As a result of this growth, a higher general reserve factor was considered necessary. The general reserve factor, which is applied to all unimpaired loans, increased to 1.17% at March 31, 2000 and 1.22% at December 31, 1999, compared to an average of 1.02% for years 1998 through 1995. Due to the significant growth in our higher risk grade portfolios, the overall result was a higher level of reserve at December 31, 1999 compared with December 31, 1998. The loan loss reserve represents our best estimate of probable losses that have been incurred as of the respective balance sheet dates. NON-INTEREST INCOME The following table describes the items of our non-interest income for the periods indicated: NON-INTEREST INCOME
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31 ------------ -------------------------- 2000 1999 1999 1998 1997 ---- ---- ------ ------ ------ (IN THOUSANDS) Loans held for sale fee income................. $232 $459 $1,623 $1,329 $ 439 NSF charges and service fees................... 131 136 553 598 499 Other service charges.......................... 237 64 659 157 107 Realized gain on sales of investment securities................................... -- -- 3 112 8 Other income................................... 75 56 186 450 401 ---- ---- ------ ------ ------ Total non-interest income................. $675 $715 $3,024 $2,646 $1,454 ==== ==== ====== ====== ======
Non-interest income decreased to $675,000, or 5.59%, during the three months ended March 31, 2000, from $715,000 during the prior year first quarter. This decrease is primarily attributable to a decrease in origination fees resulting from a lower level of residential mortgage loans which we originated and sold in the secondary market in first quarter of 2000 compared to the first quarter of 1999. This decrease is mainly attributable to the rising interest rate environment and a slow down in the residential mortgage industry. However, the decrease in origination fee income was largely offset through other lines of business which generated other service charge income, such as investment brokerage services which generated an additional $82,000 over the prior year quarter, and commercial mortgage services which generated an additional $43,000 over the prior year quarter. Non-interest income increased to $3.0 million in 1999, from $2.6 million in 1998 and $1.5 million in 1997, increases of 14.29% and 81.98%, respectively. These increases were primarily attributable to the increase in origination fees resulting from the higher level of residential mortgage loans which we originated and sold in the secondary market in 1999 and 1998. The increase in loans held for sale fee income is the result of $82.4 million of residential mortgage loans that we originated and sold in the secondary market in 1999, as compared to $75.6 million in 1998 and $31.1 million in 1997. Although our practice has been to hold substantially all of our investment securities to maturity, in 1998 we recognized a substantial increase in gain on sales of investment securities when we sold a number of debt securities in our portfolio that were subject to call. Due to the interest rate environment, it appeared likely that these securities would be called. By selling the securities and reinvesting the proceeds, we were able to maintain 26 30 a comparable yield while extending the maturity of the dollars invested. Other service charge income increased by $502,000 in 1999. This increase is a result of the Bank developing new products which are beginning to generate fee-based income. Our investment brokerage, commercial mortgage brokerage and brokered lease services generated an additional $208,000 in 1999 over 1998. In addition a rental fleet of tanker equipment purchased as part of a portfolio of leases during 1999 generated rental income of $127,000 before it was eventually liquidated. The remainder of the increase is a result of the growth in the Bank, and increases in general customer relationship/retail fee based products, such as ATM, check orders, and various other retail products. Other service charge income was fairly constant in 1998 compared with 1997. Other income has declined over the past two years because as we have grown and expanded our number of employees, we have leased less of our corporate headquarters to outside parties, which decreased our rental income by $133,000 in 1999 and $79,000 in 1998. NON-INTEREST EXPENSE The following table describes the items of our non-interest expense for the periods indicated. NON-INTEREST EXPENSE
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31 ------------------ -------------------------- 2000 1999 1999 1998 1997 ------- ------- ------ ------ ------ (IN THOUSANDS) Salaries and employee benefits.............. $1,409 $ 997 $4,578 $3,312 $2,304 Occupancy................................... 257 198 894 748 663 FDIC and other insurance expense............ 29 25 113 121 86 General and administrative.................. 903 588 3,095 1,815 1,603 ------ ------ ------ ------ ------ Total non-interest expenses............ $2,598 $1,808 $8,680 $5,996 $4,656 ====== ====== ====== ====== ======
Non-interest expense increased to $2.6 million, or 43.69%, during the current year first quarter, as compared to $1.8 million in the prior year first quarter. This increase is primarily attributable to increases in salaries and employee benefits and general and administrative expenses. Our salaries and employee benefits and general and administrative expenses increased to $1.4 million in 2000, from $1.0 million in 1999, as we hired additional staff to facilitate our growth. We had 122 full-time employees at March 31, 2000 as compared to 89 at March 31, 1999. General and administrative expenses increased to $903,000, or 53.57% in 2000, from $588,000 in 1999, which is a direct result of our growth, as well as a referral fee due to a third party. A lease portfolio was purchased during 1999 with the assistance of a third party. The referral fee is due to the third party based on the performance of the portfolio and was $108,000 for the first quarter of 2000. Non-interest expense increased to $8.7 million in 1999, from $6.0 million in 1998, and $4.7 million in 1997, increases of 44.76% and 28.78%, respectively. These increases were primarily the result of increases in salaries and employee benefits and general and administrative expenses. Our salaries and employee benefits expenses increased to $4.6 million in 1999, from $3.3 million in 1998, and $2.3 million in 1997, as we hired additional staff to facilitate our growth. We had 112, 83 and 61 full-time employees at the end of 1999, 1998 and 1997, respectively. General and administrative expense increased to $3.1 million in 1999, from $1.8 million in 1998, and $1.6 million in 1997, which is a direct result of our growth, as well as our increased advertising and marketing efforts. Advertising and marketing expenditures increased to $476,000 in 1999, from $269,000 in 1998, and $119,000 in 1997. A lease portfolio was purchased during 1999 with the assistance of a third party. A referral fee is due to a third party based on performance of the portfolio. The referral fee accrued in 1999 was $305,000 and is included in general and administrative expenses. 27 31 INCOME TAXES Our income tax expense during the three months ended March 31, 2000 was $388,000, compared to $321,000 during the prior year first quarter. This increase reflects our higher earnings during the current year period. Income taxes for fiscal years 1999, 1998 and 1997 were $1.5 million, $1.4 million and $1.1 million, respectively. The increases in taxes in 1999 and 1998 reflect our higher earnings. Our consolidated income tax rate varies from the statutory rate principally due to the effects of state income taxes and interest income earned on our municipal securities portfolio which is tax-exempt for federal income tax purposes. FINANCIAL CONDITION Lending Activities. Our loan portfolio is our main source of income, and has been the principal component of our revenue growth. Our loan portfolio reflects an emphasis on commercial, residential real estate, construction, and personal lending and leasing. We emphasize commercial lending to professionals, businesses and their owners. Commercial loans and loans secured by commercial real estate accounted for 37.11% of our total loans at March 31, 2000, 36.41% of our total loans at December 31, 1999, and over 40% of our total loans at year end 1998, 1997, 1996, and 1995. These loans increased at more than a 26.04% compound annual rate during the four-year period ended December 31, 1999. However, as the Bank's portfolio has become more diversified, these loans have decreased as a percentage of the total portfolio from 50.31% at year-end 1995 to 37.11% at March 31, 2000. Loans were $254.3 million at March 31, 2000, an increase of $3.9 million, or 1.56%, compared to December 31, 1999. Loan growth was limited in the first quarter due to funding constraints. The loan to deposit ratio remained above 91% from December 31, 1999 through the end of the first quarter. Although management believes that higher-cost funding sources, like brokered deposits, are available to the Bank, consistent with our growth strategy, management seeks to maintain an appropriate balance between loan portfolio growth and our overall cost of funds. Loans were $250.4 million at December 31, 1999, an increase of $89.0 million, or 55.11%, compared to December 31, 1998. We experienced increases in each of our loan categories, with the most significant increases occurring in commercial real estate, personal, construction and leasing. Over the last five years, we have expanded our personal lending lines of business in an effort to more broadly diversify our risk across multiple lines of business. A significant portion of the growth in our personal lending lines over the last five years is attributable to growth in our indirect automobile loan portfolio. As a result of the significant growth over the past five years in our indirect automobile loan portfolio and management's belief that our current level of investment in indirect automobile loans as a percentage of our overall loan portfolio is appropriate, we do not anticipate significant additional growth in our indirect automobile loan portfolio in future periods. The growth of our commercial real estate portfolio is a result of the natural economic growth and development of our market area, coupled with the addition of experienced construction and development lenders. The following table sets forth the composition of our loan portfolio by loan type as of the dates indicated. The amounts in the following table are shown net of discounts and other deductions. 28 32 LOAN PORTFOLIO
AS OF DECEMBER 31, AS OF MARCH 31, ----------------------------------------------------------------- 2000 1999 1998 1997 ------------------- ------------------- ------------------- ------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------- -------- ------- -------- ------- -------- ------- (DOLLARS IN THOUSANDS) Commercial real estate............. $ 29,023 11.41% $ 26,617 10.63% $ 15,457 9.57% $ 7,878 6.19% Residential real estate............ 33,323 13.10 33,251 13.28 28,367 17.57 24,075 18.91 Commercial......................... 65,370 25.70 64,552 25.78 52,310 32.41 45,969 36.11 Personal........................... 42,620 16.76 44,747 17.87 19,751 12.23 14,590 11.46 Home equity........................ 10,706 4.22 9,820 3.92 6,170 3.82 7,030 5.52 Construction....................... 44,032 17.31 41,007 16.38 25,624 15.87 16,273 12.78 Leases............................. 29,251 11.50 30,416 12.14 13,765 8.53 11,493 9.03 -------- ------ -------- ------ -------- ------ -------- ------ Total loans and leases........... 254,325 100.00% 250,410 100.00% 161,444 100.00% 127,308 100.00% ====== ====== ====== ====== Less allowance for loan losses..... 3,995 3,817 2,341 1,618 -------- Loans receivable, net.............. $250,330 $246,593 $159,103 $125,690 ======== ======== ======== ======== AS OF DECEMBER 31, ----------------------------------------- 1996 1995 ------------------- ------------------ AMOUNT PERCENT AMOUNT PERCENT -------- ------- ------- ------- (DOLLARS IN THOUSANDS) Commercial real estate............. $ 7,300 7.20% $ 2,810 3.91% Residential real estate............ 14,253 14.07 8,429 11.74 Commercial......................... 41,514 40.97 33,311 46.40 Personal........................... 9,507 9.38 4,680 6.52 Home equity........................ 5,267 5.20 3,176 4.42 Construction....................... 12,747 12.58 10,048 14.00 Leases............................. 10,735 10.60 9,337 13.01 -------- ------ ------- ------ Total loans and leases........... 101,323 100.00% 71,791 100.00% ====== ====== Less allowance for loan losses..... 1,275 836 Loans receivable, net.............. $100,048 $70,955 ======== =======
29 33 Collateral and Concentration. At March 31, 2000, and at December 31, 1999, 1998, and 1997, substantially all of our loans were collateralized with real estate, inventory, accounts receivable and/or other assets or were guaranteed by the Small Business Administration. Loans to individuals and businesses in the construction industry totaled $54.6 million, or 21.47%, of total loans, as of March 31, 2000. The Bank does not have any other concentrations of loans to individuals or businesses involved in a single industry totaling 5% of total loans. The Bank's lending limit under federal law to any one borrower was $7.2 million at March 31, 2000. The Bank's largest single borrower, net of participations, at March 31, 2000 had outstanding loans of $4.8 million. The following table presents the aggregate maturities of loans in each major category of our loan portfolio as of December 31, 1999, excluding the allowance for loan and valuation losses. Additionally, the table presents the dollar amount of all loans due more than one year after December 31, 1999 which have predetermined interest rates (fixed) or adjustable interest rates (variable). Actual maturities may differ from the contractual maturities shown below as a result of renewals and prepayments or the timing of loan sales. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
AS OF DECEMBER 31, 1999 ----------------------------------------------------------------- MORE THAN ONE YEAR LESS THAN ONE TO OVER FIVE ------------------ ONE YEAR FIVE YEARS YEARS TOTAL FIXED VARIABLE --------- ---------- --------- ------- ------- -------- (IN THOUSANDS) Commercial Real Estate............. $ 2,190 $16,523 $7,904 $26,617 $ 8,614 $15,813 Commercial......................... 34,973 22,214 7,365 64,552 10,450 19,129 Construction....................... 18,746 21,544 1,046 41,336 2,735 19,855
NON-PERFORMING ASSETS Non-performing assets consist primarily of loans past due 90 days or more and nonaccrual loans and foreclosed real estate. The following table sets forth our non-performing assets as of the dates indicated: 30 34 NON-PERFORMING ASSETS
AS OF AS OF DECEMBER 31, MARCH 31, --------------------------------------------- 2000 1999 1998 1997 1996 1995 --------- ------- ------ ------ ------- ------- (DOLLARS IN THOUSANDS) REAL ESTATE LOANS: Past due 90 days or more............................... $ 150 $ -- $ -- $ -- $ -- $ 134 Nonaccrual............................................. -- -- -- -- -- -- INSTALLMENT LOANS: Past due 90 days or more............................... -- -- 7 -- -- 202 Nonaccrual............................................. 19 87 38 -- 89 57 CREDIT CARDS AND RELATED PLANS: Past due 90 days or more............................... -- -- -- -- -- -- Nonaccrual............................................. -- -- -- -- -- -- COMMERCIAL AND ALL OTHER LOANS: Past due 90 days or more............................... 979 50 319 -- 163 68 Nonaccrual............................................. 533 375 650 367 156 24 LEASE FINANCING RECEIVABLES: Past due 90 days or more............................... 56 -- 121 -- -- -- Nonaccrual............................................. 156 25 227 58 -- -- DEBT SECURITIES AND OTHER ASSETS (EXCLUDING OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS): Past due 90 days or more............................... -- -- -- -- -- -- Nonaccrual............................................. -- -- -- -- -- -- ------ ------- ------ ------ ------- ------- Total non-performing loans........................... 1,893 537 1,362 425 408 485 ------ ------- ------ ------ ------- ------- FORECLOSED ASSETS HELD FOR SALE.......................... 311 186 46 795 40 370 ------ ------- ------ ------ ------- ------- Total non-performing assets.......................... $2,204 $ 723 $1,408 $1,220 $ 448 $ 855 ====== ======= ====== ====== ======= ======= Total non-performing loans to total loans................ 0.74% 0.21% 0.84% 0.33% 0.40% 0.68% Total non-performing loans to total assets............... 0.57 0.16 0.54 0.21 0.25 0.37 Allowance for loan losses to non-performing loans........ 211.04 710.80 171.88 380.71 312.50 172.37 Non-performing assets to loans and foreclosed assets held for sale............................................... 0.87 0.29 0.87 0.95 0.44 1.18
Impaired Loans. A loan is considered impaired when it is probable that we will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more, nonaccrual loans, and certain other loans identified by management. Accrual of interest is discontinued, and interest accrued and unpaid is removed, at the time the loans are delinquent 90 days. Interest is recognized for nonaccrual loans only upon receipt, and only after all principal amounts are current according to the terms of the contract. Impaired loans totaled $5.5 million at March 31, 2000, and $5.2 million at December 31, 1999 and 1998, with related allowances for loan losses of $1.1 million, $825,000 and $747,000, respectively. Interest of $149,000 was recognized on average impaired loans of $6.0 million during the three months ended March 31, 2000. Interest of $713,000 and $600,000 was recognized on average impaired loans of $4.1 million and $3.5 million for 1999 and 1998, respectively. Interest of $17,000 was recognized on impaired loans on a cash basis during the first quarter of the current year. Interest of $140,000 and $85,000 was recognized on impaired loans on a cash basis during 1999 and 1998, respectively. Allowance For Loan Losses. The allowance for loan losses is increased by provisions charged to expense and reduced by loans charged off, net of recoveries. The allowance is management's best estimate of probable losses which have been incurred as of the balance sheet date based on management's evaluation of risk in the portfolio, local economic conditions and historical loss experience. Management assesses the adequacy of the allowance for loan losses based upon a number of factors including, among others: - analytical reviews of loan loss experience in relationship to outstanding loans and commitments; 31 35 - unfunded loan commitments; - problem and non-performing loans and other loans presenting credit concerns; - trends in loan growth, portfolio composition and quality; - appraisals of the value of collateral; and - management's judgement with respect to current economic conditions and their impact on the existing loan portfolio. The adequacy of the allowance is analyzed monthly based on internal loan reviews and quality measurements of our loan portfolio. The Bank computes its allowance by assigning specific reserves to impaired loans, and then applies a general reserve based on a loss factor applied to the rest of the loan portfolio. The loss factor is determined based on such items as management's evaluation of risk in the portfolio, local economic conditions, and historical loss experience. Specific allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of the loan collateral. The following table sets forth information regarding changes in our allowance for loan and valuation losses for the periods indicated. SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
THREE MONTHS ENDED AS OF AND FOR THE MARCH 31, YEAR ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Balance at beginning of period.................. $ 3,817 $ 2,341 $ 2,341 $ 1,618 $ 1,275 $ 836 $ 611 Loans charged-off: Commercial real estate........................ -- -- -- -- -- -- -- Residential real estate....................... -- -- -- -- -- -- -- Commercial.................................... 81 -- 567 310 357 216 198 Personal...................................... 72 5 47 49 19 7 60 Home equity................................... -- -- -- -- -- -- -- Construction.................................. -- -- -- -- -- -- 24 Leases........................................ 156 87 158 27 83 91 37 -------- -------- -------- -------- -------- -------- -------- Total loans charged-off..................... 309 92 772 386 459 314 319 Recoveries: Commercial real estate........................ -- -- -- -- -- -- -- Residential real estate....................... -- -- -- -- -- -- -- Commercial.................................... 5 3 90 38 84 78 138 Personal...................................... 7 -- 2 6 1 11 32 Home equity................................... -- -- -- -- -- -- -- Construction.................................. -- -- -- -- -- -- -- Leases........................................ 10 -- 12 4 57 16 4 -------- -------- -------- -------- -------- -------- -------- Total recoveries............................ 22 3 104 48 142 105 174 -------- -------- -------- -------- -------- -------- -------- Net loans charged-off........................... 287 89 668 338 317 209 145 Provision for loan losses....................... 465 300 2,144 1,061 660 648 370 -------- -------- -------- -------- -------- -------- -------- Balance at end of period........................ $ 3,995 $ 2,552 $ 3,817 $ 2,341 $ 1,618 $ 1,275 $ 836 ======== ======== ======== ======== ======== ======== ======== Loans outstanding: Average....................................... 251,913 170,440 206,310 148,221 115,939 87,501 63,155 End of period................................. 254,325 186,038 250,410 161,444 127,308 101,323 71,791 Ratio of allowance for loan losses to loans outstanding: Average....................................... 1.59% 1.50% 1.85% 1.58% 1.40% 1.46% 1.32% End of period................................. 1.57 1.37 1.52 1.45 1.27 1.26 1.16 Ratio of net charge-offs to: Average loans................................. 0.46 0.21 0.32 0.23 0.27 0.24 0.23 End of period loans........................... 0.45 0.19 0.27 0.21 0.25 0.21 0.20
32 36 The following table shows our allocation of the allowance for loan losses by specific category at the end of each of the periods shown. Management attempts to allocate specific portions of the allowance for loan losses based on specifically identifiable problem loans. However, the allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category. 33 37 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
AS OF DECEMBER 31, AS OF MARCH 31, ------------------------------------------------------------------ 2000 1999 1998 1997 -------------------- -------------------- -------------------- -------------------- % OF % OF % OF % OF TOTAL TOTAL TOTAL TOTAL AMOUNT ALLOWANCE AMOUNT ALLOWANCE AMOUNT ALLOWANCE AMOUNT ALLOWANCE -------- --------- -------- --------- -------- --------- -------- --------- (DOLLARS IN THOUSANDS) Commercial real estate........ $ 363 9.09% $ 268 7.02% $ 155 6.62% $ 75 4.63% Residential real estate....... 355 8.89 364 9.53 340 14.52 298 18.42 Commercial.................... 1,442 36.10 1,206 31.60 1,013 43.27 648 40.05 Personal...................... 701 17.55 843 22.09 215 9.19 153 9.46 Home equity................... 126 3.15 123 3.22 69 2.95 83 5.13 Construction.................. 516 12.92 454 11.89 302 12.90 223 13.78 Leases........................ 492 12.30 559 14.65 247 10.55 138 8.53 Unallocated................... -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ Total..................... $3,995 100.00% $3,817 100.00% $2,341 100.00% $1,618 100.00% ====== ====== ====== ====== ====== ====== ====== ====== AS OF DECEMBER 31, ------------------------------------------- 1996 1995 -------------------- -------------------- % OF % OF TOTAL TOTAL AMOUNT ALLOWANCE AMOUNT ALLOWANCE -------- --------- -------- --------- (DOLLARS IN THOUSANDS) Commercial real estate........ $ 72 5.65% $ 68 8.13% Residential real estate....... 231 18.12 93 11.12 Commercial.................... 564 44.23 370 44.26 Personal...................... 95 7.45 52 6.22 Home equity................... 60 4.71 35 4.19 Construction.................. 127 9.96 112 13.40 Leases........................ 126 9.88 106 12.68 Unallocated................... -- -- -- -- ------ ------ ------ ------ Total..................... $1,275 100.00% $ 836 100.00% ====== ====== ====== ======
34 38 Investment securities. The primary objectives of our investment portfolio are to secure the adequacy of principal, to provide adequate liquidity and to provide securities for use in pledging for public funds or repurchase agreements. Income is a secondary consideration. As a result, we generally do not invest in mortgage-backed securities and other higher yielding investments. All securities in our investment portfolio are classified as available for sale in order to provide us with an additional source of liquidity when necessary. The investment portfolio increased by $3.1 million, or 6.35%, during the quarter ended March 31, 2000 as compared to 1999 year-end. As rates have continued to increase, we were able to take advantage of some attractive offers and add some higher yielding securities to our investment portfolio in the first quarter. The balance of the investment portfolio at December 31, 1998 was higher than either the 1999 or 1997 balance due to a 90-day, $5 million security we purchased in December 1998 to cover a pledging requirement for one of the Bank's customers. With the exception of this pledged security, the composition of our investment portfolio has remained virtually unchanged over the last three years. The following table presents the composition of our investment portfolio by major category at the dates indicated. INVESTMENT SECURITIES PORTFOLIO COMPOSITION
AT AT DECEMBER 31, MARCH 31, ----------------------------------- 2000 1999 1998 1997 --------- ------- --------------- ------- (IN THOUSANDS) U.S. government and agency securities............ $36,973 $34,175 $38,859 $28,688 State and municipal obligations.................. 14,760 14,471 14,568 11,559 Mortgage-backed securities....................... -- -- -- -- Other securities................................. -- -- -- -- ------- ------- ------- ------- Total....................................... $51,733 $48,646 $53,427 $40,247 ======= ======= ======= ======= Available for sale (fair value).................. $51,733 $48,646 $53,427 $40,247 Held to maturity (amortized cost)................ -- -- -- -- ------- ------- ------- ------- Total....................................... $51,733 $48,646 $53,427 $40,247 ======= ======= ======= =======
35 39 The following table sets forth the maturities, carrying value or fair value (in the case of investment securities available for sale), and average yields for our investment portfolio at March 31, 2000. Yields are presented on a tax equivalent basis. Expected maturities will differ from contractual maturities due to unscheduled repayments and because borrowers on the underlying mortgages may have the right to call or prepay obligations with or without prepayment penalties. Under our investment policy, not more than 10% of the Bank's capital may be invested in the bonds of any single issuer, other than the United States or its agencies. MATURITY OF INVESTMENT SECURITIES PORTFOLIO
MORE THAN TEN ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS YEARS ------------------ ------------------ ------------------ ------------------ CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD -------- ------- -------- ------- -------- ------- -------- ------- (DOLLARS IN THOUSANDS) AVAILABLE FOR SALE U.S. government and Agency securities......... $4,979 5.29% $11,726 6.42% $20,268 6.64% $ -- --% State and municipal Obligations........ 150 4.36 3,655 4.67 10,633 4.79 322 5.21 Mortgage-backed Securities......... -- -- -- -- -- -- -- -- Other securities..... -- -- -- -- -- -- -- -- ------ ---- ------- ---- ------- ---- ---- ---- Total available for sale............. $5,129 5.26% $15,381 6.01% $30,901 6.01% $322 5.21% ====== ==== ======= ==== ======= ==== ==== ==== Total investment securities....... $5,129 5.26% $15,381 6.01% $30,901 6.01% $322 5.21% ====== ==== ======= ==== ======= ==== ==== ==== TOTAL INVESTMENT SECURITIES ---------------------------- CARRYING FAIR AVERAGE VALUE VALUE YIELD -------- ------- ------- (DOLLARS IN THOUSANDS) AVAILABLE FOR SALE U.S. government and Agency securities......... $36,973 $36,973 6.39% State and municipal Obligations........ 14,760 14,760 4.77 Mortgage-backed Securities......... -- -- -- Other securities..... -- -- -- ------- ------- ---- Total available for sale............. $51,733 $51,733 5.93% ======= ======= ==== Total investment securities....... $51,733 $51,733 5.93% ======= ======= ====
Deposits. Deposits grew by $10.7 million, or 4.00%, for the quarter ended March 31, 2000, as compared to 1999 year end. A significant portion of our deposit growth is attributable to a new money market deposit product, our money management account, or "short-term parking account," introduced by the Bank in the fourth quarter of 1998. The money management account provides a hybrid of the features available from a traditional money market account and a traditional time deposit. The account requires a minimum balance of $10,000 and allows for daily deposits but limits withdrawals to the 15(th) and last days of each month. This account pays a rate of interest which is higher than a customer could receive on a traditional money market account but lower than the rates generally available on certificates of deposit. We believe that the trade-off to depositors between higher interest rates but more limited access to withdrawals has proven to be an attractive product in our market areas and provides us with a more attractive source of funds than other alternatives such as Federal Home Loan Bank borrowings, due to our ability to cross-sell additional services to these account holders. The following two tables set forth the balances for each major category of our deposit accounts and the weighted-average interest rates paid for interest-bearing deposits for the periods indicated: 36 40 DEPOSITS
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------- 2000 1999 1998 ------------------------------ ------------------------------ ------------------------------ PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED OF AVERAGE OF AVERAGE OF AVERAGE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE -------- -------- -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Demand.................... $ 39,491 14.16% --% $ 36,950 13.78% --% $ 33,752 16.09% --% Savings................... 3,339 1.20 2.96 3,385 1.26 2.93 3,491 1.66 2.94 Interest-bearing demand... 27,347 9.81 3.25 26,800 9.99 3.34 13,982 6.66 2.76 Money Market.............. 34,677 12.43 3.48 35,764 13.34 3.51 35,911 17.11 4.00 Money Management.......... 67,872 24.34 5.71 60,449 22.55 5.15 9,831 4.69 5.08 Time Deposits............. 106,135 38.06 5.79 104,797 39.08 5.67 112,857 53.79 6.00 -------- ------ -------- ------ -------- ------ Total deposits.......... $278,861 100.00% $268,145 100.00% $209,824 100.00% ======== ====== ======== ====== ======== ====== YEAR ENDED DECEMBER 31, ------------------------------ 1997 ------------------------------ PERCENT WEIGHTED OF AVERAGE BALANCE DEPOSITS RATE -------- -------- -------- (DOLLARS IN THOUSANDS) Demand.................... $ 27,275 15.97% --% Savings................... 3,072 1.80 2.90 Interest-bearing demand... 12,728 7.45 2.78 Money Market.............. 35,030 20.51 4.02 Money Management.......... -- -- -- Time Deposits............. 92,687 54.27 6.03 -------- ------ Total deposits.......... $170,792 100.00% ======== ======
37 41 The following table sets forth the amount of our certificates of deposit that are greater than $100,000 by time remaining until maturity as of March 31, 2000: AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
AS OF MARCH 31, 2000 --------------------------- WEIGHTED AVERAGE AMOUNT RATE PAID ------- ---------------- (DOLLARS IN THOUSANDS) Three months or less........................................ $13,615 5.75% Over three months through six months........................ 5,894 5.84 Over six months through twelve months....................... 8,107 5.79 Over twelve months.......................................... 8,224 6.28 ------- ---- Total.................................................. $35,840 5.90% ======= ====
LIQUIDITY AND CAPITAL RESOURCES Liquidity. Liquidity is measured by a financial institution's ability to raise funds through deposits, borrowed funds, capital, or the sale of marketable assets, such as residential mortgage loans or a portfolio of SBA loans. Other sources of liquidity, including cash flow from the repayment of loans, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of core deposits and liquid assets, and accessibility to the money and capital markets. The funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and operate the organization. Core deposits, defined as demand deposits, interest-bearing transaction accounts, savings deposits and certificates of deposit less than $100,000, were 72.83% of our total assets at March 31, 2000, and 70.11%, 68.57% and 73.98% of total assets at December 31, 1999, 1998 and 1997, respectively. We use various forms of short-term borrowings for cash management and liquidity purposes on a limited basis. These forms of borrowings include federal funds purchased, revolving lines of credit and Federal Home Loan Bank borrowings. We also have a bank stock loan. The amount outstanding under the amended bank stock loan agreement is due July 31, 2000. We intend to repay the full amount outstanding under our bank stock loan with the proceeds from this offering. See "Use of Proceeds." As of April 30, 2000, the balance outstanding under the bank stock loan was $7.3 million. The amended bank stock loan agreement: - prohibits us from paying dividends or making other distributions on our common stock; - prohibits us from incurring additional indebtedness other than the junior subordinated debentures and our obligations under the trust preferred securities guarantee; and - is secured by all of the stock of the Bank. The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks governed and regulated by the Federal Housing Finance Board. The Federal Home Loan Banks provide a central credit facility for member institutions. The Bank, as a member of the FHLB of Topeka, is required to acquire and hold shares of capital stock in the FHLB of Topeka in an amount at least equal to 0.30% of total assets or 1.00% of the aggregate principal amount of its unpaid residential mortgage loans. The Bank is currently in compliance with this requirement, with a $1.1 million investment in stock of the FHLB of Topeka as of March 31, 2000. In 1998, the Bank took advantage of some special advances from the FHLB to supplement its funding base. The Bank had no outstanding short-term advances from the FHLB of Topeka at March 31, 2000. The following table sets forth a summary of our short-term borrowings during and as of the end of each period indicated. 38 42 SHORT-TERM BORROWINGS
AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT MAXIMUM AVERAGE AVERAGE OUTSTANDING OUTSTANDING OUTSTANDING INTEREST RATE INTEREST RATE AT PERIOD DURING THE AT ANY DURING THE AT PERIOD END PERIOD(1) MONTH END PERIOD END ----------- ----------- ----------- ------------- ------------- (DOLLARS IN THOUSANDS) AT OR FOR THE THREE MONTHS ENDED MARCH 31, 2000: Federal Home Loan Bank borrowings.................. $ -- $ 4,822 $ 5,000 6.95% --% Bank Stock Loan.................................... 7,263 7,263 7,263 7.82 8.00 Revolving lines of credit.......................... -- -- -- -- -- Repurchase agreements.............................. 11,874 12,130 13,962 3.00 3.00 ------- ------- ------- ---- ---- Total............................................ 19,137 24,215 26,225 5.23 4.90 AT OR FOR THE THREE MONTHS ENDED MARCH 31, 1999: Federal Home Loan Bank borrowings.................. -- -- -- -- -- Bank Stock Loan.................................... 3,450 3,492 3,575 7.31 7.25 Revolving lines of credit.......................... -- -- -- -- -- Repurchase agreements.............................. 7,222 7,398 8,817 3.00 3.00 ------- ------- ------- ---- ---- Total............................................ 10,672 10,890 12,392 4.38 4.37 AT OR FOR THE YEAR ENDED DECEMBER 31, 1999: Federal Home Loan Bank borrowings.................. 10,000 461 10,000 4.50 5.98 Bank Stock Loan.................................... 7,450 4,763 7,450 7.03 7.50 Revolving lines of credit.......................... -- -- -- -- -- Repurchase agreements.............................. 11,260 9,500 13,056 3.00 3.00 ------- ------- ------- ---- ---- Total............................................ 28,710 14,724 30,506 4.35 5.21 AT OR FOR THE YEAR ENDED DECEMBER 31, 1998: Federal Home Loan Bank borrowings.................. -- -- -- -- -- Bank Stock Loan.................................... 3,575 3,800 4,038 7.97 7.25 Revolving lines of credit.......................... -- -- -- -- -- Repurchase agreements.............................. 8,817 7,040 8,886 3.00 3.00 ------- ------- ------- ---- ---- Total............................................ 12,392 10,840 12,924 4.74 4.23 AT OR FOR THE YEAR ENDED DECEMBER 31, 1997: Federal Home Loan Bank borrowings.................. -- -- -- -- -- Bank Stock Loan.................................... 4,038 2,801 4,038 8.28 8.50 Revolving lines of credit.......................... -- -- -- -- -- Repurchase agreements.............................. 8,114 5,549 8,114 3.00 3.00 ------- ------- ------- ---- ---- Total............................................ 12,152 8,350 12,152 4.77 4.83
- --------------- (1) Calculations are based on daily averages where available and monthly averages otherwise. Capital Resources. At March 31, 2000, our total stockholders' equity was $19.6 million, and our equity to asset ratio was 5.88%. At December 31, 1999, our total stockholders' equity was $18.9 million. At year-end 1999, our equity to asset ratio was 5.67%, as compared to 6.71% at year-end 1998, and 6.68% at year-end 1997. The Federal Reserve Board's risk-based guidelines establish a risk-adjusted ratio, relating capital to different categories of assets and off-balance sheet exposures, such as loan commitments and standby letters of credit. These guidelines place a strong emphasis on tangible stockholder's equity as the core element of the capital base, with appropriate recognition of other components of capital. At March 31, 2000, our Tier 1 capital ratio was 7.03%, while our total risk-based capital ratio was 8.28%, both of which exceed the capital minimums established in the risk-based capital requirements. 39 43 Our risk-based capital ratios at March 31, 2000, and December 31, 1999, 1998 and 1997 are presented below. RISK-BASED CAPITAL
DECEMBER 31, MARCH 31 ------------------------------ 2000 1999 1998 1997 -------- -------- -------- -------- (DOLLARS IN THOUSANDS) TIER 1 CAPITAL Stockholder's equity............................ $ 19,627 $ 18,869 $ 17,016 $ 13,464 Intangible assets............................... (1,410) (1,448) (1,600) (1,753) Unrealized appreciation on available-for-sale securities................................... 1,082 957 (352) (260) Other........................................... -- -- -- -- -------- -------- -------- -------- Total Tier 1 capital......................... 19,299 18,378 15,064 11,451 -------- -------- -------- -------- TIER 2 CAPITAL Qualifying allowance for loan losses............ 3,434 3,371 2,255 1,618 -------- -------- -------- -------- Total Tier 2 capital......................... 3,434 3,371 2,255 1,618 -------- -------- -------- -------- Total risk-based capital..................... $ 22,733 $ 21,749 $ 17,319 $ 13,069 ======== ======== ======== ======== Risk weighted assets.............................. $274,701 $269,660 $180,077 $132,394 ======== ======== ======== ======== Ratios at end of period Total capital to risk-weighted assets ratio..... 8.28% 8.07% 9.62% 9.87% Tier 1 capital to average assets ratio (leverage ratio)....................................... 5.94% 5.80% 6.13% 6.28% Tier 1 capital to risk-weighted assets ratio.... 7.03% 6.82% 8.37% 8.65% Minimum guidelines Total capital to risk-weighted assets ratio..... 8.00% 8.00% 8.00% 8.00% Tier 1 capital to average assets ratio (leverage ratio)....................................... 4.00% 4.00% 4.00% 4.00% Tier 1 capital to risk-weighted assets ratio.... 4.00% 4.00% 4.00% 4.00%
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK As a continuing part of our financial strategy, we attempt to manage the impact of fluctuations in market interest rates on our net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Our funds management policy is established by our Board of Directors and monitored by our Risk Management Committee. Our funds management policy sets standards within which we are expected to operate. These standards include guidelines for exposure to interest rate fluctuations, liquidity, loan limits as a percentage of funding sources, exposure to correspondent banks and brokers, and reliance on non-core deposits. Our funds management policy also establishes the reporting requirements to our Board of Directors. Our investment policy complements our asset/liability policy by establishing criteria by which we may purchase securities. These criteria include approved types of securities, brokerage sources, terms of investment, quality standards, and diversification. 40 44 The following table sets forth our interest-rate sensitivity as of December 31, 1999 INTEREST-RATE SENSITIVITY ANALYSIS
EXPECTED MATURITY OR REPRICING DATE ------------------------------------------- FISCAL YEAR ENDING DECEMBER 31, 0-90 91- ------------------- DAYS 365 DAYS 2000 2001 -------- ---------- -------- -------- INTEREST-EARNING ASSETS: Fixed Rate Loans..................................... $ 29,296 $ 31,721 $ 61,017 $ 28,276 Average Interest Rate.............................. 8.87% 9.09% 8.98% 9.33% Variable Rate Loans.................................. 97,809 4,206 102,015 3,031 Average Interest Rate.............................. 9.19% 8.80% 9.17% 8.15% Fixed Rate Investments............................... 105 3,150 3,255 3,268 Average Interest Rate.............................. 4.69% 5.80% 5.77% 5.72% Variable Rate Investments............................ -- -- -- -- Average Interest Rate.............................. -- -- -- -- Federal Funds Sold................................... 8,000 -- 8,000 -- Average Interest Rate.............................. 5.46% -- 5.46% -- -------- -------- -------- -------- Total interest-earning assets.................... $135,210 $ 39,077 $174,287 $ 34,575 ======== ======== ======== ======== INTEREST-BEARING LIABILITIES: Interest-bearing demand.............................. $ 26,800 $ -- $ 26,800 $ -- Average Interest Rate.............................. 3.17% -- 3.17% -- Savings and money market............................. 99,598 -- 99,598 -- Average Interest Rate.............................. 4.70% -- 4.70% -- Time deposits........................................ 26,463 40,028 66,491 16,193 Average Interest Rate.............................. 5.28% 5.61% 5.48% 5.92% Funds borrowed....................................... 23,819 7,450 31,269 -- Average Interest Rate.............................. 4.46% 7.50% 5.18% -- -------- -------- -------- -------- Total interest-bearing liabilities............... $176,680 $ 47,478 $224,158 $ 16,193 ======== ======== ======== ======== CUMULATIVE: Rate sensitive assets (RSA)........................ $135,210 $174,287 $174,287 $208,862 Rate sensitive liabilities (RSL)................... 176,680 224,158 224,158 240,351 GAP (GAP = RSA -- RSL)........................... (41,470) (49,871) (49,871) (31,489) RSA/RSL.............................................. 76.53% 77.75% 77.75% 86.90% RSA/Total assets..................................... 0.41 0.52 0.52 0.63 RSL/Total assets..................................... 0.53 0.67 0.67 0.72 GAP/Total assets..................................... -12.47% -14.99% -14.99% -9.47% GAP/RSA.............................................. (0.31) (0.29) (0.29) (0.15) EXPECTED MATURITY OR REPRICING DATE ----------------------------------------------------------------- FISCAL YEAR ENDING DECEMBER 31, ------------------------------ FAIR 2002 2003 2004 THEREAFTER TOTAL VALUE -------- -------- -------- ---------- -------- -------- INTEREST-EARNING ASSETS: Fixed Rate Loans..................................... $ 21,390 $ 13,380 $ 8,738 $ 3,714 $136,515 $136,013 Average Interest Rate.............................. 9.21% 9.12% 8.87% 7.63% 9.06% Variable Rate Loans.................................. 2,748 3,759 2,090 252 113,895 113,895 Average Interest Rate.............................. 8.19% 8.82% 8.56% 8.24% 9.10% Fixed Rate Investments............................... 2,754 4,765 4,238 30,366 48,646 48,646 Average Interest Rate.............................. 6.00% 5.36% 5.76% 5.91% 5.83% Variable Rate Investments............................ -- -- -- -- -- -- Average Interest Rate.............................. -- -- -- -- -- Federal Funds Sold................................... -- -- -- -- 8,000 8,000 Average Interest Rate.............................. -- -- -- -- 5.46% -------- -------- -------- -------- -------- -------- Total interest-earning assets.................... $ 26,892 $ 21,904 $ 15,066 $ 34,332 $307,056 $306,554 ======== ======== ======== ======== ======== ======== INTEREST-BEARING LIABILITIES: Interest-bearing demand.............................. $ -- $ -- $ -- $ -- $ 26,800 $ 25,303 Average Interest Rate.............................. -- -- -- -- 3.17% Savings and money market............................. -- -- -- -- 99,598 98,701 Average Interest Rate.............................. -- -- -- -- 4.70% Time deposits........................................ 10,851 7,024 1,930 2,308 104,797 103,898 Average Interest Rate.............................. 6.07% 6.08% 5.88% 6.71% 5.68% Funds borrowed....................................... -- 10,000 -- 1,908 43,177 42,617 Average Interest Rate.............................. -- 5.13% -- 7.50% 5.27% -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities............... $ 10,851 $ 17,024 $ 1,930 $ 4,216 $274,372 $270,519 ======== ======== ======== ======== ======== ======== CUMULATIVE: Rate sensitive assets (RSA)........................ $235,754 $257,658 $272,724 $307,056 $307,056 Rate sensitive liabilities (RSL)................... 251,202 268,226 270,156 274,372 274,372 GAP (GAP = RSA -- RSL)........................... (15,448) (10,568) 2,568 32,684 32,684 RSA/RSL.............................................. 93.85% 96.06% 100.95% 111.91% RSA/Total assets..................................... 0.71 0.77 0.82 0.92 RSL/Total assets..................................... 0.76 0.81 0.81 0.82 GAP/Total assets..................................... -4.64% -3.18% 0.77% 9.83% GAP/RSA.............................................. (0.07) (0.04) 0.01 0.11
41 45 We measure the impact of interest rate changes on our income statement through the use of gap analysis. The gap represents the net position of assets and liabilities subject to repricing in specified time periods. During any given time period, if the amount of rate sensitive liabilities exceeds the amount of rate sensitive assets, a company would generally be considered negatively gapped and would benefit from falling rates over that period of time. Conversely, a positively gapped company would generally benefit from rising rates. We have structured the assets and liabilities of our company to mitigate the risk of either a rising or falling interest rate environment. We manage our gap position at a 90-day horizon. Depending upon our assessment of economic factors such as the magnitude and direction of projected interest rates over the short- and long-term, we generally operate within guidelines set by our funds management policy and attempt to maximize our returns within an acceptable degree of risk. Our policy states that we should maintain a gap position at a 90-day horizon of between 0.60 and 1.40. Our position at December 31, 1999 was 0.77. We use information from our gap analysis and other calculations as input to help manage our exposure to changes in interest rates. During the past year, we have attempted to maintain a gap position near 1.0 in an effort to mitigate the risk of rapid increases or decreases in market interest rates. We have done so because of our uncertainty about the direction of market interest rates over the near term. To maintain our gap position of near 1.0, we structure most of our loans to mature or reprice in less than two to four years, invest primarily in portfolio securities with similar maturities and limit the volume of long term funding that we accept. Interest rate changes do not affect all categories of assets and liabilities equally or simultaneously. There are other factors which are difficult to measure and predict that would influence the effect of interest rate fluctuations on our income statement. For example, a rapid drop in interest rates might cause our loans to repay at a more rapid pace and some mortgage-related investments to prepay more quickly than projected. This could mitigate some of the benefits of falling rates that are expected when negatively gapped. Conversely, a rapid rise in rates might cause the mortgage-related loans to repay at a slower pace, which could give us an opportunity to increase our margins. In addition to the gap analysis currently required under our funds management policy, our Board of Directors and Risk Management Committee continue to evaluate additional methods of managing the impact of fluctuations in market interest rates on our net interest income. Disclosures about fair values of financial instruments, which reflect changes in market prices and rates, can be found in note 16 to the consolidated financial statements included in this prospectus. INFLATION The consolidated financial statements and related data presented in this prospectus have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as prices of goods and services. We disclose the estimated fair market value of our financial instruments in accordance with Statement of Financial Accounting Standards No. 107. See Note 16 to the consolidated financial statements included in this prospectus. YEAR 2000 We have not experienced any Year 2000-related problems with our internal data processing systems and software or those of any third parties with whom we do business. It is possible, however, that Year 2000 compliance problems exist that we cannot yet identify. If problems arise and we fail to address them 42 46 on a timely basis, it could result in lost revenue, increased operating costs, the loss of customers and suppliers and other business interruptions. As of December 31, 1999, we had incurred total costs of not more than $20,000 that we believe are allocable to our efforts to address the Year 2000 problem, of which not more than $6,000 were incurred and expensed in 1999. No additional related expenses have been incurred in 2000. FUTURE ACCOUNTING REQUIREMENTS The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")." This statement, as amended by SFAS No. 137, requires all derivatives to be recorded on the balance sheet at fair value and establishes standard accounting methodologies for hedging activities. The standard will result in the recognition of offsetting changes in value or cash flows of both the hedge and the hedged item in earnings or comprehensive income in the same period. The statement is effective for Blue Valley's fiscal year ending December 31, 2001. Because Blue Valley generally does not hold derivative instruments, the adoption of this statement is not expected to have a material impact on the financial statements. FASB also has issued Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed Securities retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Entity ("SFAS 134")." This statement amends SFAS No. 65 allowing mortgage-backed securities or other retained interests arising from the securitization of mortgage loans to be classified based on the mortgage banking entities' ability and intent to sell or hold those securities. Previously, these securities had to be held within a trading account. This statement was effective for Blue Valley's fiscal year ending December 31, 1999. The adoption of this standard did not have a material impact on the financial statements. BUSINESS OVERVIEW We organized Blue Valley and our wholly-owned subsidiary, Bank of Blue Valley, in 1989 to provide banking services to closely-held businesses, their owners, professionals and individuals in Johnson County, Kansas, a high growth, demographically attractive area within the Kansas City metropolitan statistical area. Our focus has been to take advantage of the current and anticipated growth in our market area as well as to serve the needs of small and mid-sized commercial borrowers -- customers that we believe currently are underserved as a result of banking consolidation in the industry generally and within our market specifically. We have experienced significant internal growth since our inception. In addition, in 1994, we acquired the deposits of a branch of a failed savings and loan institution to augment our internal growth and we expanded into an additional market which management believed was attractive. In 1994, we also completed the construction of our current headquarters in Overland Park, Kansas. We currently have three banking locations in Johnson County, Kansas, including our main office in Overland Park, a full-service office in Olathe, Kansas, and a supermarket banking facility in Shawnee, Kansas. For the five-year period ended December 31, 1999, our compound annual growth rate in loans was 36.65%, in assets was 26.82%, and in deposits was 25.70%. At December 31, 1999, we had total loans of $250.4 million, total assets of $332.6 million, total deposits of $268.1 million and total stockholders' equity of $18.9 million. At March 31, 2000, we had total loans of $254.3 million, total assets of $333.7 million, total deposits of $278.9 million and total stockholders' equity of $19.6 million. Our lending strategy focuses on commercial lending, and, to a lesser extent, residential and consumer lending. We strive to identify, develop and maintain diversified lines of business which provide acceptable returns on a risk adjusted basis. Our primary lines of business consist of commercial and industrial lending, commercial real estate lending, construction lending, indirect lending, leasing and residential mortgage lending. 43 47 As a complement to our lending activities, we seek to develop lines of business which diversify our revenue sources and increase our non-interest income. In addition to fees generated in conjunction with our loan and lease portfolios, we derive non-interest income by providing investment brokerage services and trust services. In addition to the Bank, we have one direct wholly-owned subsidiary, Blue Valley Building Corp., which owns the building and property that comprises our headquarters in Overland Park, Kansas. The Bank has one wholly-owned subsidiary, Blue Valley Investment Corp., which owns and services a portion of a commercial lease portfolio that we purchased in 1999. OUR MARKET AREA We operate as a community bank, serving the banking needs of small and medium-sized companies and individuals in the Kansas City metropolitan statistical area generally, and in suburban Johnson County, in particular. Our trade area generally consists of Johnson County, Kansas. We believe that coupling our strategy of providing exceptional customer service and local decision making with attractive market demographics has led to a rate of growth which exceeds the natural growth rate of the banking industry as well as the internal growth experienced locally by our peers. The income levels and growth rate of Johnson County, Kansas compare favorably to national averages. Johnson County's population growth rate ranks in the top 2% of counties nationally, and its per capita income ranks in the top 1% of counties nationally. Johnson County is also a significant banking market in the State of Kansas and in the Kansas City metropolitan statistical area. According to available industry data, as of June 30, 1999, total deposits in Johnson County, including those of banks, thrifts and credit unions, were approximately $7.8 billion which represented 19.23% of total deposits in the State of Kansas and 29.54% of total deposits in the Kansas City metropolitan statistical area. As our founders anticipated, the trade area surrounding our main banking facility in Overland Park has become one of the most developed retail areas in the Kansas City metropolitan statistical area. Our Olathe, Kansas branch is located approximately 10 miles west of our main office. We opened our Olathe branch in 1994 when we acquired the deposits of the Olathe branch of a failed savings and loan association. We made this acquisition because it was located in a contiguous market area and we believed that it represented a stable deposit base. The Shawnee, Kansas supermarket banking facility is approximately 20 miles northwest of our headquarters location. We opened our Shawnee branch for the convenience of our existing customers in Shawnee, and to expand our market presence in Shawnee. We are in the process of building a free-standing banking facility in Shawnee, Kansas and expect to commence operations in the new facility during the third quarter of 2000. After Overland Park, Shawnee is the second fastest growing area in Johnson County, Kansas. BUSINESS STRATEGY Since our founding, we have strived to increase stockholder value by executing a community banking strategy tailored to provide our customers with competitive financial products and services, our employees with the opportunity to share in our financial success and our community with a stable, growth oriented employer. To further our primary business objectives, we have identified several business strategies designed to increase and diversify our loan portfolio, generate non-interest income, control non-interest expense and create new markets for our existing and developing products. - GROW AND DIVERSIFY OUR LOAN PORTFOLIO. Our lending strategy emphasizes commercial and residential lending and, to a lesser extent, consumer lending. To grow our portfolio, we actively pursue businesses and professionals within our target market area as well as utilize our existing client relationships to identify and develop a network of potential referrals. We have also placed an increasing emphasis on cross-marketing our lending products and services to existing and new customers for our deposit and other services. With the advent of new technology for delivering financial products and services, we have identified several techniques to market our lending products. For example, our customers are now able to use our electronic banking services to apply 44 48 for residential and personal loans over the Internet. Throughout our history, we have continually broadened our product offerings in order to decrease our reliance on any one source of lending activity and to generate additional income. To further diversify our loan portfolio, we intend to continue to identify and invest in new lines of business that provide an acceptable rate of return on a risk-adjusted basis. - PURSUE OPPORTUNITIES TO INCREASE OUR NON-INTEREST INCOME. In order to increase stockholder value, we believe that traditional community banks must identify and develop products which generate fee-based income in order to augment traditional sources of interest income. Our residential mortgage loan originations and our trust, investment brokerage and other services provide these sources of non-interest income. Although our trust and investment brokerage operations do not currently represent a material source of income, we anticipate the income resulting from these activities to increase in the future. We also seek to deploy programs and employ individuals capable of anticipating and meeting the many financial service needs of our relatively affluent customer base. The experience of our management team is critical to understanding and providing the high level of customer service which we believe is essential in competing for these customers. - CONTROL THE EXPENSES NECESSARY TO FACILITATE OUR GROWTH. As a high-growth community bank with diversified and developing lines of business, we continue to place emphasis on controlling costs. Each of our prospective lines of business, as well as our current activities, are reviewed to determine the potential contribution to net income and earnings per share. - EXPAND OUR PRESENCE WITHIN OUR MARKET AREA. We operate as a community bank, serving the banking needs of small and medium-sized companies and individuals in the Kansas City metropolitan statistical area generally, and suburban Johnson County, Kansas in particular. We will consider opening new branches and establishing new ATMs in high growth areas within our market area to grow our deposit base and to expand our ability to provide lending and other services to new and existing customers. To the extent that opportunities present themselves, we will consider acquisition opportunities within our market area and in contiguous areas. Our management team expects to build upon our reputation as a community bank capable of responding promptly to customer needs, thereby distinguishing ourselves from many regional and national banks. We also expect to continue to respond to changes in technology to enable us to enhance our level of customer service. For example, through our "Blue Wave" Internet banking service, our deposit customers can check balances, transfer funds, pay bills and order new checks electronically around the clock. By offering these services to our customers, we believe we have distinguished ourselves from many community banks in our market area. In order to successfully execute our strategies and achieve our primary business objectives we rely upon what we believe to be our primary strengths, including: - CUSTOMER SERVICE STANDARDS. We believe that our emphasis on local relationship banking, our high level of customer service standards and our employees' commitment to customer satisfaction have been important factors in the success and growth of the Bank. - GROWTH OPPORTUNITIES. As of March 31, 2000, our total loan portfolio had grown to approximately $254.3 million. We believe our Johnson County location presents significant opportunities to grow our loan portfolio and deposit base. The U.S. Census Bureau recently reported that the job growth in Johnson County, Kansas in 1998 was greater than in any other county in the United States. We believe that our operating strategy, the continued increase in the local employment base, the relatively affluent residential population, and the banking needs in our market areas have positioned us to facilitate further growth in our assets and deposit base. - INDEPENDENT COMMUNITY BANK. As a Johnson County-headquartered, independent community bank, we believe we have certain competitive advantages in our market area over many banks with a regional or national focus, particularly during the current period of industry consolidation. We 45 49 continue to market our local decision-making structure to customers who have become dissatisfied with larger banks that fail to address their service expectations. - EXPERIENCED MANAGEMENT TEAM. Each member of our six-person senior management team has significant banking or banking-related experience. In 1998, our President and Chief Executive Officer was named the "1998 Financial Entrepreneur of the Year -- Midwest Region" by Ernst & Young LLP. LENDING ACTIVITIES Overview. Our principal loan categories include commercial, commercial real estate, construction, indirect, leasing and residential mortgages. We also offer a variety of consumer loans. Our primary source of income is interest earned on our loan portfolio. As of March 31, 2000, our loans represented approximately 76.22% of our total assets. Although our legal lending limit to any one borrower was $7.2 million at March 31, 2000, our largest single borrower as of that date had outstanding loans of $4.8 million. We have been successful in expanding our loan portfolio because of the commitment of our staff and the economic growth in our area of operation. Our staff has significant experience in lending and has been successful in offering our products to potential customers and existing customers. We believe that we have been successful in maintaining our customers because of our staff's attentiveness to the banking needs of our customers and the development of personal relationships with them. We strive to become a strategic business partner with our customers, not just a source of funds. We conduct our lending activities pursuant to the loan policies adopted by our board of directors. These policies currently require the approval of our loan committee of all credits in excess of $300,000. Credits up to $300,000 can be approved by the President or by the joint signatures of our Executive Vice President and Chief Lending Officer, and Senior Vice President -- Mortgage Banking. Our management information systems and loan review policies are designed to monitor lending sufficiently to ensure adherence to our loan policies. The following table shows the composition of our loan portfolio at March 31, 2000. LOAN PORTFOLIO
AS OF MARCH 31, 2000 ---------------------- AMOUNT PERCENT ---------- -------- (DOLLARS IN THOUSANDS) Commercial real estate...................................... $ 29,023 11.41% Residential real estate..................................... 33,323 13.10 Commercial.................................................. 65,370 25.70 Personal.................................................... 42,620 16.76 Home equity................................................. 10,706 4.22 Construction................................................ 44,032 17.31 Leases...................................................... 29,251 11.50 --------- ------ Total loans and leases.................................... 254,325 100.00% Less allowance for loan losses.............................. 3,995 --------- Loans receivable, net....................................... $ 250,330 =========
Commercial loans. As of March 31, 2000, approximately $65.4 million, or 25.70%, of our loan portfolio represented commercial loans. The Bank has developed a strong reputation in the servicing of small business and commercial loans. We have expanded this portfolio through the addition of commercial lending staff and as a result of our reputation. Commercial loans have historically been a significant portion of our loan portfolio and we expect to continue our emphasis on this loan category. 46 50 The Bank's commercial lending activities historically have been directed to small and medium-sized companies in the Kansas City metropolitan statistical area, focusing on Johnson County, Kansas, with annual sales of between $100,000 and $20 million. The Bank's commercial customers are primarily firms engaged in manufacturing, service, retail, construction, distribution and sales with significant operations in our market areas. The Bank's commercial loans are primarily secured by real estate, accounts receivable, inventory and equipment, and the Bank generally seeks to obtain personal guarantees for its commercial loans. As of December 31, 1999, approximately 5.44% of the number of our commercial loans had outstanding balances in excess of $300,000, and these loans accounted for 47.68% of the total carrying value of our commercial loan portfolio. The Bank primarily underwrites its commercial loans on the basis of the borrowers' cash flow and ability to service the debt, as well as the value of any underlying collateral and the financial strength of any guarantors. Approximately $4.0 million, or 6.13%, of our commercial loans are Small Business Administration loans, of which $3.1 million is government guaranteed. The SBA guarantees the repayment of a portion of the principal on these loans, plus accrued interest on the guaranteed portion of the loan. Under the federal Small Business Act, the SBA may guarantee up to 80% of qualified loans of $100,000 or less and up to 75% of qualified loans in excess of $100,000, up to a maximum guarantee of $750,000. We are an active SBA lender in our market area and have been approved to participate in the SBA Certified Lender Program. Commercial lending is subject to risks specific to the business of each borrower. In order to address these risks, we seek to understand the business of each borrower, place appropriate value on any personal guarantee or collateral pledged to secure the loan, and structure the loan amortization to maintain the value of any collateral during the term of the loan. Commercial real estate loans. The Bank also makes loans to provide permanent financing for retail and office buildings, multi-family buildings and churches. As of March 31, 2000, approximately $29.0 million, or 11.41%, of our loan portfolio represented commercial real estate mortgage loans. Our commercial real estate mortgage loans are underwritten on the basis of the appraised value of the property, the cash flow of the underlying property, and the financial strength of any guarantors. In 1999, the bank hired a full-time loan officer to focus on the origination of permanent commercial real estate mortgage loans, the majority of which are sold to third-party investors. We earn fee income on commercial real estate mortgage loans that we originate for sale to third-party investors. Risks inherent in commercial real estate lending are related to the market value of the property taken as collateral, the underlying cash flows and documentation. Commercial real estate lending involves more risk than residential lending because loan balances may be greater and repayment is dependent on the borrower's operations. We attempt to mitigate these risks by carefully assessing property values, investigating the source of cash flow servicing the loan on the property and adhering to our loan documentation policy. Construction loans. Our construction loans include loans to developers, home building contractors and other companies and consumers for the construction of single family homes, land development, and commercial buildings, such as retail and office buildings and multi-family properties. As of March 31, 2000, approximately $44.0 million, or 17.31%, of our loan portfolio represented real estate construction loans. The builder and developer loan portfolio has been a consistent and profitable component of our loan portfolio over our ten-year history. We attribute this success to our availability and prompt service. The Bank's experience and reputation in this area have enabled it to focus on relationships with a smaller number of larger builders. The Bank's focus on larger and more established builders has permitted it to increase the total value of its real estate construction portfolio. Construction loans are made to qualified builders to build houses to be sold following construction, pre-sold houses and model houses. These loans are generally underwritten based upon several factors, including the experience and current financial condition of the borrowing entity, amount of the loan to appraised value, and general conditions of the housing market. Construction loans are also made to individuals for whom houses are being constructed by builders with whom the Bank has an existing relationship. Those loans are made on the basis of the 47 51 individual's financial condition, the loan to value ratio, the reputation of the builder, and whether the individual will be pre-qualified for permanent financing. Risks related to construction lending include assessment of the market for the finished product, reasonableness of the construction budget, ability of the borrower to fund cost overruns, and the borrower's ability to liquidate and repay the loan at a point when the loan-to-value ratio is the greatest. We seek to manage these risks by, among other things, ensuring that the collateral value of the property throughout the construction process does not fall below acceptable levels, ensuring that funds disbursed are within parameters set by the original construction budget, and properly documenting each construction draw. Indirect loans. A significant portion of our consumer loan portfolio consists of indirect automobile loans offered through automobile dealerships located primarily in our immediate market. The indirect loan portfolio consists of approximately 2,800 loans. At March 31, 2000, loans representing 99.89% of the portfolio balance were current, and the historical loss experience of this portfolio is significantly lower than industry averages. At the period ended March 31, 2000, the indirect loan portfolio had an overall loss experience of 0.15%, which is lower than the overall Bank loss experience of 0.46% in the three months ended March 31, 2000. We cannot be sure whether our level of charge-offs for indirect automobile loans in future periods will be consistent with our historical levels of indirect automobile loan charge-offs. Much of the growth in our indirect loan portfolio in 1999 resulted from the increase in the number of loan officers and administrative staff. This allowed us to expand our dealer relationships and expand our territory slightly. There are currently 26 dealerships participating in this program. As a result of the significant growth over the past five years in our indirect automobile loan portfolio and management's belief that our current level of investment in indirect automobile loans as a percentage of our overall loan portfolio is appropriate, we do not anticipate significant growth in this loan category in future periods. Our loans made through this program generally represent loans to purchase new cars. Our indirect loans are underwritten based on the borrower's income, current debt, past credit history, collateral, and the reputation of the originating dealership. The primary risks related to our indirect loan portfolio include the value of the automobile that serves as collateral and the financial strength and employment stability of the borrower. Because automobiles depreciate rapidly, our indirect automobile loans present a greater risk of loss than other types of secured loans, like loans secured by residential real estate. We attempt to mitigate these risks by understanding and documenting the value of the collateral, the reputation of the originating dealership and the overall creditworthiness of the borrower. Lease financing. Our lease portfolio includes capital leases that we have originated and leases that we have acquired from brokers or third parties. As of March 31, 2000, our lease portfolio totaled $29.3 million, or 11.50% of our total loan portfolio, consisting of $11.1 million principal amount of leases originated by us and $18.2 million principal amount of leases that we purchased. We provide lease financing for a variety of equipment and machinery, including office equipment, heavy equipment, telephone systems, tractor trailers and computers. Lease terms are generally from three to five years. In 1999, we expanded our lease financing sales staff and administrative staff. As a result, we have been able to acquire additional brokers and direct relationships. Management believes this area is attractive because of its ability to provide a source of both interest and fee income. Our leases are generally underwritten based upon several factors, including the experience and current financial condition of the lessee, amount of the financing to appraised value, and general conditions of the market. Of our lease portfolio at March 31, 2000, $5.1 million, or 17.49%, represented leases that Blue Valley Investment acquired on February 1, 1999 for approximately $12 million from National Retailer Leasing ("NRL"), a tanker truck leasing company involved in bankruptcy proceedings. These leases represent leases of tanker trucks used to transport fuel. Many of these tanker trucks are used at airports and similar locations. Of the total number of leases acquired by Blue Valley Investment, approximately $8.7 million in principal amount represented leases that satisfied the Bank's underwriting criteria for leases, and were purchased by the Bank from Blue Valley Investment. The remaining NRL assets held by Blue Valley 48 52 Investment totaling $3.3 million represented leases that had defaults or delinquencies at the time of purchase. However, as of March 31, 2000, the total amount of these leases reflected on the balance sheet of Blue Valley Investment has been paid down to $919,000 and is supported by lease paper which is now current. In 1999, interest income from these leases was $1.4 million. We expect our interest income from the NRL leases to decline over the next two years as the portfolio matures. The primary risks related to our lease portfolio are the value of the underlying collateral and specific risks related to the business of each borrower. To address these risks, we attempt to understand the business of each borrower, value the underlying collateral appropriately and structure the loan amortization to maintain the value of the collateral during the term of the lease. Residential mortgage loans. Our residential mortgage loan portfolio consists primarily of first and second mortgage loans on residential properties. As of March 31, 2000, $44.0 million, or 17.31%, of our loan portfolio represented residential mortgage loans. In 1999, we originated approximately $85.6 million of residential mortgage loans, of which we sold approximately $82.4 million, or 96.26%, in the secondary market. The terms of these loans are for 15, 20 or 30 years, and accrue interest at a fixed or variable rate. Due to interest rate risk considerations, we generally sell our fixed rate residential mortgage loans in the secondary market. For our own portfolio, we typically originate fixed-rate loans with a balloon payment in 2-5 years with 15 to 30 year amortizations. By offering these products, we can offer credit to individuals who are self-employed or have significant income from partnerships or investments, who are often unable to satisfy the underwriting criteria permitting the sale of their mortgages into the secondary market. We originate conventional first mortgage loans primarily through referrals from real estate brokers, builders, developers, prior customers and media advertising. In addition, since 1999, we have offered customers the ability to apply for mortgage loans and to pre-qualify for mortgage loans over the Internet through our electronic banking service. To date, mortgage loans originated over the Internet have not represented a material amount of our mortgage loan originations. However, we expect Internet mortgage loan originations to increase over the next several years at a more rapid rate than our overall mortgage loan originations. The origination of a mortgage loan from the date of initial application through closing normally takes 15 to 60 days. We acquire forward commitments to sell mortgage loans on those that we intend to sell into the secondary market to reduce market risk on mortgage loans in the process of origination and those held for sale. Our mortgage loan credit review process is consistent with the standards set by traditional secondary market sources. We review appraised value and debt service ratios, and we gather data during the underwriting process in accordance with various laws and regulations governing real estate lending. We require pre-approval from secondary market sources before we approve loans to be sold into the secondary market. Our internal approval process is less stringent for loans pre-approved by our secondary market sources, which we believe allows us to be more responsive to the tight time commitments necessary for locking in interest rates in the secondary market. Loans originated by the Bank are sold with servicing released to increase current income and reduce the costs associated with retaining servicing rights. Commitments are obtained from the appropriate investor on a loan-by-loan basis on a 30, 45 or 60 day delivery commitment. Interest rates are committed to the borrower when a rate commitment is obtained from the investor. Loans are funded by the Bank and purchased by the investor within 30 days following closing pursuant to commitments obtained at the time of origination. We sell conventional conforming loans and all loans that are non-conforming as to credit quality to secondary market investors for cash on a non-recourse basis. Consequently, foreclosure losses on all sold loans are generally the responsibility of the investor and not that of the Bank. As with other loans to individuals, the risks related to residential mortgage loans include primarily the value of the underlying property and the financial strength and employment stability of the borrower. We attempt to manage these risks by performing a pre-funding quality control review that consists of the verification of employment and utilizes a detailed checklist of loan qualification requirements, including the source and amount of down payments, bank accounts, existing debt and overall credit. 49 53 Consumer and other loans. As of March 31, 2000, our consumer and other loans totaled $42.6 million, or 16.76%, of our total loan portfolio. Substantially all of this amount consisted of installment loans to individuals in our market area. Installment lending offered directly by the Bank in our market area includes automobile loans, recreational vehicle loans, home improvement loans and unsecured lines of credit and other loans, to professionals, people in education, industry and government, as well as retired individuals and others. Since 1999, we have offered customers the ability to apply for consumer loans, personal lines of credit and overdraft protection lines of credit over the Internet through our electronic banking services. To date, consumer loans originated over the Internet have not represented a material amount of our consumer loan portfolio. Our consumer and other loans are underwritten based on the borrower's income, current debt, past credit history and collateral. Consumer loans are subject to the same risks as other loans to individuals, including the financial strength and employment stability of the borrower. In addition, many consumer loans are subject to the additional risk that the loan is not secured by collateral. For some of the loans that are secured, the underlying collateral may be rapidly depreciating and not provide an adequate source of repayment if we are required to repossess the collateral. We attempt to mitigate these risks by requiring a down payment and carefully verifying and documenting the borrower's credit quality, employment stability and monthly income. INVESTMENT ACTIVITIES The objectives of our investment policy are to: - secure the safety of principal; - provide adequate liquidity; - provide securities for use in pledging for public funds or repurchase agreements; and - maximize after-tax income consistent with servicing the Bank's customers' needs. We invest primarily in direct obligations of the United States, obligations guaranteed as to principal and interest by the United States, obligations of agencies of the United States and bank-qualified obligations of state and local political subdivisions. In order to ensure the safety of principal, we typically do not invest in mortgage-backed securities and other higher-yielding instruments. We also may invest from time to time in corporate debt or other securities as permitted by our investment policy. In addition, we enter into federal funds transactions with our principal correspondent banks, and primarily act as a net seller of these funds. The sale of federal funds are effectively short-term loans from us to other banks. Our investment accounts also include minimal equity investments in the Federal Home Loan Bank ("FHLB"). We invest in FHLB in order to be a member, which qualifies us to use their services, including FHLB borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources." DEPOSIT SERVICES The principal sources of funds for the Bank are core deposits from the local market areas surrounding the Bank's offices, including demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits and certificates of deposit of less than $100,000. Transaction accounts include interest-bearing and non-interest-bearing accounts which provide the Bank with a source of fee income and cross-marketing opportunities as well as a low-cost source of funds. The Bank also offers two types of short-term investment accounts. The Bank's money market account is a daily access account that has a higher rate than a personal interest-bearing checking account and allows for limited check-writing ability. A significant portion of our deposit growth during 1999 is attributable to a new money market deposit product, our money management account, or "short-term parking account," introduced by the Bank in the fourth quarter of 1998. The money management account provides a hybrid of the features available from a traditional money market account and a traditional time deposit. The account requires a minimum balance 50 54 of $10,000 and allows for daily deposits but limits withdrawals to the 15th and last days of each month. This account pays a rate of interest which is higher than a customer could receive on a traditional money market account but lower than the rates generally available on certificates of deposit. We believe that the trade-off to depositors between higher interest rates but more limited access to withdrawals has proven to be an attractive product in our market areas and provides us with a more attractive source of funds than other alternatives such as Federal Home Loan Bank borrowings, due to our ability to cross-sell additional services to these account holders. Time and savings accounts also provide a relatively stable and low cost source of funding. In 1999, the Bank changed its policy to allow for acceptance of brokered deposits which can be utilized to support the growth of the Bank. As of March 31, 2000, the Bank had $862,000 in brokered deposits, and the Bank does not anticipate brokered deposits becoming a meaningful percentage of its deposit base. In pricing deposit rates, management considers profitability, the matching of term lengths with assets, the attractiveness to customers and rates offered by our competitors. INVESTMENT BROKERAGE SERVICES In 1999, the Bank began offering investment brokerage services through an unrelated broker-dealer. These services are currently offered at our Overland Park, Shawnee and Olathe offices and will be offered at our full-service, free-standing facility in Shawnee when it opens in the third quarter of 2000. One of the individuals responsible for providing these services is a joint employee of the Bank and the registered broker-dealer, and the second individual is employed by the broker-dealer under contract to the Bank. Investment brokerage services provide a source of fee income for the Bank. In 1999, the amount of our fee income generated from investment brokerage services was $30,000, but management anticipates that this will increase significantly in future years. TRUST SERVICES We began offering trust services in 1996. Until 1999, the Bank's trust services were offered exclusively through the employees of an unaffiliated trust company. The Bank hired a full-time officer in 1999 to develop the Bank's trust business. Trust customers are both existing Bank customers and new customers. We believe that the ability to offer trust services as a part of our complement of financial services to new customers of the Bank presents a significant cross-marketing opportunity. The services currently offered by the Bank's trust department include the administration of self-directed individual retirement accounts, qualified retirement plans, custodial and directed trust accounts. The Bank also offers investment advisory services with the assistance of the unaffiliated trust company. As of March 31, 2000, the Bank's trust department administered 85 accounts, with assets under management of approximately $23.0 million. Trust services provide the Bank with a source of fee income and additional deposits. In 1999, the amount of our fee income from trust services was $103,000, but management anticipates that this will increase significantly in future years. COMPETITION We encounter competition primarily in seeking deposits and in obtaining loan customers. The level of competition for deposits in our market area and nationally is quite high. Our principal competitors for deposits are other financial institutions within a few miles of our locations, including other banks, savings institutions and credit unions. Competition among these institutions is based primarily on interest rates offered, the quality of service provided, and the convenience of banking facilities. Additional competition for depositors' funds comes from U.S. government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors. We compete in our lending, investment brokerage and trust activities with other financial institutions, such as banks and thrift institutions, credit unions, automobile financing companies, mortgage companies, securities firms, investment companies and other finance companies. Many of our competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks and state regulations governing state chartered banks. As a result, these non-bank competitors have 51 55 advantages over us in providing certain services. Many of the financial institutions with which we compete are larger than us with greater financial resources, name recognition and market presence. EMPLOYEES As of March 31, 2000, the Bank had approximately 122 full-time employees. Blue Valley, Blue Valley Building and Blue Valley Investment do not have any full-time employees. None of the employees of the Bank is subject to a collective bargaining agreement. We consider the Bank's relationship with its employees to be excellent. LEGAL PROCEEDINGS We are involved from time to time in routine litigation incidental to our business. We do not believe that we are a party to any material pending litigation that in our opinion is likely to have a material adverse effect on our consolidated financial condition, results of operations or cash flows. PROPERTIES The Bank's principal office occupies 2.40 acres of ground on the corner of 119(th) and Riley streets in Overland Park, Kansas. The construction of the building was completed in 1994 and consists of 38,031 square feet. The building and land are subject to third-party mortgage indebtedness in the original principal amount of $2.5 million. As of December 31, 1999, the outstanding principal amount of this indebtedness was $1.9 million. The Bank's Olathe, Kansas office occupies 0.93 acres of ground on the corner of Santa Fe and Ridgeview Streets. The construction of the building was completed in 1973, and consists of 4,116 square feet. The Bank's Shawnee, Kansas office currently occupies 425 square feet in a grocery store located at Highway K-7 and 55th Street. The Bank leases this space from CMI, Inc. under a lease with a primary term through January 18, 2002. The Bank expects that its permanent facility in Shawnee, Kansas will be completed during the third quarter of 2000. When completed, the building will consist of 4,000 square feet and will occupy 0.85 acres of land. In 1998, the Bank purchased approximately 1.34 acres of undeveloped land on the corners of K68 and US 69 Highway in Louisburg, Kansas, just south of Johnson County for potential future development as a full-service branch. BVBC CAPITAL TRUST I BVBC Trust is a Delaware business trust. BVBC Trust will exist solely to: - issue and sell its common securities to us; - issue and sell its trust preferred securities to the public; - use the proceeds from the sale of its common securities and trust preferred securities to purchase the junior subordinated debentures from us; - distribute the cash payments it receives on the junior subordinated debentures it owns to the holders of the preferred and common securities; and - engage in other activities that are necessary or incidental to these purposes. REGULATION AND SUPERVISION Blue Valley and its subsidiaries are extensively regulated under both federal and state laws. Laws and regulations to which Blue Valley and the Bank are subject govern, among other things, the scope of business, investments, reserve levels, capital levels relative to operations, the nature and amount of 52 56 collateral for loans, the establishment of branches, mergers and consolidations and the payment of dividends. These laws and regulations are intended to protect depositors, not stockholders. Any change in applicable laws or regulations may have a material effect on Blue Valley's business and prospects, and legislative and policy changes may affect Blue Valley's operations. Blue Valley cannot predict the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, economic controls or new federal or state legislation may have in the future. The following references to statutes and regulations affecting Blue Valley and the Bank are brief summaries only and do not purport to be complete and are qualified in their entirety by reference to the statutes and regulations. RECENT LEGISLATION The enactment of legislation described below has significantly affected the banking industry generally and will have an on-going effect on Blue Valley and its subsidiaries in the future. GRAMM-LEACH-BLILEY ACT. The President signed the Gramm-Leach-Bliley Act into law on November 12, 1999. This major banking legislation expands the permissible activities of bank holding companies such as Blue Valley by permitting them to engage in activities, or affiliate with entities that engage in activities, that are "financial in nature." Activities that the Act expressly deems to be financial in nature include, among other things, securities and insurance underwriting and agency, investment management and merchant banking. The Federal Reserve and the Treasury Department, in cooperation with one another, must determine what additional activities are "financial in nature." With certain exceptions, the Gramm-Leach-Bliley Act similarly expands the authorized activities of subsidiaries of national banks. The provisions of the Gramm-Leach-Bliley Act authorizing the expanded powers became effective March 11, 2000. Bank holding companies that intend to engage in the newly authorized activities must elect to become "financial holding companies." Financial holding company status is only available to a bank holding company if all of its affiliated depository institutions are "well capitalized" and "well managed," based on applicable banking regulations, and have a Community Reinvestment Act rating of at least "a satisfactory record of meeting community credit needs." Financial holding companies and banks may continue to engage in activities that are financial in nature only if they continue to satisfy the well capitalized and well managed requirements. Bank holding companies that do not elect to be financial holding companies or that do not qualify for financial holding company status may engage only in non-banking activities deemed "closely related to banking" prior to adoption of the Gramm-Leach-Bliley Act. The Act also calls for "functional regulation" of financial services businesses in which functionally regulated subsidiaries of bank holding companies will continue to be regulated by the regulator that ordinarily has supervised their activities. As a result, state insurance regulators will continue to oversee the activities of insurance companies and agencies, and the Securities and Exchange Commission will continue to regulate the activities of broker-dealers and investment advisers, even where the companies or agencies are affiliated with a bank holding company. Federal Reserve authority to examine and adopt rules regarding functionally regulated subsidiaries is limited. The Act repeals some of the exemptions enjoyed by banks under federal securities laws relating to securities offered by banks and licensing of broker-dealers and investment advisers. The Gramm-Leach-Bliley Act imposes a new "affirmative and continuing" obligation on all financial service providers (not just banks and their affiliates) to safeguard consumer privacy and requires federal and state regulators, including the Federal Reserve and the FDIC, to establish standards to implement this privacy obligation. With certain exceptions, the Act prohibits banks from disclosing to non-affiliated parties any non-public personal information about customers unless the bank has provided the customer with certain information and the customer has had the opportunity to prohibit the bank from sharing the information with non-affiliates. The new privacy obligations become effective six months after the federal banking agencies adopt regulations establishing the privacy standards. 53 57 Finally, the Act prevents companies engaged in commercial activities from acquiring savings institutions, requires public disclosure of any agreements between a depository institution and community groups regarding the institution's Community Reinvestment Act record, adopts amendments designed to modernize the Federal Home Loan Bank System and requires operators of automatic teller machines to disclose any fees charged to non-customers that use the machines. The Gramm-Leach-Bliley Act will be the subject of extensive rule making by federal banking regulators and others. The effects of this legislation will only begin to be understood over the next several years and at this time cannot be predicted with any certainty. ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1996. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 became law on September 30, 1996. This Act streamlined the non-banking activities application process for well-capitalized and well-managed bank holding companies by permitting qualified bank holding companies to commence an approved non-banking activity without prior notice to the Federal Reserve, although written notice is required within 10 days after commencing the activity. Also, the Act reduced the prior notice period to 12 days in the event of any non-banking acquisition or share purchase, assuming the size of the acquisition does not exceed 10% of risk-weighted assets of the acquiring bank holding company and the consideration does not exceed 15% of a bank holding company's Tier 1 capital. Among other matters, the Economic Growth and Regulatory Paperwork Reduction Act also: - Provided for the recapitalization of the Savings Association Insurance Fund of the FDIC (most of the members of which are, or were formerly, savings associations or savings banks) in order to bring it into parity with the FDIC's Bank Insurance Fund; - Amended the Federal Fair Credit Reporting Act; - Eliminated prior federal regulatory approval requirements for new officers and directors for recently organized banks and banks that have recently undergone a change of control; - Amended the laws governing loans to bank insiders to permit them to participate in employee-wide programs offered by the bank; and - Amended laws governing officer and director interlocks among unaffiliated depository institutions to permit such interlocks under a greater number of circumstances. RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorized bank holding companies to expand, by acquiring existing banks, into all states, even those which had theretofore restricted entry. The legislation also provides that a holding company may convert the banks it owns in different states to branches of a single bank, unless a state has elected to prohibit these interstate transactions. Statewide branching is permitted under Kansas law, however, out of state banks may establish branches in Kansas only through mergers with banks already located in Kansas. The federal legislation also establishes limits on acquisitions by large banking organizations, providing that no acquisition may be undertaken if it would result in the organization having deposits exceeding either 10% of all bank deposits in the United States or 30% of the bank deposits in the state in which the acquisition would occur. BANK HOLDING COMPANY REGULATION Blue Valley is a bank holding company registered under the Bank Holding Company Act of 1956. Under the Bank Holding Company Act, Blue Valley is subject to periodic examination by the Federal Reserve and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require. 54 58 INVESTMENTS AND ACTIVITIES. A bank holding company must obtain approval from the Federal Reserve before: - Acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the bank or bank holding company (unless it already owns or controls the majority of the shares); - Acquiring all or substantially all of the assets of another bank or bank holding company; or - Merging or consolidating with another bank holding company. The Federal Reserve will not approve any acquisition, merger or consolidation that would have a substantially anticompetitive result unless the anticompetitive effects of the proposed transaction are clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in reviewing acquisitions or mergers. With certain exceptions, a bank holding company is also prohibited from: - Acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company; and - Engaging, directly or indirectly, in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. Bank holding companies may, however, engage in businesses found by the Federal Reserve to be closely related to the business of banking or of managing or controlling banks. These activities include making or servicing loans and certain types of leases, engaging in certain insurance and discount brokerage activities, performing certain data processing services, acting in certain circumstances as a fiduciary or investment or financial advisor, owning savings associations and making investments in corporations or projects designed to promote community welfare. Blue Valley would be authorized to engage in the expanded activities permitted under the Gramm-Leach-Bliley Act if it elects to become a "financial holding company" and otherwise qualifies for financial holding company status. Finally, subject to certain exceptions, the Bank Holding Company Act and the Change in Bank Control Act, and the Federal Reserve's implementing regulations, require Federal Reserve approval prior to any acquisition of "control" of a bank holding company, such as Blue Valley. In general, a person or company is presumed to have acquired control if it acquires 10% of the outstanding shares of a bank or bank holding company and is conclusively determined to have acquired control if it acquires 25% or more of the outstanding shares of a bank or bank holding company. SOURCE OF STRENGTH. The Federal Reserve expects Blue Valley to act as a source of financial strength and support for the Bank and to take measures to preserve and protect the Bank in situations where additional investments in the Bank may not otherwise be warranted. The Federal Reserve may require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve's determination that the activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or non-bank subsidiary if the agency determines that divestiture may aid the depository institution's financial condition. Blue Valley Building is Blue Valley's only direct subsidiary that is not a bank. CAPITAL REQUIREMENTS. The Federal Reserve uses capital adequacy guidelines in its examination and regulation of bank holding companies and banks. If the capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses. The Federal Reserve's capital guidelines establish a risk-based requirement expressed as a percentage of total risk-weighted assets and a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total 55 59 risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital (which consists principally of stockholders' equity). The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%. The risk-based and leverage standards presently used by the Federal Reserve are minimum requirements, and higher capital levels may be required if warranted by the particular circumstances or risk profiles of individual banking organizations. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions, which is Tier 1 capital less all intangible assets, well above the minimum levels. DIVIDENDS. The Federal Reserve has issued a policy statement concerning the payment of cash dividends by bank holding companies. The policy statement provides that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weakened the bank holding company's financial health, such as by borrowing. Also, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. BANK REGULATIONS The Bank operates under a Kansas state bank charter and is subject to regulation by the Kansas Banking Department and the FDIC. The Kansas Banking Department and the FDIC regulate or monitor all areas of the Bank's operations, including capital requirements, issuance of stock, declaration of dividends, interest rates, deposits, record keeping, establishment of branches, acquisitions, mergers, loans, investments, borrowing, security devices and procedures and employee responsibility and conduct. The Kansas Banking Department places limitations on activities of the Bank including the issuance of capital notes or debentures and the holding of real estate and personal property and requires the Bank to maintain a certain ratio of reserves against deposits. The Kansas Banking Department requires the Bank to file a report annually showing receipts and disbursements of the Bank, in addition to any periodic report requested. DEPOSIT INSURANCE. The FDIC, through its Bank Insurance Fund, insures the Bank's deposit accounts to a maximum of $100,000 for each insured depositor. The FDIC, through its Savings Association Insurance Fund, insures certain deposit accounts acquired by the Bank in 1994 from a branch of a failed savings institution. These deposit accounts are insured to a maximum of $100,000 for each insured depositor. The FDIC bases deposit insurance premiums on the perceived risk each bank presents to its deposit insurance fund and currently range from zero (for banks in the lowest risk-based premium category) to 27 cents for each $100 of insured deposits (for banks in the highest risk-based premium category). In addition, all Bank Insurance Fund-insured and Savings Association Insurance Fund-insured institutions currently pay an assessment of 2.08 cents for each $100 of insured deposits to service debt issued by the Financing Corporation, a federal agency established to finance the recapitalization of the former Federal Savings and Loan Insurance Corporation. The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management is not aware of any activity or condition that could result in termination of the deposit insurance of the Bank. CAPITAL REQUIREMENTS. The FDIC has established the following minimum capital standards for state-chartered, insured non-member banks, such as the Bank: (1) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3%; and (2) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be 56 60 Tier 1 capital. These capital requirements are minimum requirements, and higher capital levels may be required if warranted by the particular circumstances or risk profiles of individual institutions. The federal banking regulators also have broad power to take "prompt corrective action" to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends upon whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Under the prompt corrective action rules, an institution is: - "Well-capitalized" if the institution has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure; - "Adequately capitalized" if the institution has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and a leverage ratio of 4% or greater; - "Undercapitalized" if the institution has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio that is less than 4%, or a leverage ratio that is less than 4%; - "Significantly undercapitalized" if the institution has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3%; and - "Critically undercapitalized" if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%. The federal banking regulators must take prompt corrective action with respect to capital deficient institutions. Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: - Placing limits on asset growth and restrictions on activities, including the establishing of new branches; - Requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; - Restricting transactions with affiliates; - Restricting the interest rate the institution may pay on deposits; - Requiring that senior executive officers or directors be dismissed; - Requiring the institution to divest subsidiaries; - Prohibiting the payment of principal or interest on subordinated debt; and - Appointing a receiver for the institution. Companies controlling an undercapitalized institution are also required to guarantee the subsidiary institution's compliance with the capital restoration plan subject to an aggregate limitation of the lesser of 5% of the institution's assets at the time it received notice that it was undercapitalized or the amount of the capital deficiency when the institution first failed to meet the plan. The Federal Deposit Insurance Act generally requires the appointment of a conservator or receiver within 90 days after an institution becomes critically undercapitalized. As of March 31, 2000, the Bank had capital in excess of the requirements for a "well-capitalized" institution. INSIDER TRANSACTIONS. The Bank is subject to restrictions on extensions of credit to executive officers, directors, principal stockholders or any related interest of these persons. Extensions of credit must be made on substantially the same terms, including interest rates and collateral as the terms available for third 57 61 parties and must not involve more than the normal risk of repayment or present other unfavorable features. The Bank is also subject to lending limits and restrictions on overdrafts to these persons. COMMUNITY REINVESTMENT ACT REQUIREMENTS. The Community Reinvestment Act of 1977 requires that, in connection with examinations of financial institutions within their jurisdiction, the federal banking regulators must evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. In its most recent examination, the Bank received a rating of "outstanding record of meeting community credit needs." This is the highest rating a bank may receive. STATE BANK ACTIVITIES. With limited exceptions, FDIC-insured state banks, like the Bank, may not make or retain equity investments of a rate or in an amount that are not permissible for national banks and also may not engage as a principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member. REGULATIONS GOVERNING EXTENSIONS OF CREDIT. The Bank is subject to restrictions on extensions of credit to Blue Valley and on investments in Blue Valley's securities and using those securities as collateral for loans. These regulations and restrictions may limit Blue Valley's ability to obtain funds from the Bank for its cash needs, including funds for acquisitions and for payment of dividends, interest and operating expenses. Further, the Bank Holding Company Act and Federal Reserve regulations prohibit a bank holding company and its subsidiaries from engaging in various tie-in arrangements in connection with extensions of credit, leases or sales of property or furnishing of services. RESERVE REQUIREMENTS. The Federal Reserve requires all depository institutions to maintain reserves against their transaction accounts and non-personal time deposits. Reserves of 3% must be maintained against net transaction accounts of $44.3 million or less (subject to adjustment by the Federal Reserve) and an initial reserve of $1,329,000 plus 10% (subject to adjustment by the Federal Reserve to a level between 8% and 14%) must be maintained against that portion of net transaction accounts in excess of this amount. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements. OTHER REGULATIONS Interest and various other charges collected or contracted for by the Bank are subject to state usury laws and other federal laws concerning interest rates. The Bank's loan operations are also subject to federal laws applicable to credit transactions. The federal Truth in Lending Act governs disclosures of credit terms to consumer borrowers. The Home Mortgage Disclosure Act of 1975 requires financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves. The Equal Credit Opportunity Act prohibits discrimination on the basis of race, creed or other prohibited factors in extending credit. The Fair Credit Reporting Act of 1978 governs the use and provision of information to credit reporting agencies. The Fair Debt Collection Act governs the manner in which consumer debts may be collected by collection agencies. The various federal agencies charged with the responsibility of implementing these federal laws have adopted various rules and regulations. The deposit operations of the Bank are also subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act, and Regulation E issued by the Federal Reserve to implement that Act, which govern automatic deposits to and withdrawals from the use of ATMs and other electronic banking services. 58 62 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The Blue Valley board of directors is divided into three classes as nearly equal in number as the total number of directors constituting the entire board of directors permits. In order to implement this staggered board, at the 2000 annual meeting, the directors of class 1 were elected to hold office for a term of one year, the directors of class 2 were elected to hold office for a term of two years, and the directors of class 3 were elected to hold office for a term of three years. Thereafter, at each succeeding annual meeting, the directors of each class that are elected will serve a three-year term, and will continue to hold office until their successors are elected and qualified. All of our directors are also directors of the Bank, except Messrs. Henry and McDonnell. Ms. Dotson and Messrs. Bodker and Stein are directors of the Bank, but not of Blue Valley. Each of our directors has been elected for a term to expire at the next annual meeting. None of our executive officers have employment contracts assuring continued employment. For each of our directors, the additional directors of the Bank and our executive officers, we have set forth below their ages as of April 30, 2000, and their principal positions with Blue Valley.
NAME AGE POSITIONS - ---- --- --------- Directors Robert D. Regnier.................... 51 President, Chief Executive Officer and Chairman of the Board of Directors of Blue Valley; President, Chief Executive Officer and Director of the Bank Donald H. Alexander.................. 61 Director of Blue Valley and the Bank Wayne A. Henry, Jr................... 47 Director of Blue Valley C. Ted McCarter...................... 63 Director of Blue Valley and Chairman of the Board of Directors of the Bank Thomas A. McDonnell.................. 54 Director of Blue Valley Additional Directors of the Bank Harvey S. Bodker..................... 64 Director of the Bank Suzanne E. Dotson.................... 53 Director of the Bank Stewart M. Stein..................... 49 Director of the Bank Executive Officers who are not Directors John K. Doull........................ 39 Executive Vice President and Chief Lending Officer of the Bank Mark A. Fortino...................... 33 Senior Vice President and Chief Financial Officer of the Bank; Treasurer of Blue Valley Nancy A. Taylor...................... 56 Senior Vice President - Mortgage Banking of the Bank Gregory J. Motley.................... 43 Senior Vice President - Retail Division Manager of the Bank Penny T. Hershman.................... 56 Senior Vice President - Signature Financial Services and Marketing of the Bank Bonnie M. McConnaughy................ 40 Vice President and Cashier of the Bank
59 63 Below we have provided information regarding the principal occupations and business experience of each director and executive officer of Blue Valley and the additional directors of the Bank named above. Unless otherwise indicated, each person has held the indicated positions for at least the past five years. Except as otherwise indicated below, there are no reportable family relationships among our directors and executive officers. ROBERT D. REGNIER has been a director and the President and Chief Executive Officer of Blue Valley and the Bank since their formation in 1989. He has also been the sole director and President and Chief Executive Officer of Blue Valley Investment since its formation in 1995, and of Blue Valley Building since its formation in 1994. Prior to joining Blue Valley, Mr. Regnier held various managerial positions with Boatmen's Bank and Trust and Boatmen's First National Bank of Kansas City. Mr. Regnier has nearly 30 years of experience in a number of banking areas, including lending, investments, personnel, administration, trust, operations, new business development and mergers. DONALD H. ALEXANDER has been a director of Blue Valley and member of its Audit Committee since 1992. Mr. Alexander has also been a director of the Bank since its formation in 1989. Mr. Alexander is a private investor with a background in commercial banking. In addition to his positions with Blue Valley and the Bank, Mr. Alexander has also been Chairman of Ventaire Corporation in Tulsa, Oklahoma, a metal fabrication company, since 1989; Chairman of Tulsa Power, LLC in Tulsa, Oklahoma, a machinery fabrication company, since 1988; Chairman of Huebert Fiberboard Corp. in Boonville, Missouri, a manufacturing company, since 1996; a director of BHA Group, Inc. in Raytown, Missouri, an air pollution control equipment manufacturer, since 1986; and President and director of Alexander & Associates, Inc. in Kansas City, Missouri, a private investment company, since 1987. WAYNE A. HENRY, JR. has been a director of Blue Valley since 1992. Mr. Henry has also been the President and Treasurer and a director of Personal Financial Designs, Inc. in Holden Missouri, a registered investment advisory firm providing portfolio management and financial planning services, since 1986. Mr. Henry is a licensed financial planning practitioner and has served on the board of directors of the Kansas City Chapter of the International Association of Financial Planning and as President and Chairman of the Heart of America Society of the Institute of Certified Financial Planners. C. TED MCCARTER has been a director of Blue Valley since 1992. Mr. Carter has also been the Chairman of the board of directors of the Bank and a member of the Loan Committee, Trust Committee and Audit Committee of the Bank since 1990. He has served as the Chairman of Agency Premium Resource in Lenexa, Kansas, an insurance premium finance company, since 1990; the Chairman and President of Valley Investment Co. in Mission Woods, Kansas, a consulting company, since 1990; a director and co-owner of Huebert Fiberboard Co. in Boonville, Missouri, a manufacturing company, since 1990; and a director and co-owner of Emco Specialty Products, Inc. in Kansas City, Kansas, a manufacturing company, since 1990. Mr. McCarter has a background in commercial banking having served as President, Chief Executive Officer, and director of Boatmen's Bank in Kansas City from 1974 to 1990. He has also served as a director of Century Acceptance Corporation of Kansas City and Boatmen's Bancshares of St. Louis. THOMAS A. MCDONNELL has been a director of Blue Valley since 1996. Mr. McDonnell has also served as Chief Executive Officer of DST Systems, Inc. in Kansas City, Missouri, a transfer agent for mutual funds, stocks and bonds, since 1984, and as a director of DST since 1971. From August 1983 to November 1995, Mr. McDonnell was Executive Vice President and a director of Kansas City Southern Industries, Inc. in Kansas City, Missouri, a holding company and the former parent of DST. Mr. McDonnell has also been a director of Informix Corp. in Menlo Park, California, a developer, manufacturer and marketer of relational database management systems, connectivity interfaces and gateways, since 1988; a director of BHA Group, Inc. in Kansas City, Missouri, a manufacturer of pollution control devices, since 1993; a director of Computer Sciences Corporation in El Segundo, California, an information technology company, since 1997; a director of Euronet Services, Inc. in Budapest, Hungary, an operator of automatic teller machines, since 1997; a director of Janus Capital Corporation in Denver, Colorado, a registered investment advisor, since 1985. 60 64 HARVEY S. BODKER has been a director of the Bank since its formation in 1989. Mr. Bodker has been the President of Bodker Realty, Inc. in Prairie Village, Kansas, a commercial real estate brokerage, management and development company, since 1971. He has also been the managing partner of Rosewood Development Co. in Prairie Village, Kansas, a developer of small office buildings since 1978. Mr. Bodker is very active in the community having served on several boards including the Heart of America Boy Scout Board for over 25 years, the Menorah Medical Center Board of Trustees, Cosmopolitan Club of Johnson County, and Chairman of the Overland Park Civil Service Commission. Mr. Bodker has also served on the Kansas Real Estate Commission under two governors, the Overland Park Planning Commission, the Leawood Board of Zoning Appeals, the Sunflower State Private Industry Council, and on the Overland Park Chamber of Commerce. SUZANNE E. DOTSON has been a director of the Bank since 1993. Ms. Dotson is a community volunteer with a background in community banking. She has also been a director of the Brain Injury Association of Kansas and Greater Kansas City in Kansas City, Missouri, a non-profit association dedicated to brain injury prevention, research, education and advocacy, since 1992; and a director of Wayside Waifs in Kansas City, Missouri, an animal shelter and humane society dedicated to humane education and providing temporary housing for lost, abandoned, abused and unwanted animals, since 1998. Prior to joining the Bank in 1993, Ms. Dotson served as senior vice president of commercial lending at Boatmen's First National Bank of Kansas City and executive vice president of lending at First Continental Bank and Trust in the Kansas City area. STEWART M. STEIN has been a director of the Bank since its formation in 1989. Mr. Stein is a real estate, commercial and collections attorney. He has been a partner with the law firm of Morrison & Hecker LLP in Overland Park, Kansas, since 1997. Mr. Stein was managing partner of the law firm of Buck, Bohm & Stein, P.C. in Overland Park, Kansas, from 1981 to 1997. JOHN K. DOULL has been with the Bank since 1989 and is currently the Executive Vice President and Chief Lending Officer of the Bank, and a member of the Bank's Discount Committee, Trust Committee, Audit Committee, Risk Management Committee and Compliance Committee. As such, he is primarily responsible for overseeing the lending function of the Bank. He is also responsible for strategic planning, risk management, funds management and developing future plans for the Bank. Mr. Doull has over 15 years experience in banking. Prior to joining Blue Valley, he was a commercial loan officer at Boatmen's First National Bank of Kansas City. Mr. Doull is also currently the Board President and a member of the Administrative Team at Indian Creek Community Church in Olathe, Kansas. He is also the past treasurer of the Johnson County Housing Coalition. MARK A. FORTINO has been Treasurer of Blue Valley, Blue Valley Investment and Blue Valley Building, and Senior Vice President and Chief Financial Officer of the Bank since May, 1998. As such, he is responsible for oversight of all financial reporting and analysis for Blue Valley, as well as oversight of human resources, technology and administrative functions. Mr. Fortino also serves on the Technology Committee and Communications/Moral Committee of the Bank. Mr. Fortino is a certified public accountant, and for ten years prior to joining Blue Valley, served in various positions, including Audit Manager, at Baird, Kurtz & Dobson, a public accounting firm in Kansas City, Missouri. His prior experience includes bank consulting and auditing, bank mergers and acquisitions, public securities offerings and periodic SEC reporting. Mr. Fortino is a member of the Missouri Society of CPAs and the American Institute of CPAs. Mr. Fortino is also a Board member and Chairman of the Finance Committee of the Girl Scouts of Midcontinent Council and a member of the University of Kansas Division of Accounting and Information Systems Advisory Council. NANCY A. TAYLOR has been with the Bank since 1989 and is currently Senior Vice President -- Mortgage Banking of the Bank. As such, Ms. Taylor is responsible for mortgage loan origination (both conforming and non-conforming), mortgage loan operations, the sale of mortgage loans in the secondary market and consumer construction loans for the Bank. Ms. Taylor has over 24 years of banking experience. GREGORY J. MOTLEY. has been with the Bank since 1999 and is currently Senior Vice President -- Retail Division Manager. As such, he is responsible for retail sales at all three Bank locations. Mr. Motley 61 65 has over 20 years of banking experience and during 1999, served as Senior Vice President, Branch Manager of Security Savings Bank, FSB of Olathe, Kansas. Mr. Motley served as President, East Region, of First National Bank, Medicine Lodge, in Overland Park, Kansas, from 1996 to 1998, Senior Vice President of Bank of America, in Kansas City, Missouri, from 1984 to 1996, and Vice President of Security State Bank, Weatherford, Oklahoma, from 1982 to 1984. Mr. Motley began his career with the Federal Reserve Bank of Kansas City, Missouri, as an Assistant Bank Examiner from 1979 to 1982. Mr. Motley is also a co-founder and owner of Integrity Management, Inc., in Leawood, Kansas, a business consulting firm specializing in structural issues and business ethics. PENNY T. HERSHMAN has been with the Bank since 1997 and is currently Senior Vice President of Signature Financial Services and Marketing. As such, she directs the functions for trust services, Invest, private banking, the call center and the Bank's overall marketing. Prior to joining the Bank, Ms. Hershman served as principal of Tapco Consulting in Novato, California, a consulting firm, where she specialized in banking, management and marketing. From 1984 to 1995, Ms. Hershman served in various positions at Novato National Bank in Novato, California, including President and Chief Executive Officer. Ms. Hershman began her career at Metcalf Bank in Overland Park, Kansas, where she advanced from teller to director and Senior Vice President/Cashier. BONNIE M. MCCONNAUGHY has been with the Bank since 1990 and is currently Vice President, Cashier, Security Officer and Bank Security Act Officer of the Bank, and a member of the Bank's Compliance Committee, Technology Committee and Planning Committee. As such, her primary responsibilities include deposit operations, teller functions, and developing and implementing new products for the Bank. Ms. McConnaughy has over 18 years of banking experience. COMMITTEES OF THE BOARD OF DIRECTORS The Blue Valley board of directors has a standing Audit Committee, which reports to the full board of directors in discharging its responsibilities relating to our accounting, reporting and financial control practices. The Audit Committee has general responsibility for oversight of financial controls, as well as our accounting, regulatory and audit activities, and annually reviews the qualifications of our independent auditors. The current members of the Audit Committee are Messrs. Alexander, McCarter, Henry and Stein. The Blue Valley board of directors does not currently have a standing Nominating Committee or Compensation Committee. The full Blue Valley board of directors nominates persons to serve as directors of Blue Valley. The compensation of the executive officers and employees of the Bank is determined jointly by the full boards of directors of Blue Valley and the Bank. 62 66 COMPENSATION OF EXECUTIVE OFFICERS The Summary Compensation Table below provides summary information concerning compensation that we paid or accrued during 1999, 1998 and 1997 to or on behalf of our Chief Executive Officer and the three other highest paid executive officers whose salary and bonus for 1999 was in excess of $100,000:
ANNUAL COMPENSATION (1) ----------------------------------------------- LONG-TERM COMPENSATION AWARDS OTHER SECURITIES ALL ANNUAL UNDERLYING OTHER NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMP.(2) OPTIONS COMP.(3) - ---------------------------- ---- -------- ------- -------- ------------ -------- Robert D. Regnier.............................. 1999 $185,000 $85,000 $17,322 14,000 $ -- President, Chief Executive Officer and 1998 170,000 80,000 16,285 15,160 7,519 Chairman of the Board of Directors of Blue 1997 150,000 80,000 18,129 16,000 -- Valley; Chief Executive Officer and Director of the Bank John K. Doull.................................. 1999 $115,000 $80,000 $17,322 10,000 $ -- Executive Vice President and Chief Lending 1998 105,000 55,000 16,285 11,156 -- Officer of the Bank 1997 95,000 50,000 16,529 12,000 -- Mark A. Fortino................................ 1999 $ 82,500 $25,000 $ 7,172 4,000 $ -- Treasurer of Blue Valley; Senior Vice 1998 50,000 12,000 -- 6,800 -- President and Chief Financial Officer of 1997 -- -- -- -- -- the Bank Nancy A. Taylor................................ 1999 $ 65,000 $40,000 $11,367 3,000 $ -- Senior Vice President -- Mortgage Banking 1998 60,000 35,000 9,948 2,800 2,077 of the Bank 1997 55,000 27,500 9,415 4,000 --
- --------------- (1) Annual compensation does not include the cost to us of benefits executive officers receive in addition to salary and cash bonuses. The aggregate amounts of these personal benefits, however, did not exceed the lesser of either $50,000 or 10% of the total annual compensation of each named executive officer. (2) Includes the amount of our contributions to our Profit Sharing Plan allocated to the accounts of each of the named executive officers. (3) Includes amounts paid for unused vacation. GRANTS OF STOCK OPTIONS The following table sets forth information with respect to the executive officers identified in the prior table concerning the grants of options during 1999. AGGREGATED OPTION GRANTS IN 1999
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION INDIVIDUAL GRANTS TERM ------------------------------------------------- --------------------------- (A) (B) (C) (D) (E) (F) (G) NUMBER OF % OF TOTAL SECURITIES OPTIONS EXERCISE UNDERLYING GRANTED TO OR BASE OPTIONS EMPLOYEES IN PRICE EXPIRATION NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% ($) 10%($) - ---- ---------- ------------ -------- ---------- ---------- ---------- Robert D. Regnier....... 14,000 21.88% $14.375 12/16/2009 $126,560 $320,740 John K. Doull........... 10,000 15.63% $14.375 12/16/2009 $ 90,400 $229,100 Mark A. Fortino......... 4,000 6.25% $14.375 12/16/2009 $ 36,160 $ 91,640 Nancy A. Taylor......... 3,000 4.69% $14.375 12/16/2009 $ 27,120 $ 68,730
63 67 EXERCISES OF STOCK OPTIONS The following table sets forth information with respect to the executive officers identified in the prior table concerning the exercise of options during 1999, and unexercised options held as of December 31, 1999. AGGREGATED OPTION EXERCISES IN 1999 AND 1999 YEAR-END OPTION VALUES
VALUE OF UNEXERCISED NUMBER OF NUMBER OF IN-THE-MONEY OPTIONS SHARES UNEXERCISED OPTIONS AT AT YEAR-END: ACQUIRED YEAR-END: EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(1) - ---- ----------- -------------- ---------------------- -------------------- Robert D. Regnier............... -- -- 29,160/-- $ 47,375/$-- John K. Doull................... -- -- --/21,156 $ --/$34,863 Mark A. Fortino................. -- -- --/6,800 $ --/$8,750 Nancy A. Taylor................. -- -- 4,000/5,800 $27,500/$8,750
- --------------- (1) The estimated fair value of our common stock at December 31, 1999 was $14.375. 1998 EQUITY INCENTIVE PLAN In April, 1998, our board of directors and stockholders approved the Blue Valley Ban Corp 1998 Equity Incentive Plan (the "Plan"), which superceded our 1994 Stock Option Plan. The Plan is administered by our full board of directors. The Plan authorizes our board of directors to grant equity awards to substantially all of our employees and directors. The total number of shares of our common stock reserved for awards under the Plan is 215,284. Awards granted under the Plan may consist of any of the following: - incentive stock options and nonqualified stock options, which entitle the holder to purchase a stated number of shares of our common stock; - restricted shares of our common stock, which are subject to forfeiture; and - deferred share units, which entitle the holder to receive a future cash payment equal to the increase in the value of shares of our common stock. The period of any award granted under the Plan may not exceed ten years, and awards vest based on the determination by our board of directors. The exercise price of any incentive stock option granted under the Plan may not be less than the fair market value of a share of our common stock on the date of grant. The exercise price of any nonqualified stock option may be less than, greater than or equal to the fair market value of a share of our common stock on the grant date. The consideration to be received by Blue Valley in exchange for any award of restricted shares may not be less than the minimum amount for which our shares of common stock can be issued under Kansas law. The initial value of a deferred share unit generally will equal the fair market value of a share of our common stock on the grant date. The Plan provides for increases in the number of shares and to the exercise price, if applicable, in the event of a declaration of a stock dividend or any recapitalization resulting in a stock split-up, combination or exchange of shares of our common stock. The Plan further provides that in most instances unvested restricted share or deferred share unit awards and any unexercised options are forfeited upon the termination of the recipient's employment with Blue Valley for cause. If employment is terminated due to an award recipient's death or disability, unvested awards generally vest, and in the case of options, may be exercised within 12 months thereafter. If employment is terminated for any other reason, unvested options, restricted shares and deferred share units are generally forfeited, and vested options may be exercised within three months after the termination of employment. 64 68 DIRECTOR COMPENSATION We pay each of our nonemployee directors a fee of $1,500 for each meeting of our board of directors, and a fee of $350 for each committee meeting, that he attends in person. Directors are also eligible to receive stock options, restricted stock and deferred share unit grants under our 1998 Equity Incentive Plan. In 1999, each nonemployee director of Blue Valley received options to purchase 2,000 shares of our common stock. Mr. Regnier received options to purchase 14,000 shares of our common stock. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION All of our executive officers and employees are employed by the Bank and do not receive separate compensation for positions held with Blue Valley, Blue Valley Investment or Blue Valley Building. Executive compensation is determined jointly by the full boards of directors of Blue Valley and the Bank. During 1999, Robert D. Regnier, who is a director of Blue Valley and the Bank, and President and Chief Executive Officer of Blue Valley and the Bank, Mark A. Fortino, who is Senior Vice President and Chief Financial Officer of the Bank and Treasurer of Blue Valley, and John K. Doull who is Executive Vice President -- Lending of the Bank, participated in the deliberations of the boards of directors of Blue Valley and the Bank concerning executive compensation. There are no other reportable compensation committee interlocks or insider participation matters. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Bank periodically makes loans to our executive officers and directors, the members of their immediate families and companies that they are affiliated with. As of March 31, 2000, the Bank had aggregate loans to such persons of approximately $2.4 million, which represented 12.21% of our stockholders' equity of $19.6 million on that date. These loans: - were made in the ordinary course of business; - were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons; and - did not involve more than the normal risk of collectibility or present other unfavorable features. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF SECURITIES The following table shows the common stock owned by directors and executive officers of Blue Valley and persons known by Blue Valley to beneficially own more than 5% of our outstanding common stock as of April 30, 2000. The address of each person listed below is 11935 Riley, Overland Park, Kansas 66225-6128. This information has been prepared based upon the SEC's "beneficial ownership" rules. Under these rules a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of a security, or investment power, which includes the power to dispose or to direct the disposition of a security. Unless otherwise indicated, 65 69 each of the following persons has sole voting and investment power with respect to the shares beneficially owned.
BENEFICIAL OWNER SHARES PERCENTAGE - ---------------- --------- ---------- Robert D. Regnier........................................... 483,644(1) 21.72% Donald H. Alexander......................................... 124,500 5.59 Wayne A. Henry, Jr.......................................... 93,880(1) 4.22 C. Ted McCarter............................................. 66,552(1) 2.99 Thomas A. McDonnell......................................... 127,920 5.75 John K. Doull............................................... 68,880 3.09 Mark A. Fortino............................................. 4,000 0.18 Nancy A. Taylor............................................. 32,820(1) 1.47 All directors and executive officers, 11 in number, as a group..................................................... 1,014,196(1) 45.55
- --------------- (1) Includes options that are currently exercisable, or become exercisable within 60 days of April 30, 2000, to purchase from us the number of shares of common stock indicated for the following persons: Robert D. Regnier, 29,160; Wayne A. Henry, Jr. 5,500; C. Ted McCarter, 4,000; Nancy A. Taylor, 4,000; Penny T. Hershman, 4,000; and Bonnie M. McConnaughy, 8,000. DESCRIPTION OF THE TRUST PREFERRED SECURITIES The trust preferred securities and the common securities will be issued under the terms of the trust agreement of BVBC Trust. The trust agreement will be qualified as an indenture under the Trust Indenture Act. Initially, Wilmington Trust Company will be the property trustee and will act as trustee for the purpose of complying with the Trust Indenture Act. The terms of the trust preferred securities will include those stated in the trust agreement of BVBC Trust and those made part of the trust agreement by the Trust Indenture Act. The following is a summary of the material terms and provisions of the trust preferred securities and the trust agreement. Prospective investors in the trust preferred securities are urged to read all the provisions of the trust agreement, including the definitions in the trust agreement, and the Trust Indenture Act. The form of the trust agreement has been filed as an exhibit to the registration statement of which this prospectus is a part. GENERAL OVERVIEW Under the terms of the trust agreement of BVBC Trust, the administrative trustees will issue the trust preferred securities and the common securities, collectively, the trust securities. The trust preferred securities will represent preferred undivided beneficial interests in the assets of BVBC Trust. In most circumstances, the holders of the trust preferred securities will be entitled to a preference regarding distributions and amounts payable on redemption or liquidation over the common securities of BVBC Trust, and other benefits as described in the trust agreement. The trust preferred securities and the common securities will rank equally and be entitled to equal payment except as described under "Subordination of Common Securities of BVBC Trust Held by Blue Valley" below. Legal title to the junior subordinated debentures will be held by the property trustee in trust for the benefit of the holders of the trust securities. The trust preferred securities guarantee made by Blue Valley for the benefit of the holders of the trust preferred securities will be a guarantee on a subordinated basis and will not guarantee payment of distributions or amounts payable on redemption or liquidation of the trust preferred securities if BVBC Trust does not have funds on hand available to make the payments. See "Description of Trust Preferred Securities Guarantee." If an event of default under the indenture has occurred and is continuing and the default is attributable to Blue Valley's failure to pay interest or principal on the junior subordinated debentures on the due date, a holder of trust preferred securities may sue Blue Valley directly for payment of principal and interest on the junior subordinated debentures having 66 70 a principal amount equal to the aggregate liquidation amount of the trust preferred securities of the holder, which is referred to as a direct action. See "Description of the Junior Subordinated Debentures -- Enforcement of Rights by Holders of Trust Preferred Securities" and "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Trust Preferred Securities Guarantee." QUARTERLY DISTRIBUTION PAYMENTS AND EXTENSIONS ON DISTRIBUTION PAYMENTS PAYMENT OF DISTRIBUTIONS. Distributions on the trust preferred securities will be payable at the annual rate of % of the stated liquidation amount of $8, payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year, beginning September 30, 2000. The amount of each distribution due will include amounts accrued and unpaid through the date the distribution is due. Distributions on the trust preferred securities will be payable to the holders as they appear on the register of BVBC Trust on the relevant record date. As long as the trust preferred securities are in book-entry form, the relevant record date will be one business day prior to the relevant distribution date. If the trust preferred securities are not in book-entry form, the relevant record date will be the 15th day of the month in which the relevant distribution date occurs. The right to receive distributions will be cumulative from the date that BVBC Trust first issues the trust preferred securities. The amount of distributions payable for any period will be based on a 360-day year of twelve 30-day months. If any payment date is not a business day, the distribution will be made on the next business day. No additional interest or other payment will be due to the holders for this delay. If, however, the next business day falls in the next calendar year, the distribution will be made on the immediately preceding business day. As used in this prospectus, a business day means any day other than a Saturday or a Sunday, or a day on which banking institutions in Delaware or Kansas are authorized or required by law or executive order to remain closed. The only funds of BVBC Trust available for distribution to the holders of its trust preferred securities will be payments by Blue Valley under the junior subordinated debentures. See "Description of Junior Subordinated Debentures." If Blue Valley does not make interest payments on the junior subordinated debentures, the property trustee will not have funds available to pay distributions on the trust preferred securities. Blue Valley has guaranteed BVBC Trust's payment of distributions, if and to the extent BVBC Trust has legally available funds and cash sufficient to make these payments. For further information, see "Description of the Trust Preferred Securities Guarantee." EXTENSION PERIOD. Unless a debenture event of default has occurred and is continuing, Blue Valley has the right under the indenture to defer interest payments on the junior subordinated debentures at any time for up to 20 consecutive quarters, which is referred to as an extension period. However, no extension period may extend beyond the stated maturity of the junior subordinated debentures. During any extension period, quarterly distributions on the trust preferred securities will be also deferred by BVBC Trust. Distributions to which holders of trust preferred securities are entitled will accumulate additional amounts at the rate per year of %, compounded quarterly from the relevant distribution date. As used in this prospectus, the term "distributions" includes any additional accumulated amounts. During any extension period, Blue Valley may not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment regarding, any of its capital stock, which includes common and preferred stock, or (2) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Blue Valley that rank equally with or junior to the junior subordinated debentures or make any payments regarding any other trust preferred securities guarantee that ranks equally with or junior to the junior subordinated debentures. These restrictions do not apply to: - dividends or distributions in capital stock of Blue Valley; - dividends concerning the implementation of a stockholders' rights plan, or the issuance of stock under any plan of this type in the future, or the redemption or repurchase of any rights pursuant to this type of plan; 67 71 - payments under the trust preferred securities guarantee of Blue Valley; or - purchases of common stock for issuance under any contracts, benefit plans or similar arrangements with or for its directors, officers, employees or consultants. Prior to the termination of any extension period, Blue Valley may further extend the extension period, provided that the extension does not cause the extension period to exceed 20 consecutive quarters or extend beyond the stated maturity of the junior subordinated debentures. Upon the termination of any extension period and the payment of all amounts then due, Blue Valley may begin a new extension period, subject to the above limitations. There is no limit on the number of times that Blue Valley may begin an extension period. Blue Valley has no current intention of having any extension periods. REDEMPTION -- MANDATORY AND OPTIONAL RIGHTS OF BLUE VALLEY MANDATORY REDEMPTION OF TRUST PREFERRED SECURITIES. Upon the repayment or redemption at any time, in whole or in part, of any junior subordinated debentures, the property trustee will apply the proceeds to redeem a like amount of the trust securities at the redemption price, as defined below. For more information, see "Description of the Junior Subordinated Debentures -- Redemption." If less than all of the junior subordinated debentures are to be repaid or redeemed on a redemption date, then the property trustee will redeem the trust preferred securities and common securities proportionately. OPTIONAL REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES. Blue Valley will have the right to redeem the junior subordinated debentures (1) beginning on September 30, 2005, in whole or in part at any time or (2) at any time, in whole, but not in part, if a tax event, an investment company event or a capital treatment event, as defined in the following paragraphs occurs. The redemption price will be equal to the accrued and unpaid interest on the redeemed junior subordinated debentures, plus 100% of the principal amount. These payments will be subject to the prior approval by the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. See "Description of the Junior Subordinated Debentures -- Redemption." TAX EVENT REDEMPTION, INVESTMENT COMPANY EVENT REDEMPTION, CAPITAL EVENT REDEMPTION OR DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES. If a tax event, an investment company event or a capital treatment event occurs after BVBC Trust first issues the trust preferred securities and is continuing, Blue Valley may redeem the junior subordinated debentures in whole, but not in part. If Blue Valley redeems the junior subordinated debentures, BVBC Trust will be required to redeem the trust preferred securities and common securities in whole at the redemption price, as defined below, within 90 days following the occurrence of any of these events. In each case the redemption would be subject to receipt of prior approval by the Federal Reserve if then required under its applicable capital guidelines or policies. If any of these events has occurred and is continuing, and Blue Valley does not elect to redeem the junior subordinated debentures and cause a mandatory redemption of the trust securities or to liquidate BVBC Trust and cause the junior subordinated debentures to be distributed to holders of the trust securities in liquidation of BVBC Trust, the trust securities will remain outstanding. Also, additional sums, as defined below, may be payable on the junior subordinated debentures. A tax event requires the receipt by Blue Valley and BVBC Trust of a legal opinion to the effect that, as a result of any change or prospective change in the laws or regulations of the United States or any political subdivision or taxing authority of the United States, or as a result of any official administrative pronouncement or judicial decision interpreting or applying the tax laws or regulations, there is more than an insubstantial risk that: - BVBC Trust is, or will be within 90 days of the date of the opinion, subject to United States federal income tax regarding income received or accrued on the junior subordinated debentures; 68 72 - interest payable by Blue Valley on the junior subordinated debentures is not, or within 90 days of the opinion, will not be, deductible by Blue Valley, in whole or in part, for United States federal income tax purposes; or - BVBC Trust is, or will be within 90 days of the date of the opinion, subject to more than a minimal amount of other taxes, duties, assessments or other governmental charges. An investment company event requires the receipt by Blue Valley and BVBC Trust of a legal opinion to the effect that, as a result of any 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, BVBC Trust is or will be considered an investment company required to be registered under the Investment Company Act. A capital treatment event requires the receipt by Blue Valley and BVBC Trust of a legal opinion to the effect that, as a result of any change or proposed change in the laws or regulations of the United States or any of its political subdivisions, or as a result of any official action or judicial decision interpreting the laws or regulations, there is more than an insubstantial risk that Blue Valley's ability to treat the trust preferred securities as Tier 1 capital or its equivalent for purposes of the Federal Reserve capital adequacy guidelines is impaired. However, the inability of Blue Valley to treat all or any portion of the liquidation amount of the trust preferred securities as Tier 1 capital will not constitute the basis for a capital treatment event if this inability results from Blue Valley having cumulative preferred stock, minority interests in consolidated subsidiaries, or any other class of security or interest which the Federal Reserve now or in the future may accord Tier 1 capital treatment in excess of the amount which may qualify for treatment as Tier 1 capital under applicable capital adequacy guidelines of the Federal Reserve. In addition, the distribution of junior subordinated debentures in connection with the dissolution of BVBC Trust will not in and of itself constitute a capital treatment event. Additional sums means any additional amounts that Blue Valley would be required to pay on the junior subordinated debentures so that the amount of distributions payable by BVBC Trust on the outstanding trust securities will not be reduced as a result of any additional taxes, duties, assessments and other governmental charges applicable to BVBC Trust. Like amount means (1) regarding a redemption of trust securities, trust securities having a liquidation amount, as defined below, equal to that portion of the principal amount of junior subordinated debentures to be contemporaneously redeemed under the indenture, allocated to the common securities and to the trust preferred securities based upon the relative liquidation amounts of these classes and the proceeds of which will be used to pay the redemption price of the trust securities, and (2) regarding a distribution of junior subordinated debentures to holders of trust securities in connection with a dissolution or liquidation of BVBC Trust, junior subordinated debentures having a principal amount equal to the liquidation amount of the trust securities of the holder to whom the junior subordinated debentures are distributed. Liquidation amount means the stated amount of $8 per trust security. Redemption price means, regarding any trust security, the liquidation amount of the trust security, plus accumulated and unpaid distributions to the redemption date, allocated proportionately based on liquidation amounts, among the trust securities to be redeemed. DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES Subject to Blue Valley's having received prior approval of the Federal Reserve, Blue Valley will have the right to liquidate BVBC Trust at any time and, after payment of any liabilities of BVBC Trust as provided by applicable law, cause the junior subordinated debentures to be distributed to the holders of trust securities in liquidation of BVBC Trust. After the liquidation date fixed for any distribution of junior subordinated debentures for trust preferred securities: - the trust preferred securities will no longer be deemed to be outstanding; 69 73 - the depositary or its nominee, as the record holder of the trust preferred securities, will receive a registered global certificate or certificates representing the junior subordinated debentures to be delivered upon the distribution; and - any certificates representing trust preferred securities not held by the depositary or its nominee will be deemed to represent the junior subordinated debentures having a principal amount equal to the liquidation amount of the trust preferred securities, and bearing interest equal to the accrued and unpaid distributions on the trust preferred securities, until the certificates are presented to the administrative trustees or their agent for reissuance. Blue Valley cannot assure you as to the market prices for the trust preferred securities or the junior subordinated debentures that may be distributed in exchange for the trust preferred securities if BVBC Trust is dissolved. Accordingly, the trust preferred securities that you may purchase, or the junior subordinated debentures that you may receive if BVBC Trust is dissolved, may trade at a price that is less than the price you paid to purchase the trust preferred securities. If the junior subordinated debentures are distributed, Blue Valley is required to use its best efforts to list them on a national securities exchange or quotation system, but this requirement will not prevent Blue Valley from partially redeeming the junior subordinated debentures. If Blue Valley partially redeems the junior subordinated debentures, they may not qualify for listing on a national securities exchange or quotation system. REDEMPTION PROCEDURES Trust preferred securities redeemed on each redemption date will be redeemed at the redemption price with the proceeds from the contemporaneous redemption of the junior subordinated debentures. Redemptions of the trust preferred securities will be made and the redemption price will be payable on each redemption date only to the extent that BVBC Trust has funds on hand available for the payment of the redemption price. See "-- Subordination of Common Securities of BVBC Trust Held by Blue Valley" and "Description of the Trust Preferred Securities Guarantee." Notice of any redemption will be mailed between 30 and 60 days before the redemption date to each holder of trust securities at the holder's registered address. Unless BVBC Trust defaults in payment of the applicable redemption price, on and after the redemption date, distributions will cease to accrue on the trust preferred securities called for redemption. If BVBC Trust gives a notice of redemption regarding the trust preferred securities, then, by 10:00 a.m., Delaware time, on the redemption date, the property trustee will pay the redemption price to the depositary, as the record holder of the trust preferred securities. The depositary will credit the redemption price to the participants for whom it holds the trust preferred securities. If the trust preferred securities are no longer in book-entry form, the property trustee will deposit with the paying agent for the trust preferred securities funds sufficient to pay the aggregate redemption price if it has funds available. The property trustee will give the paying agent irrevocable instructions and authority to pay the redemption price upon surrender of certificates evidencing the trust preferred securities. However, distributions payable on or prior to the redemption date will be payable to the holders of the trust preferred securities on the relevant record dates for the related distribution dates. If notice of redemption has been given and funds deposited as required, then upon the date of the deposit, all rights of the holders of the trust preferred securities will cease, except the right of the holders of the trust preferred securities to receive the redemption price, but without interest on the redemption price, and the trust preferred securities will cease to be outstanding. If any date fixed for redemption of the trust preferred securities is not a business day, then payment of the redemption price payable on the date will be made on the next business day and without any interest or other payment for the delay. If, however, the next business day falls in the next calendar year, the payment will be made on the immediately preceding business day. If payment of the redemption price in respect of trust preferred securities called for redemption is improperly withheld or refused and not paid either by BVBC Trust or by Blue Valley under the trust preferred securities guarantee, distributions on the trust preferred securities will continue to accrue at the then applicable rate, from the redemption date originally established by BVBC Trust for the trust preferred securities to the 70 74 date the redemption price is actually paid. In this case the actual payment date will be the date fixed for redemption for purposes of calculating the redemption price. See "Description of the Trust Preferred Securities Guarantee." Subject to applicable law, including federal securities laws, Blue Valley may at any time purchase outstanding trust preferred securities by tender, in the open market or by private agreement. Payment of the redemption price on the trust preferred securities and any distribution of junior subordinated debentures to holders of trust preferred securities will be made to the applicable record holders as they appear on the register of the trust preferred securities on the relevant record date, which will be one business day prior to the relevant redemption date, unless any trust preferred securities are not in book-entry form. If the trust preferred securities are not in book-entry form, the relevant record date for them will be a date at least 15 days prior to the redemption date. In the case of a liquidation, the record date will be established by the property trustee and be no more than 45 days before the liquidation date. If less than all of the trust securities are to be redeemed on a redemption date, then the aggregate redemption price for the trust securities to be redeemed will be allocated proportionately to the trust preferred securities and common securities based upon the relative liquidation amounts of these classes. The particular outstanding trust preferred securities to be redeemed will be selected by any method that the property trustee deems fair and appropriate. This method may provide for the selection for redemption of portions equal to $8 or an integral multiple of $8 of the liquidation amount of trust preferred securities. The property trustee will promptly notify the trust securities registrar in writing of the trust preferred securities selected for redemption and, in the case of any trust preferred securities selected for partial redemption, the liquidation amount to be redeemed. For all purposes of the trust agreement, unless the context otherwise requires, all provisions relating to the redemption of trust preferred securities will relate to the portion of the aggregate liquidation amount of trust preferred securities which has been or is to be redeemed. SUBORDINATION OF COMMON SECURITIES OF BVBC TRUST HELD BY BLUE VALLEY Payment of distributions on, and the redemption price of, the trust preferred securities and common securities will be made proportionately based on the liquidation amounts of these securities. However, if on any distribution date or redemption date a debenture event of default has occurred and is continuing, no distributions on or redemption of the common securities will be made. Also, no other payment on account of the redemption, liquidation or other acquisition of the common securities will be made unless payment in full in cash of all distributions payable on all of the outstanding trust preferred securities are made, or in the case of redemption the full redemption price on all of the outstanding trust preferred securities then called for redemption, has been made or provided for. 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 trust preferred securities then due and payable. In the case of any event of default under the trust agreement resulting from a debenture event of default, Blue Valley as holder of the common securities will be deemed to have waived any right to act regarding any event of default until the effects of all events of default have been cured, waived or otherwise eliminated. Until any events of default have been cured, waived or otherwise eliminated, the property trustee will act solely on behalf of the holders of the trust preferred securities and not on behalf of Blue Valley as holder of the common securities, and only the holders of the trust preferred securities will have the right to direct the property trustee to act on their behalf. LIQUIDATION DISTRIBUTIONS UPON DISSOLUTION Blue Valley may at any time elect to dissolve BVBC Trust and cause the junior subordinated debentures to be distributed to the holders of the trust preferred securities. Before doing so, Blue Valley may need to obtain the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. See "Distribution of the Junior Subordinated Debentures" above. 71 75 In addition, under the trust agreement, BVBC Trust will automatically dissolve at the expiration of its term and will dissolve earlier if one of the following events occurs: (1) events of bankruptcy, dissolution or liquidation of Blue Valley; (2) delivery by Blue Valley of written direction to the property trustee to dissolve BVBC Trust, which direction is optional and entirely within the discretion of Blue Valley; (3) redemption of all of the trust preferred securities as described under "-- Redemption -- Mandatory and Optional Rights of Blue Valley"; and (4) the entry of an order for the dissolution of BVBC Trust by a court (each, an "early termination"). If an early termination occurs as described in clause (1), (2) or (4) above or at the end of the term of BVBC Trust, it will be liquidated by the trustees as expeditiously as the trustees determine to be possible. The liquidation will be made after payment of any creditors of BVBC Trust as provided by Section 3808(e) of the Delaware Business Trust Act and any other applicable law. In the liquidation, holders of the trust securities will receive a like amount of the junior subordinated debentures, unless this distribution is determined by the property trustee not to be practical. If the property trustee determines that a distribution of the junior subordinated debentures is not practical, then the holders of trust preferred securities will be entitled to receive an amount equal to the liquidation amount of $8 per trust security plus accrued and unpaid distributions thereon to the date of payment. This amount, payable out of the assets of BVBC Trust available for distribution, is referred to as the liquidation distribution. If the liquidation distribution can be paid only in part because BVBC Trust has insufficient assets available to pay the full aggregate liquidation distribution, then the amounts payable directly by BVBC Trust on the trust preferred securities will be paid on a proportionate basis. If a liquidation occurs, the holders of the common securities will be entitled to receive distributions proportionately with the holders of the trust preferred securities, unless a debenture event of default has occurred and is continuing. In that case, the trust preferred securities will have a priority over the common securities. Under current United States federal income tax law and interpretations and assuming, as expected, BVBC Trust is treated as a grantor trust, a distribution of the junior subordinated debentures should not be a taxable event to holders of the trust preferred securities. If there has been a change in law, a change in legal interpretation, a tax event or other circumstances, the distribution could be a taxable event to holders of the trust preferred securities. See "Material Federal Income Tax Consequences." If Blue Valley elects neither to redeem the junior subordinated debentures prior to maturity nor to liquidate BVBC Trust and distribute the junior subordinated debentures to holders of the trust preferred securities, the trust preferred securities will remain outstanding until the repayment of the junior subordinated debentures. If Blue Valley elects to dissolve BVBC Trust and cause the junior subordinated debentures to be distributed to holders of the trust preferred securities in liquidation of BVBC Trust, Blue Valley will continue to have the right to shorten the maturity of the junior subordinated debentures under most circumstances. See "Description of the Junior Subordinated Debentures -- General Overview." EVENTS OF DEFAULT; NOTICE Any one of the following events that has occurred and is continuing constitutes an event of default under the trust agreement: - the occurrence of a debenture event of default under the indenture, see "Description of the Junior Subordinated Debentures -- Indenture Events of Default"; or - default by BVBC Trust in the payment of any distribution when it becomes due and payable, and continuation of the default for a period of 30 days; or - default by BVBC Trust in the payment of any redemption price of any trust security when it becomes due and payable; or - default in the performance, or breach, in any material respect, of any covenant or warranty of the property trustee in the trust agreement, other than a default or breach in the performance of a covenant or warranty which is addressed in the previous two points above, and continuation of the default or breach, for a period of 60 days after there has been given, by registered or certified 72 76 mail, to the property trustee by the holders of at least 25% in aggregate liquidation amount of the outstanding trust preferred securities, a written notice specifying the default or breach and requiring it to be remedied and stating that the notice is a "Notice of Default" under the trust agreement; or - the occurrence of events of bankruptcy or insolvency regarding the property trustee and the failure by Blue Valley to appoint a successor property trustee within 60 days. Within five business days after the property trustee learns that any event of default has occurred, the property trustee is required to transmit notice of the event of default to the holders of the trust preferred securities, the administrative trustees and Blue Valley, unless the event of default has been cured or waived. Blue Valley and the administrative trustees are required to file annually with the property trustee a certificate as to whether 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 trust preferred securities will have a preference over the common securities upon termination of BVBC Trust as described above. See "-- Liquidation Distribution Upon Termination." Upon a debenture event of default, unless the principal of all the junior subordinated debentures has already become due and payable, either the property trustee or the holders of not less than 25% in aggregate principal amount of outstanding junior subordinated debentures may declare all of the junior subordinated debentures to be due and payable immediately. Written notice must be given to Blue Valley, and to the property trustee, if given by holders of the junior subordinated debentures. If the property trustee or the holders of the junior subordinated debentures fail to declare the principal of all of the junior subordinated debentures due and payable upon a debenture event of default, the holders of at least 25% in liquidation amount of the trust preferred securities then outstanding will have the right to declare the junior subordinated debentures immediately due and payable. In either event, payment of principal and interest on the junior subordinated debentures will remain subordinated to the extent provided in the indenture. In addition, holders of the trust preferred securities have the right to bring a direct action as discussed below. See "Description of the Junior Subordinated Debentures -- Enforcement of Rights by Holders of Trust Preferred Securities." REMOVAL OF 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 of BVBC Trust. If a debenture event of default has occurred and is continuing, the property trustee, Delaware trustee or both may be removed by the holders of a majority in liquidation amount of the outstanding trust preferred securities. In no event will the holders of the trust preferred securities have the right to vote to appoint, remove or replace the administrative trustees. Only Blue Valley as the holder of the common securities has these rights. 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 TRUSTEES Unless an event of default has occurred and is continuing, at any time, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of trust property may at the time be located, the holders of the common securities and the administrative trustees have power to appoint one or more persons either to act as (1) a co-trustee, jointly with the property trustee, of all or any part of the trust property, or (2) to act as separate trustee of any trust property. In either case, these trustees will have the powers which may be provided in the instrument appointing them, and will have vested in them 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 the appointment. 73 77 MERGER OR CONSOLIDATION OF TRUSTEES Generally, any person or successor to any of the trustees of BVBC Trust may be a successor trustee to any of the trustees, including a successor resulting from a merger or consolidation. However, any successor trustee must meet all of the qualifications and eligibility standards to act as a trustee to BVBC Trust. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF BVBC TRUST BVBC 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 trust or other person, except as described below. BVBC Trust may, at the request of Blue Valley, with the consent of the administrative trustees and without the consent of the holders of the trust preferred securities, the property trustee or the Delaware trustee, engage in transactions described above if: - the successor entity either (1) expressly assumes all of the obligations of BVBC Trust regarding the trust preferred securities or (2) substitutes for the trust preferred securities other securities having substantially the same terms as the trust preferred securities, so long as the successor securities rank the same as the trust preferred securities rank in priority regarding distributions and payments upon liquidation, redemption and otherwise; - Blue Valley expressly appoints a trustee of the successor entity possessing substantially the same powers and duties as the property trustee as the holder of the junior subordinated debentures; - any transaction of this kind does not adversely affect the rights, preferences and privileges of the holders of the trust preferred securities, including any successor securities, in any material respect; - the successor entity has a purpose identical to that of BVBC Trust; - the successor securities will be listed or traded on any national securities exchange or other organization on which the trust preferred securities may then be listed; - prior to the transaction, Blue Valley has received a legal opinion from qualified, independent counsel to BVBC Trust to the effect that (1) the transaction does not adversely affect the rights, preferences and privileges of the holders of the trust preferred securities, including any successor securities, in any material respect, and (2) following any transaction of this kind, neither BVBC Trust nor the successor entity will be required to register as an investment company under the Investment Company Act; and - Blue Valley or any permitted successor or designee owns all of the common securities of the successor entity and guarantees the obligations of the successor entity under the successor securities at least to the extent provided by the trust preferred securities guarantee. However, BVBC Trust will not, except with the consent of holders of 100% in liquidation amount of the trust preferred securities, enter into any transaction of this kind, or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if the transaction would cause BVBC Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT Except in certain limited circumstances described below and under "Description of the Trust Preferred Securities Guarantee -- Amendments and Assignment", in general, the holders of the trust preferred securities will have no voting rights. The trust agreement may be amended from time to time by Blue Valley and the trustees, without the consent of the holders of the trust securities: - to cure any ambiguity, correct or supplement any provisions in the trust agreement that may be inconsistent with any other provision, or to make any other provisions regarding matters or 74 78 questions arising under the trust agreement, which are not inconsistent with the other provisions of the trust agreement; or - to modify, eliminate or add to any provisions of the trust agreement to the extent that is necessary to ensure that BVBC Trust 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 BVBC Trust will not be required to register as an investment company under the Investment Company Act. However, the action described in the first point above will not be permitted if it would adversely affect in any material way the interests of any holder of trust securities. Any amendments of the trust agreement will become effective when notice is given to the holders of the trust securities. The trust agreement may be amended by the trustees and Blue Valley (1) with the consent of holders representing not less than a majority of the aggregate liquidation amount of the outstanding trust securities, and (2) upon receipt by the trustees of an opinion of counsel to the effect that the amendment or the exercise of any power granted to the trustees in accordance with the amendment will not affect BVBC Trust's status as a grantor trust for United States federal income tax purposes or BVBC Trust's exemption from status as an investment company under the Investment Company Act. However, without the consent of each holder of trust securities, the trust agreement may not be amended to (1) 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 (2) restrict the right of a holder of trust securities to institute suit for the enforcement of any payment of distributions afterwards. For the time that any junior subordinated debentures are held by the property trustee, the trustees will not: - direct the time, method and place of conducting any proceeding for any remedy available to the indenture trustee, or executing any trust or power conferred on the indenture trustee regarding the junior subordinated debentures; - waive any past default that is waiveable under the indenture; - exercise any right to rescind or annul a declaration that the principal of all the junior subordinated debentures will be due and payable; or - consent to any amendment, modification or termination of the indenture or the junior subordinated debentures, where this consent is required, without, in each case, obtaining the prior approval of the holders of a majority in aggregate liquidation amount of all outstanding trust preferred securities. However, where a consent under the indenture would require the consent of each affected holder of junior subordinated debentures, this consent may not be given by the property trustee without the prior consent of each holder of the trust preferred securities. The trustees will not revoke any action previously authorized or approved by a vote of the holders of the trust preferred securities except by subsequent vote of the holders of the trust preferred securities. The property trustee will notify each holder of the trust preferred securities of any notice of default regarding the junior subordinated debentures. In addition to obtaining these approvals of the holders of the trust preferred securities, prior to taking any of the above actions, the trustees will obtain an opinion of counsel stating that BVBC Trust will not, as a consequence of the proposed action by the property trustee, cease to be classified as a grantor trust and will not be classified as an association taxable as a corporation for United States federal income tax purposes on account of the action. Any required approval of holders of the trust preferred securities may be given at a meeting of holders of trust preferred securities convened for this purpose or under written consent. The property trustee will cause a notice of any meeting at which holders of the trust preferred securities are entitled to vote, or of any matter upon which action by written consent of the holders is to be taken, to be given to each holder of record of the trust preferred securities in the manner described in the trust agreement. 75 79 No vote or consent of the holders of the trust preferred securities will be required for BVBC Trust to redeem and cancel the trust preferred securities in accordance with the trust agreement. Any of the trust preferred securities that are owned by Blue Valley, the trustees or any affiliate of Blue Valley or any trustees, will, for purposes of the vote or consent, be treated as if they were not outstanding. GLOBAL TRUST PREFERRED SECURITIES The trust preferred securities will be represented by one or more global certificates registered in the name of the depositary or its nominee. Beneficial interests in the trust preferred securities will be shown on, and transfers will be effected only through, records maintained by participants in the depositary. Except as described below, trust preferred securities in certificated form will not be issued in exchange for the global certificates. A global security will be exchangeable for trust preferred securities registered in the names of persons other than the depositary or its nominee only if: - the depositary notifies Blue Valley that it is unwilling or unable to continue as a depositary for the global security and no successor depositary has been appointed, or if at any time the depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, at a time when the depositary is required to be registered under that Act to act as a depositary; - Blue Valley in its sole discretion determines that the global security will be so exchangeable; or - there has occurred and is continuing an event of default under the indenture. Any global security that is exchangeable under the preceding sentence will be exchangeable for definitive certificates registered in the names which the depositary directs. It is expected that the instructions will be based upon directions received by the depositary regarding ownership of beneficial interests in the global security. In the event that trust preferred securities are issued in certificated form, they will be in denominations of $8 or integral multiples of $8 and may be transferred or exchanged at the offices described below. Unless and until it is exchanged in whole or in part for the individual trust preferred securities, the global trust preferred security may not be transferred except (1) as a whole by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary, (2) to another nominee of the depositary or (3) by the depositary or any nominee to a successor depositary or any nominee of the successor. Payments on trust preferred securities represented by a global security will be made to the depositary, as the depositary for the trust preferred securities. If the trust preferred securities are issued in certificated form, distributions will be payable, the transfer of the trust preferred securities will be registrable, and trust preferred securities will be exchangeable for trust preferred securities of other denominations of a like aggregate liquidation amount, at the corporate office of the property trustee, or at the offices of any paying agent or transfer agent appointed by the administrative trustees. However, payment of any distribution may be made at the option of the administrative trustees by check mailed to the address of the persons entitled to payments or by wire transfer. In addition, if the trust preferred securities are issued in definitive form, the record dates for payment of distributions will be the 15th day of the month in which the relevant distribution date occurs. When a global trust preferred security is issued, and the global trust preferred security is deposited with or on behalf of the depositary, the depositary will credit, on its book-entry registration and transfer system, the respective aggregate liquidation amounts of the individual trust preferred securities represented by the global trust preferred security to persons that have accounts with the depositary. The accounts will be designated by the dealers, underwriters or agents regarding the trust preferred securities. Ownership of beneficial interests in a global trust preferred security will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests in the global trust preferred security 76 80 will be shown on, and the transfer of that ownership will be effected only through, records maintained by the depositary or its nominee and the records of participants regarding interests of persons who hold through participants. The laws of some states require that some purchasers of securities in those states take physical delivery of the securities in certificated form. The limits, under these laws, may impair the ability to transfer beneficial interests in a global trust preferred security. For the time that the depositary for a global trust preferred security, or its nominee, is the registered owner of the global trust preferred security, this registered owner will be considered the sole owner or holder of the trust preferred securities represented by the global trust preferred security for all purposes under the trust agreement of BVBC Trust. Except as provided below, owners of beneficial interests in a global trust preferred security will not be entitled to have any of the individual trust preferred securities represented by the global trust preferred security registered in their names, will not receive or be entitled to receive physical delivery of any the trust preferred securities in certificated form and will not be considered the owners or holders thereof. Blue Valley, the property trustee, any paying agent, and the securities registrar for the trust preferred securities will not have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the global trust preferred security or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. Blue Valley expects that the depositary, upon receipt of any payment of the liquidation amount or distributions in respect of a permanent global trust preferred security, immediately will credit participants' accounts with payments in amounts proportionate to their respective beneficial interest in the aggregate liquidation amount of the global trust preferred security as shown on the records of the depositary or its nominee. Blue Valley also expects that payments by participants to owners of beneficial interests in the global trust preferred security held through the participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in street name. The payments will be the responsibility of the participants. If the depositary for the trust preferred securities is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by Blue Valley within 90 days, BVBC Trust will issue individual trust preferred securities in exchange for the global trust preferred security. In addition, BVBC Trust may at any time in its sole discretion, subject to any limitations described in this prospectus relating to the trust preferred securities, determine not to have any trust preferred securities represented by one or more global trust preferred securities. If this occurs, Blue Valley will issue individual trust preferred securities in exchange for the global trust preferred security or securities representing the trust preferred securities. Further, if BVBC Trust specifies, an owner of a beneficial interest in a global trust preferred security representing trust preferred securities may receive individual trust preferred securities in exchange for the beneficial interests, subject to any limitations described in this prospectus. In any such instance, a beneficial interest owner in a global trust preferred security will be entitled to physical delivery of individual trust preferred securities represented by the global trust preferred security equal in liquidation amount to the beneficial interest, and to have the trust preferred securities registered in its name. Individual trust preferred securities issued will be issued in denominations, unless otherwise specified by BVBC Trust, of $8 and integral multiples of $8. PAYMENT AND PAYING AGENCY Payments on the trust preferred securities will be made to the depositary, which will credit the relevant accounts at the depositary on the applicable distribution dates. However, if any of the trust preferred securities are not held by the depositary, the payments will be made by check mailed to the address of the holder as the address appears on the register. The paying agent will initially be the property trustee and any co-paying agent chosen by the property trustee and acceptable to the administrative trustees and Blue Valley. The paying agent will be permitted to resign as paying agent upon 30 days' written notice to the administrative trustees, the property trustee and Blue Valley. If the property trustee is 77 81 no longer the paying agent, the administrative trustees will appoint a successor paying agent, which will be a bank or trust company acceptable to the property trustee and Blue Valley. REGISTRAR AND TRANSFER AGENT The property trustee will act as registrar and transfer agent for the trust preferred securities. Registration of transfers of the trust preferred securities will be effected without charge by or on behalf of BVBC Trust, but the registrar may require payment to cover any tax or other governmental charges that may be imposed in connection with any transfer or exchange. BVBC Trust will not be required to register or cause to be registered the transfer of the trust preferred securities after the trust 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 the duties which are specifically described in the trust agreement. After an event of default, the property trustee 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 its powers under the trust agreement at the request of any holder of trust preferred securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred. 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 the trust preferred securities are entitled under the trust agreement to vote, then the property trustee will take action as directed by Blue Valley. If Blue Valley does not direct the property trustee, it will take action as it deems advisable and in the best interests of the holders of the trust securities and will have no liability under the trust agreement except for its own bad faith, negligence or willful misconduct. MISCELLANEOUS The administrative trustees are authorized and directed to conduct the affairs of and to operate BVBC Trust in such a way that BVBC Trust 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 junior subordinated debentures will be treated as indebtedness of Blue Valley for United States federal income tax purposes. Blue Valley and the administrative trustees are authorized to take any lawful action not inconsistent with the certificate of trust of BVBC Trust or the trust agreement, that they determine in their discretion to be necessary or desirable for these purposes, as long as the action does not materially adversely affect the interests of the holders of the related trust preferred securities. Holders of the trust preferred securities have no preemptive or similar rights. For so long as the trust securities are outstanding, Blue Valley is required to fulfill all reporting and filing obligations under the Securities Exchange Act, as applicable to a company having a class of securities registered under that Act. The administrative trustees are required to use their best efforts to maintain the listing of the trust preferred securities on The American Stock Exchange or another national securities exchange or quotation system, but this requirement does not prevent BVBC Trust from redeeming all or a portion of the trust securities in accordance with the trust agreement. BVBC Trust may not borrow money or issue debt or mortgage or pledge any of its assets. 78 82 DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES The junior subordinated debentures will be issued under a subordinated indenture between Blue Valley and Wilmington Trust Company, as the indenture trustee. The following is a summary of the material terms and provisions of the junior subordinated debentures and the indenture. Prospective investors are urged to read the indenture, which has been filed as an exhibit to the registration statement of which this prospectus forms a part. Wherever particular defined terms of the indenture are referred to but not defined in this prospectus, these defined terms have the same meanings as in the indenture. The indenture is qualified under the Trust Indenture Act. Concurrently with the issuance of the trust preferred securities, BVBC Trust will invest the proceeds from the sale of the trust preferred securities, together with the consideration paid by Blue Valley for the common securities, in junior subordinated debentures issued by Blue Valley. The junior subordinated debentures will be issued as unsecured debt under the indenture. GENERAL OVERVIEW The junior subordinated debentures will bear interest at the rate of % per year of their principal amount, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning September 30, 2000, to the person in whose name each junior subordinated debenture is registered, subject to minor exceptions, at the close of business on the business day next preceding the interest payment date. However, if either (1) the junior subordinated debentures are held by the property trustee and the trust preferred securities are no longer in book-entry only form or (2) the junior subordinated debentures are not represented by a global subordinated debenture, then the record date for the interest payment will be the 15th day of the month in which the payment is made. The amount of each interest payment due regarding the junior subordinated debentures will include amounts accrued and unpaid through the date the interest payment is due. It is anticipated that, until the liquidation, if any, of BVBC Trust, each junior subordinated debenture will be held in the name of the property trustee in trust for the benefit of the holders of the trust 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. If any date on which interest is payable on the junior subordinated debentures is not a business day, then payment of the interest payable on that date will be made on the next business day. If, however, the next business day falls in the next calendar year, the payment will be made on the immediately preceding business day. Accrued interest that is not paid on the applicable interest payment date will bear additional interest at the rate per year of % compounded quarterly. The term interest as used in this prospectus includes quarterly interest payments, interest on quarterly interest payments not paid on the applicable interest payment date and additional sums, as defined below, as applicable. The junior subordinated debentures will mature on September 30, 2030. This date, as it may be shortened as described below, is the stated maturity. This date may be shortened once at any time by Blue Valley before the day which is 90 days before the scheduled maturity date to any date not earlier than September 30, 2005, but Blue Valley would have to receive prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. If Blue Valley shortens the stated maturity of the junior subordinated debentures, it will give at least 90 days prior notice to the registered holders of the junior subordinated debentures, the property trustee and the indenture trustee. The property trustee must give notice to the holders of the trust securities of the shortening of the stated maturity. The junior subordinated debentures will be unsecured and will rank junior and be subordinate in right of payment to all senior and subordinated debt, as defined in the indenture, of Blue Valley. As of April 30, 2000, Blue Valley had $9.1 million of indebtedness that ranked senior in right of payment to the junior subordinated debentures. After giving effect to the use of the proceeds of this offering as described under "Use of Proceeds," as of that date Blue Valley would have had $1.9 million of indebtedness that ranked senior in right of payment to the junior subordinated debentures. Because Blue Valley is a holding company, the right of Blue Valley to participate in any distribution of assets of the Bank or any other 79 83 subsidiary, or upon the Bank's or any other subsidiary's liquidation or reorganization or otherwise, and thus the ability of holders of the junior subordinated debentures to benefit indirectly from the distribution, is subject to the prior claims of creditors of that subsidiary, except to the extent that Blue Valley may itself be recognized as a creditor of that subsidiary. As a result, the junior subordinated debentures will be effectively subordinated to all existing and future liabilities of Blue Valley's subsidiaries, and holders of junior subordinated debentures should look only to the assets of Blue Valley for payments on the junior subordinated debentures. The indenture does not limit the incurrence or issuance of other secured or unsecured debt of Blue Valley, including senior and subordinated debt, whether under the indenture or any existing or other indenture that Blue Valley may enter into in the future or otherwise. See "Subordination" below. OPTION TO EXTEND INTEREST PAYMENT PERIOD If no debenture event of default has occurred and is continuing, Blue Valley has the right under the indenture at any time during the term of the junior subordinated debentures to defer interest payments at any time for a period not exceeding 20 consecutive quarters. However, no extension period may extend beyond the stated maturity of the junior subordinated debentures. At the end of an extension period, Blue Valley must pay all interest then accrued and unpaid, together with interest at the rate of % per year, compounded quarterly. During an extension period, interest will continue to accrue and holders of junior subordinated debentures will be required to accrue interest income for United States federal income tax purposes. See "Material Federal Income Tax Consequences -- Interest Income and Original Issue Discount." During any extension period, Blue Valley may not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment regarding, any of Blue Valley's capital stock or (2) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Blue Valley, including other junior subordinated debentures, that rank equally with or junior to the junior subordinated debentures or make any payments regarding any other trust preferred securities guarantee by Blue Valley if the other trust preferred securities guarantee ranks equally with or junior to the junior subordinated debentures. These restrictions do not apply to: - dividends or distributions in capital stock of Blue Valley; - dividends concerning the implementation of a stockholders' rights plan, or the issuance of stock under any plan in the future, or the redemption or repurchase of any rights pursuant to this type of plan; - payments under the trust preferred securities guarantee; or - purchases of common stock for issuance under any contracts, benefit plans or similar arrangements with or for its directors, officers, employees or consultants. Prior to the termination of any extension period, Blue Valley may further extend the extension period if the extension would not cause the extension period to exceed 20 consecutive quarters or extend beyond the stated maturity of the junior subordinated debentures. Upon the termination of any extension period and the payment of all amounts then due on any interest payment date, Blue Valley may 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 of the extension period. If the property trustee is the only registered holder of the junior subordinated debentures, Blue Valley must give the property trustee, the administrative trustees and the indenture trustee notice of its election of any extension period at least five business days prior to the earlier of (1) the date the distributions on the trust preferred securities would have been payable except for the election to begin or extend the extension period or (2) the date the administrative trustees are required to give notice to the holders of the trust preferred securities of the record date or the date the distributions are payable, but in any event not less than five business days prior to the record date. The indenture trustee will give notice of Blue Valley's election to begin or extend a new extension period to the administrative trustees who, in turn, will give 80 84 notice to the holders of the trust preferred securities. There is no limitation on the number of times that Blue Valley may begin an extension period. ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES If BVBC Trust or the property trustee is required to pay any additional taxes, duties, assessments or other governmental charges as a result of a tax event, Blue Valley will pay as additional amounts on the junior subordinated debentures any amounts which will be required so that the distributions payable by BVBC Trust will not be reduced as a result of any additional taxes, duties or other governmental charges. See "Description of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley" for a definition of tax event. REDEMPTION If Blue Valley has received prior approval of the Federal Reserve, if then required under applicable capital guidelines or policies of the Federal Reserve, the junior subordinated debentures are redeemable prior to maturity at the option of Blue Valley (1) beginning September 30, 2005, in whole or in part at any time, or (2) at any time in whole, but not in part, if a tax event, an investment company event or a capital treatment event occurs. In each case, the redemption price is equal to the accrued and unpaid interest on the junior subordinated debentures redeemed to the date fixed for redemption, plus 100% of the principal amount of the junior subordinated debentures. See "Description of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley" for definitions of tax event, investment company event and capital treatment event. 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 junior subordinated debentures to be redeemed at the holder's registered address. Unless Blue Valley defaults in payment of the redemption price, on and after the redemption date interest will cease to accrue on the junior subordinated debentures or portions of the junior subordinated debentures called for redemption. The junior subordinated debentures will not be subject to any sinking fund. DISTRIBUTION UPON LIQUIDATION As described under "Description of the Trust Preferred Securities - -Liquidation Distribution upon Termination," under circumstances involving the dissolution of BVBC Trust, the junior subordinated debentures may be distributed to the holders of the trust preferred securities and common securities in liquidation of BVBC Trust after liabilities of BVBC Trust have been paid. If distributed to holders of the trust preferred securities in liquidation, the junior subordinated debentures will initially be issued in the form of one or more global securities and the depositary, or any successor depositary for the trust preferred securities, will act as depositary for the junior subordinated debentures. It is anticipated that the depositary arrangements for the junior subordinated debentures would be substantially identical to those for the trust preferred securities. If the junior subordinated debentures are distributed to the holders of trust preferred securities upon the dissolution of BVBC Trust, Blue Valley cannot assure you as to the market price of any junior subordinated debentures that may be distributed to the holders of trust preferred securities. If the junior subordinated debentures are distributed, Blue Valley is required to use its best efforts to list them on a national securities exchange or quotation system, but this requirement will not prevent Blue Valley from redeeming any or all of the junior subordinated debentures. RESTRICTIONS ON PAYMENTS Blue Valley has restrictions on paying dividends or making payments on debt that is equal to or junior in rank if: 81 85 - Blue Valley learns of any event that has occurred that (a) with the giving of notice or the lapse of time, or both, would constitute a debenture event of default and (b) Blue Valley has not taken reasonable steps to cure; or - Blue Valley has given notice of its election of an extension period as provided in the indenture regarding the junior subordinated debentures and has not rescinded the notice, or the extension period, or any extension of the extension period, is continuing; or - while the junior subordinated debentures are held by BVBC Trust, Blue Valley is in default regarding its payment of any obligation under the trust preferred securities guarantee. If any of the events above have occurred, Blue Valley will not: - declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment regarding, any of Blue Valley's capital stock; or - make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Blue Valley, including other junior subordinated debt, that rank equally with or junior to the junior subordinated debentures or make any payments on any other trust preferred securities guarantee if the other trust preferred securities guarantee ranks equally or junior to the junior subordinated debentures. However, Blue Valley may (1) declare and pay dividends or distributions in common stock, (2) declare a dividend concerning the implementation of a stockholders' rights plan, or the issuance of stock under this type of plan in the future or the redemption or repurchase of any rights under this type of plan, (3) make payments under the trust preferred securities guarantee and (4) make purchases of common stock related to the issuance of common stock or rights under any of Blue Valley's benefit plans for its directors, officers or employees. SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES TO SENIOR AND SUBORDINATED DEBT OF BLUE VALLEY In the indenture, Blue Valley has agreed that any junior subordinated debentures will be subordinate and junior in right of payment to all senior and subordinated debt to the extent provided in the indenture. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization or any bankruptcy, or similar proceedings in connection with any insolvency or bankruptcy proceeding of Blue Valley, the holders of senior and subordinated debt will first be entitled to receive payment in full of principal, interest and premium, if any, on the senior and subordinated debt before the holders of junior subordinated debentures will be entitled to receive principal or interest payments on the junior subordinated debentures. If the maturity date of any junior subordinated debentures is accelerated, the holders of all senior and subordinated debt then outstanding will first be entitled to receive payment in full of all amounts due to them, including any amounts due upon acceleration, before the holders of junior subordinated debentures will be entitled to receive any principal or interest payments on the junior subordinated debentures. However, holders of subordinated debt will not be entitled to receive payment of any of these amounts to the extent that the subordinated debt is by its terms subordinated to trade creditors. No principal or interest payments on the junior subordinated debentures may be made if there has occurred and is continuing a default in any payment regarding senior and subordinated debt or an event of default regarding any senior and subordinated debt resulting in the acceleration of the maturity of senior and subordinated debt, or if any judicial proceeding is pending regarding any of this type of default. Debt as used in this discussion means regarding any person, whether recourse is to all or a portion of the assets of the person and whether or not contingent: - every obligation of the person for money borrowed; - every obligation of the person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; 82 86 - every reimbursement obligation of the person regarding letters of credit, bankers' acceptances or similar facilities issued for the account of the person; - every obligation of the 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; - every capital lease obligation of the person; and - every obligation of the type referred to in all of the points immediately above of another person and all dividends of another person the payment of which, in either case, the person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. Senior and subordinated debt means the principal of and premium, if any, and interest, if any, on debt of Blue Valley, including interest accruing at the time of the filing of any petition in bankruptcy or for reorganization relating to Blue Valley, whether incurred on or prior to the date of the indenture or thereafter incurred, unless, in the instrument creating or evidencing the debt or under which the debt is outstanding, it is provided that the obligations are not superior in right of payment to the junior subordinated debentures or to other debt which is equal with, or subordinated to, the junior subordinated debentures. However, senior and subordinated debt will not include: - any debt of Blue Valley which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code was without recourse to Blue Valley; - any debt to any employee of Blue Valley; - 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 the debt by the holders of the junior 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 the holders to pay amounts over to the obligees on the trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which the debt is subject; - the trust preferred securities guarantee; and - any other debt securities issued under the indenture. The indenture places no limitation on the amount of additional senior and subordinated debt that may be incurred by Blue Valley. Blue Valley expects to incur additional indebtedness constituting senior and subordinated debt. DENOMINATIONS, REGISTRATION AND TRANSFER It is anticipated that, until the liquidation, if any, of BVBC Trust, each junior subordinated debenture will be held in the name of the property trustee in trust for the benefit of the holders of the trust preferred securities. However, if either a tax event, investment company event or capital treatment event occurs, the junior subordinated debentures in certificated form may be exchanged and represented by global certificates registered in the name of the depositary or its nominee. If this type of exchange occurs, beneficial interests in the junior subordinated debentures will be shown on, and transferable through, records maintained by the depositary. Except as described below, junior subordinated debentures in certificated form will not be issued in exchange for the global certificates. Unless a global subordinated debenture is exchanged in whole or in part for the individual junior subordinated debentures, it may not be transferred except (1) as a whole by the depositary for the global subordinated debenture to a nominee of the depositary, (2) by the depositary to a successor depositary selected or approved by Blue Valley or (3) to any nominee of the successor. 83 87 A global security will be exchangeable for junior subordinated debentures registered in the names of persons other than the depositary or its nominee only if (1) the depositary notifies Blue Valley that it is unwilling or unable to continue as a depositary for the global security and no successor depositary has been appointed, or if at any time the depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934 at a time when the depositary is required to be registered under that Act or (2) Blue Valley in its sole discretion determines that the global security will be exchangeable. Any global security that is exchangeable under the preceding sentence will be exchangeable for definitive certificates registered in the names which the depositary directs. It is expected that the instructions will be based upon directions received by the depositary from its participants regarding ownership of beneficial interests in the global security. If junior subordinated debentures are issued in definitive form, the junior subordinated debentures will be in denominations of $8 and integral multiples of $8 and may be transferred or exchanged at the offices described below. Payments on junior subordinated debentures represented by a global security will be made to the depositary for the junior subordinated debentures. If junior subordinated debentures are issued in definitive form, principal and interest will be payable, the transfer of the junior subordinated debentures will be registrable, and junior subordinated debentures will be exchangeable for junior subordinated debentures of other denominations of a like aggregate principal amount, at the corporate office of the indenture trustee, or at the offices of any paying agent or transfer agent appointed by Blue Valley. However, interest payments may be made at the option of Blue Valley by check mailed to the address of the persons entitled to payments or by wire transfer. In addition, if the junior subordinated debentures are issued in certificated form, the record dates for interest payments will be the 15th day of the month in which the payment is to be made. Blue Valley will appoint the indenture trustee as securities registrar under the indenture. Junior subordinated debentures may be presented for exchange as provided above, and may be presented for registration of transfer with the form of transfer endorsed, or a satisfactory written instrument of transfer, duly executed, at the office of the securities registrar. Blue Valley may at any time rescind the designation of any registrar or approve a change in the location through which any registrar acts, as long as Blue Valley maintains a registrar in the place of payment. Blue Valley may at any time designate additional registrars regarding the junior subordinated debentures. If any redemption of less than all of the junior subordinated debentures occurs, Blue Valley and the indenture trustee will not be required to issue, exchange or register the transfer of less than all of the junior subordinated debentures during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption selecting for redemption less than all of the junior subordinated debentures and ending at the close of business on the day of mailing of the relevant notice of redemption. PAYMENT AND PAYING AGENTS Payment of principal of and any interest on the junior subordinated debentures will be made at the office of the indenture trustee, except that at the option of Blue Valley payment of any interest may be made, except in the case of a global subordinated debenture, by check mailed to the address of the person entitled to payment as the person's address appears in the securities register. Payment of any interest on junior subordinated debentures will be made to the person in whose name the junior subordinated debenture is registered at the close of business on the regular record date for the interest payment. Blue Valley may at any time designate additional paying agents or rescind the designation of any paying agent. However, Blue Valley will at all times be required to maintain a paying agent in each place of payment for the junior subordinated debentures. Any moneys deposited with the indenture trustee or any paying agent, or then held by Blue Valley in trust, for the payment of the principal of or interest on the junior subordinated debentures that are not applied and remain unclaimed for two years after the principal or interest has become due and payable will, at the request of Blue Valley, be repaid to Blue Valley. After that time, the holder of the junior subordinated debenture will look, as a general unsecured creditor, only to Blue Valley for payment. 84 88 MODIFICATION OF INDENTURE From time to time Blue Valley and the indenture trustee may, without the consent of the holders of the junior subordinated debentures, amend, waive or supplement the indenture for specified purposes. These purposes may include, among other things, curing ambiguities, defects or inconsistencies, as long as this action does not materially adversely affect the interests of the holders of the junior subordinated debentures or the trust preferred securities while they remain outstanding, and qualifying, or maintaining the qualification of, the indenture under the Trust Indenture Act. The indenture contains provisions permitting Blue Valley and the indenture trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding junior subordinated debentures, to modify the indenture in a manner affecting the rights of the holders of the junior subordinated debentures, but the modification may not, without the consent of the holder of each outstanding junior subordinated debenture: - change the stated maturity of the junior subordinated debentures or extend the time of payment of interest on them, except as described under "Description of the Junior Subordinated Debentures -- General Overview" and "-- Option to Extend Interest Payment Period," or reduce the principal amount or the rate of interest on them; or - reduce the percentage of principal amount of junior subordinated debentures, the holders of which are required to consent to any such modification of the indenture. However, while any of the trust preferred securities remain outstanding, (1) no modification may be made that adversely affects the holders of the trust preferred securities in any material respect, (2) no termination of the indenture may occur, and (3) no waiver of any debenture event of default or compliance with any covenant under the indenture may be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation amount of the trust preferred securities, until the principal and interest of the junior subordinated debentures have been paid in full and other conditions are satisfied. CO-TRUSTEES AND SEPARATE TRUSTEES Unless an event of default under the indenture has occurred and is continuing, at any time, for the purpose of meeting the legal requirements of any applicable jurisdiction, Blue Valley and the indenture trustee have the power to appoint one or more persons either to act as (1) a co-trustee, jointly with the indenture trustee, or (2) a separate trustee under the indenture. In either case, these trustees will have the powers which may be provided in the instrument of appointment, and will have vested in them any property, title, right or power deemed necessary or desirable, subject to the provisions of the indenture. In case an event of default under the indenture has occurred and is continuing, the indenture trustee alone will have the power to make the appointment. INDENTURE EVENTS OF DEFAULT Under the indenture, any one or more of the following events that has occurred and is continuing constitutes a debenture event of default: - failure for 30 days to pay any interest on the junior subordinated debentures, when due, except for the deferral of any due date in the case of an extension period; - failure to pay any principal on the junior subordinated debentures when due whether at maturity, upon redemption, by declaration or otherwise, but a valid extension period under the indenture will not constitute a debenture event of default; - failure by Blue Valley to observe or perform in any material respect any of its other covenants or agreements contained in the indenture for 90 days after written notice to Blue Valley from the indenture trustee or to Blue Valley and the indenture trustee by the holders of at least 25% in aggregate outstanding principal amount of the junior subordinated debentures; or 85 89 - the bankruptcy, insolvency or reorganization of Blue Valley, including the voluntary commencement of bankruptcy proceedings, entry of an order for relief against Blue Valley in a bankruptcy proceeding, appointment of a custodian over substantially all of Blue Valley's property, a general assignment for the benefit of creditors, or a court order for liquidation of Blue Valley. The holders of a majority in aggregate outstanding principal amount of the junior subordinated debentures may direct the time, method and place of conducting any proceeding for any remedy available to the indenture trustee. The indenture trustee or the holders of not less than 25% in aggregate outstanding principal amount of the junior 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 junior subordinated debentures may rescind and annul the declaration and waive the default if the default, other than the non-payment of the principal of the junior subordinated debentures which has become due solely by the 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 indenture trustee. If the holders of the junior subordinated debentures fail to cancel the declaration and waive the default, the holders of a majority in aggregate liquidation amount of the trust preferred securities will have the right to do so. In case a debenture event of default occurs and is continuing, the property trustee will have the right to declare the principal of and the interest on the junior subordinated debentures, and any other amounts payable under the indenture, to be due and payable and to enforce its other rights as a creditor. Blue Valley is required to file annually with the indenture trustee a certificate as to whether Blue Valley is in compliance with all the conditions and covenants applicable to it under the indenture. ENFORCEMENT OF RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES If an event of default under the indenture has occurred and is continuing and the default is attributable to Blue Valley's failure to pay interest or principal on the junior subordinated debentures on the due date, a holder of trust preferred securities may sue Blue Valley directly for payment of principal and interest on the junior subordinated debentures having a principal amount equal to the aggregate liquidation amount of the trust preferred securities of the holder. This action is referred to in this discussion as a direct action. If the right to bring a direct action is removed, BVBC Trust may become subject to the reporting obligations under the Securities Exchange Act of 1934. Blue Valley will have the right under the indenture to set-off any payment made to the holder of trust preferred securities by Blue Valley in connection with a direct action. The holders of the trust 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 junior subordinated debentures unless there has been an event of default under the trust agreement. See "Description of the Trust Preferred Securities -- Events of Default; Notice." CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS The indenture provides that Blue Valley will not consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person, and no person will consolidate with or merge into Blue Valley or convey, transfer or lease its properties and assets substantially as an entirety to Blue Valley, unless: - in case Blue Valley 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 the successor person expressly assumes Blue Valley's obligations on the junior subordinated debentures issued under the indenture; 86 90 - immediately after giving effect to this type of transaction, 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 - other conditions as prescribed in the indenture are met. The provisions of the indenture do not give holders of the junior subordinated debentures protection in the event of a highly leveraged or other transaction involving Blue Valley that may adversely affect holders of the junior subordinated debentures. SATISFACTION AND DISCHARGE Under the indenture, Blue Valley will have satisfied and discharged the indenture when all junior subordinated debentures not previously delivered to the indenture trustee for cancellation (1) have become due and payable or (2) will become due and payable at their stated maturity within one year, and Blue Valley deposits in trust with the indenture trustee sufficient funds to pay and discharge the entire indebtedness on the junior subordinated debentures to the deposit date or to the stated maturity, as the case may be. This satisfaction and discharge will not apply to Blue Valley's obligations to pay all other sums due under the indenture and to provide the officers' certificates and opinions of counsel described in the indenture. GOVERNING LAW The indenture and the junior subordinated debentures will be governed by and construed in accordance with the laws of the State of Kansas. INFORMATION CONCERNING THE INDENTURE TRUSTEE The indenture trustee will have and be subject to all the duties and responsibilities specified for an indenture trustee under the Trust Indenture Act. Subject to these provisions, the indenture trustee is under no obligation to exercise any of its powers under the indenture at the request of any holder of junior subordinated debentures, unless offered reasonable indemnity by the holder against the costs, expenses and liabilities which might be incurred. The indenture 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 indenture trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. COVENANTS OF BLUE VALLEY Blue Valley will covenant in the indenture, as to the junior subordinated debentures, that during the time that (1) BVBC Trust is the holder of all junior subordinated debentures, (2) a tax event in respect of BVBC Trust has occurred and is continuing and (3) Blue Valley has elected, and has not revoked the election, to pay additional sums, as defined under "Description of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley," in respect of the trust preferred securities, Blue Valley will pay to BVBC Trust these additional sums. Blue Valley will also covenant, as to the junior subordinated debentures: - to maintain directly or indirectly 100% ownership of the common securities of BVBC Trust to which junior subordinated debentures have been issued, but successors which are permitted under the indenture may succeed to Blue Valley's ownership of the common securities; - to not voluntarily dissolve BVBC Trust, except upon approval of the Federal Reserve if then required, and to use its reasonable efforts to cause BVBC Trust to remain a business trust, except (a) in connection with a distribution of junior subordinated debentures to the holders of the trust preferred securities in liquidation of BVBC Trust, (b) the redemption of all of the trust securities or (c) in connection with mergers, consolidations, or amalgamations permitted by the trust agreement; 87 91 - to use its reasonable efforts to cause each holder of trust securities to be treated as owning an individual beneficial interest in the junior subordinated debentures; and - to fulfill all filing and reporting obligations under the Securities Exchange Act, as applicable to a company having a class of securities registered under that Act, for so long as the junior subordinated debentures are outstanding. DESCRIPTION OF THE TRUST PREFERRED SECURITIES GUARANTEE Blue Valley and Wilmington Trust Company will make the preferred securities guarantee concurrently with the issuance of the trust preferred securities. The trust preferred securities guarantee will be for the benefit of the holders of the trust preferred securities. Wilmington Trust Company will act as trustee under the trust preferred securities guarantee for the purposes of compliance with the Trust Indenture Act, and the trust preferred securities guarantee will be qualified under the Trust Indenture Act. The following is a summary of the material provisions of the trust preferred securities guarantee. Prospective investors are urged to read the form of the trust preferred securities guarantee which has been filed as an exhibit to the registration statement of which this prospectus forms a part. The guarantee trustee will hold the trust preferred securities guarantee for the benefit of the holders of the trust preferred securities. GENERAL OVERVIEW The trust preferred securities guarantee is an irrevocable guarantee on a subordinated basis of all of BVBC Trust's obligations to make payments under the trust preferred securities, but will apply only if BVBC Trust has funds sufficient to make the payments. The trust preferred securities guarantee is not a guarantee of collection. Blue Valley will irrevocably and unconditionally agree to pay in full on a subordinated basis, to the extent set forth in this prospectus, the trust preferred securities guarantee payments, as defined below, to the holders of the trust preferred securities, as and when due, regardless of any defense, right of set-off or counterclaim that BVBC Trust may have or assert other than the defense of payment. The following payments regarding the trust preferred securities, to the extent not paid by or on behalf of BVBC Trust, will be subject to the trust preferred securities guarantee of Blue Valley: - any accrued and unpaid distributions required to be paid on the trust preferred securities if BVBC Trust has available funds on hand at the time; - the redemption price regarding any trust preferred securities called for redemption if BVBC Trust has available funds on hand at the time; and - upon a voluntary or involuntary dissolution of BVBC Trust, unless the junior subordinated debentures are distributed to holders of the trust preferred securities. The amount of the trust preferred securities guarantee will be the lesser of (a) the liquidation distribution and (b) the amount of assets of BVBC Trust remaining available for distribution to holders of trust preferred securities. Blue Valley may pay directly the required amounts to the holders of the trust preferred securities or cause BVBC Trust to pay these amounts to the holders. If Blue Valley does not make interest payments on the junior subordinated debentures held by BVBC Trust, BVBC Trust will not be able to pay distributions on the trust preferred securities and will not have funds legally available to pay distributions. The trust preferred securities guarantee will rank subordinate and junior in right of payment to all senior and subordinated debt of Blue Valley. See "- Status of the Trust Preferred Securities Guarantee" below. Because Blue Valley is a holding company, the right of Blue Valley to participate in any distribution of assets of any subsidiary upon the subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent Blue Valley may itself be recognized as a creditor of that subsidiary. Accordingly, Blue Valley's obligations under the trust preferred securities guarantee will be effectively subordinated to all existing and future liabilities of Blue Valley's subsidiaries, and you should look only to the assets of Blue Valley for 88 92 payments under the trust preferred securities guarantee. Except as otherwise described in this prospectus, the trust preferred securities guarantee does not limit the incurrence or issuance of other secured or unsecured debt of Blue Valley, including senior and subordinated debt whether under the indenture, any other indenture that Blue Valley may enter into in the future, or otherwise. Blue Valley has, through the trust preferred securities guarantee, the trust agreement, the junior subordinated debentures, the indenture and the expense agreement relating to BVBC Trust, taken together, fully, irrevocably and unconditionally guaranteed on a subordinated basis all of BVBC Trust's obligations under the trust preferred securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes this trust preferred securities guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee on a subordinated basis of all of BVBC Trust's obligations under the trust preferred securities. See "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Trust Preferred Securities Guarantee." STATUS OF THE TRUST PREFERRED SECURITIES GUARANTEE The trust preferred securities guarantee will constitute an unsecured obligation of Blue Valley and will rank subordinate and junior in right of payment to all senior and subordinated debt in the same manner as the junior subordinated debentures. As of April 30, 2000, Blue Valley had $9.1 million of indebtedness that ranked senior in right of payment to its obligations under the trust preferred securities guarantee. After giving effect to the use of the proceeds of this offering as described under "Use of Proceeds," as of that date Blue Valley would have had $1.9 million of indebtedness that ranked senior in right of payment to its obligations under the trust preferred securities guarantee. The trust preferred securities guarantee will constitute a guarantee of payment and not of collection. The guaranteed party may sue Blue Valley directly to enforce its rights under the trust preferred securities guarantee without first suing any other person or entity. The trust preferred securities guarantee will be held for the benefit of the holders of the trust preferred securities. The trust preferred securities guarantee does not place a limitation on the amount of additional senior and subordinated debt that may be incurred by Blue Valley. Blue Valley expects to incur additional indebtedness constituting senior and subordinated debt. AMENDMENTS AND ASSIGNMENT Except for any changes which do not materially adversely affect the rights of holders of the trust preferred securities, in which case no consent will be required, the trust preferred securities guarantee may not be amended without the prior approval of the holders of at least a majority of the aggregate liquidation amount of the outstanding trust preferred securities. No amendment that affects the rights, powers, duties, obligations or immunities of the guarantee trustee will be effective unless approved by the guarantee trustee. See "Description of the Trust Preferred Securities -- Voting Rights; Amendment of the Trust Agreement." All guarantees and agreements contained in the trust preferred securities guarantee will bind the successors, assigns, receivers, trustees and representatives of Blue Valley and will be for the benefit of the holders of the trust preferred securities then outstanding. EVENTS OF DEFAULT An event of default under the trust preferred securities guarantee will occur upon the failure of Blue Valley to perform any of its payment or other obligations under the trust preferred securities guarantee. The holders of at least a majority in aggregate liquidation amount of the trust preferred securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the guarantee trustee regarding the trust preferred securities guarantee or to direct the exercise of any trust or power conferred upon the guarantee trustee under the trust preferred securities guarantee. 89 93 Any holder of trust preferred securities may sue Blue Valley directly to enforce the holder's rights under the trust preferred securities guarantee without first suing BVBC Trust, the guarantee trustee or any other person or entity. Blue Valley, as guarantor, is required to file annually with the guarantee trustee a certificate as to whether Blue Valley is in compliance with all the conditions and covenants applicable to it under the trust preferred securities guarantee. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The guarantee trustee, other than during the occurrence and continuance of a default by Blue Valley in performance of the trust preferred securities guarantee, will perform only the duties which are specifically described in the trust preferred securities guarantee. After default regarding the trust preferred securities guarantee, the guarantee trustee 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 limitation, the guarantee trustee is under no obligation to exercise any of its rights or powers under the trust preferred securities guarantee at the request or direction of any holder of the trust preferred securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred. TERMINATION OF THE TRUST PREFERRED SECURITIES GUARANTEE The trust preferred securities guarantee will terminate and be of no further force and effect upon full payment of the redemption price of the trust preferred securities, upon full payment of the amounts payable upon liquidation of BVBC Trust or upon distribution of junior subordinated debentures to the holders of the trust preferred securities. The trust preferred securities guarantee will continue to be effective or will be reinstated if at any time any holder of the trust preferred securities must restore payment of any sums paid under the trust preferred securities or the trust preferred securities guarantee. GOVERNING LAW The trust preferred securities guarantee will be governed by and construed in accordance with the laws of the State of Kansas. DESCRIPTION OF THE EXPENSE AGREEMENT Under the agreement as to expenses and liabilities between Blue Valley and BVBC Trust, Blue Valley will irrevocably and unconditionally guarantee to each person or entity to whom BVBC Trust becomes indebted or liable, the full payment of any costs, expenses or liabilities of BVBC Trust, other than obligations of BVBC Trust to pay to the holders of the trust preferred securities or other similar interests in BVBC Trust of the amounts due the holders under the terms of the trust preferred securities or the other similar interests. RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE TRUST PREFERRED SECURITIES GUARANTEE FULL AND UNCONDITIONAL TRUST PREFERRED SECURITIES GUARANTEE ON A SUBORDINATED BASIS Payments of distributions and other amounts due on the trust preferred securities, to the extent BVBC Trust has funds available for the payment of the distributions, are irrevocably guaranteed by Blue Valley to the extent described under "Description of the Trust Preferred Securities Guarantee." Taken together, Blue Valley's obligations under the junior subordinated debentures, the indenture, the trust agreement, the expense agreement and the trust preferred securities guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee on a subordinated basis of payments of distributions and other amounts due on the trust preferred securities. No single document standing alone or operating in conjunction with fewer 90 94 than all of the other documents constitutes the trust preferred securities guarantee. It is only the combined operation of those documents that has the effect of providing a full, irrevocable and unconditional guarantee on a subordinated basis of BVBC Trust's obligations under the trust preferred securities. If Blue Valley does not make payments on the junior subordinated debentures, BVBC Trust will not pay distributions or other amounts due on the trust preferred securities. The trust preferred securities guarantee does not cover payment of distributions when BVBC Trust does not have sufficient funds to pay the distributions. If this happens, the remedy of a holder of the trust preferred securities is to sue Blue Valley directly for enforcement of payment of the distributions to the holder. The obligations of Blue Valley under the trust preferred securities guarantee are subordinate and junior in right of payment to all senior and subordinated debt. SUFFICIENCY OF PAYMENTS As long as payments of interest and other payments are made when due on the junior subordinated debentures, the payments will be sufficient to cover distributions and other payments due on the trust preferred securities, primarily because: - the aggregate principal amount of the junior subordinated debentures will be equal to the sum of the aggregate liquidation amount of the trust preferred securities and common securities; - the interest rate and interest and other payment dates on the junior subordinated debentures will match the distribution rate and distribution and other payment dates for the trust preferred securities; - Blue Valley will pay for any and all costs, expenses and liabilities of BVBC Trust except BVBC Trust's obligations to holders of trust preferred securities; and - the trust agreement prohibits BVBC Trust from engaging in any activity that is inconsistent with the limited purposes of BVBC Trust. Blue Valley may satisfy any payment it is otherwise required to make to BVBC Trust under the indenture, by making a payment under the trust preferred securities guarantee. ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE TRUST PREFERRED SECURITIES GUARANTEE A holder of any of the trust preferred securities may sue Blue Valley directly to enforce its rights under the trust preferred securities guarantee without first suing the guarantee trustee, BVBC Trust or any other person or entity. A default under any senior and subordinated debt would not constitute an event of default. However, if Blue Valley defaults under its senior and subordinated debt, the indenture provides that no payments may be made on the junior subordinated debentures until the senior and subordinated debt has been paid in full or any payment default has been cured or waived. Failure to make required payments on junior subordinated debentures would constitute an event of default. LIMITED PURPOSE OF BVBC TRUST The trust preferred securities evidence a beneficial interest in BVBC Trust, and BVBC Trust exists for the sole purpose of issuing the trust securities and investing the proceeds from the sale of the trust securities in the junior subordinated debentures. A principal difference between the rights of a holder of the trust preferred securities and a holder of a junior subordinated debenture is that a holder of a junior subordinated debenture is entitled to receive from Blue Valley the principal amount of and interest accrued on junior subordinated debentures held, while a holder of the trust preferred securities is entitled to receive distributions from BVBC Trust, or from Blue Valley under the trust preferred securities guarantee, if and to the extent BVBC Trust has funds available for the payment of the distributions. 91 95 RIGHTS UPON DISSOLUTION Upon any voluntary or involuntary dissolution of BVBC Trust involving the liquidation of the junior subordinated debentures, the holders of trust preferred securities will be entitled to receive, out of assets held by BVBC Trust and available for distribution, the liquidation distribution in cash. See "Description of the Trust Preferred Securities -- Liquidation Distribution Upon Termination." Upon any voluntary or involuntary liquidation or bankruptcy of Blue Valley, the property trustee, as holder of the junior subordinated debentures, would be a subordinated creditor of Blue Valley, subordinated in right of payment to all senior and subordinated debt as described in the indenture, but entitled to receive payment in full of principal and interest, before any shareholders of Blue Valley receive payments or distributions. Since Blue Valley is the guarantor under the trust preferred securities guarantee and has agreed to pay for all costs, expenses and liabilities of BVBC Trust, other than BVBC Trust's obligations to the holders of its trust preferred securities, the positions of a holder of the trust preferred securities and a holder of junior subordinated debentures relative to other creditors and to shareholders of Blue Valley in the event of liquidation or bankruptcy of Blue Valley are expected to be substantially the same. 92 96 MATERIAL FEDERAL INCOME TAX CONSEQUENCES GENERAL Blackwell Sanders Peper Martin LLP, Kansas City, Missouri, as Blue Valley's special tax counsel ("Tax Counsel"), has given their written legal opinion that the following discussion correctly describes the material United States federal income tax consequences of the purchase, ownership and disposition of trust preferred securities. The following discussion is general and may not apply to your particular circumstances for any of the following, or other, reasons: - This discussion is based on United States federal income tax laws, including the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder and administrative and judicial interpretations of these authorities, in effect as of the date of this prospectus. Changes to any of these laws, possibly on a retroactive basis, after this date may affect the tax consequences described below. - This discussion addresses only trust preferred securities acquired at original issuance at the original offering price and held as capital assets, within the meaning of United States federal income tax law. It does not discuss all of the tax consequences that may be relevant to "Holders," as defined below, of trust preferred securities who are subject to special rules, such as banks, thrift institutions and certain other financial institutions, real estate investment trusts, regulated investment companies, insurance companies, brokers and dealers in securities or currencies, certain securities traders, tax-exempt investors, individual retirement accounts and certain tax- deferred accounts, and foreign investors. This discussion also does not address tax consequences that may be relevant to a Holder in light of the Holder's particular circumstances, such as a Holder holding a trust preferred security as a position in a straddle, hedge, conversion or other integrated investment. - This discussion does not address: (a) The income tax consequences to stockholders in, or partners or beneficiaries of, a Holder of trust preferred securities; (b) the United States alternative minimum tax consequences or other collateral tax consequences of purchasing, owning and disposing of trust preferred securities; or (c) any state, local or foreign tax consequences of purchasing, owning and disposing of trust preferred securities. The authorities on which this discussion is based are subject to various interpretations, and the opinions of Tax Counsel are not binding on the IRS or the courts, either of which could take a contrary position. Moreover, no rulings have been or will be sought from the IRS with respect to the transactions described herein. Accordingly, no assurance can be given to prospective investors that the IRS will not challenge the opinions expressed herein or that a court would not sustain such a challenge. WE ADVISE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF THE TRUST PREFERRED SECURITIES BASED ON YOUR PARTICULAR CIRCUMSTANCES AND THE RELEVANT TAXING JURISDICTION. UNITED STATES HOLDERS IN GENERAL. For purposes of the following discussion, a United States Holder (a "Holder") means. - a citizen or individual resident of the United States; - a corporation or partnership created or organized in or under the laws of the United States or any political subdivision; 93 97 - an estate the income of which is includible in its gross income for United States federal income tax purposes without regard to its source; or - a trust if a court within the United States is able to exercise primary supervision over its administration and at least one United States person has the authority to control all substantial decisions of the trust. CHARACTERIZATION OF BVBC TRUST. Tax Counsel has delivered its opinion that (1) under then current law and based on the representations, facts and assumptions set forth in this prospectus, (2) assuming full compliance with the terms of the trust agreement, and other relevant documents, and (3) based on assumptions and qualifications contained in the opinion, BVBC Trust will be characterized 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, a Holder of a trust preferred security will be considered the beneficial owner of an undivided interest in the junior subordinated debentures owned by BVBC Trust, and will be required to include on its United States federal income tax return all income or gain recognized for United States federal income tax purposes with respect to its share of the junior subordinated debentures. CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES. Tax Counsel has delivered its opinion that, under current law, the junior subordinated debentures are debt of Blue Valley for United States federal income tax purposes. By acceptance of a beneficial interest in a trust preferred security, a Holder agrees to treat the junior subordinated debentures as Blue Valley's debt and the trust preferred securities as evidence of a beneficial ownership interest in the junior subordinated debentures. This position may be challenged by the IRS and Tax Counsel cannot give any assurance that a challenge will be unsuccessful. The remainder of this discussion assumes that the junior subordinated debentures will be classified as debt for United States federal income tax purposes. INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under the terms of the junior subordinated debentures, Blue Valley has the ability to defer payments of interest from time to time by extending the interest payment period for a period not exceeding 20 consecutive quarterly periods, but not beyond the stated maturity of the junior subordinated debentures. Treasury regulations provide that debt instruments like the junior subordinated debentures, assuming they will be issued at face value, will not be considered issued with original issue discount ("OID"), even if their issuer can defer payments of interest, if the likelihood of any deferral is "remote." Blue Valley concluded, and this discussion assumes, that, as of the date of this prospectus, the likelihood of Blue Valley deferring payments of interest is "remote" within the meaning of the applicable Treasury regulations. This conclusion is based in part on the fact that exercising that option would prevent Blue Valley from declaring dividends on its common stock and would prevent it from making any payments with respect to debt securities that rank equally with or junior to the junior subordinated debentures. Therefore, Blue Valley believes and will take the position that the junior subordinated debentures will not be treated as issued with OID by reason of the deferral option alone. Rather, Holders will be taxed on stated interest on the junior subordinated debentures when it is paid or accrued in accordance with each Holder's method of accounting for United States federal income tax purposes. Because this issue has not been addressed in any published rulings or interpretations issued by the IRS, it is possible that the IRS could take a position contrary to the position taken by Blue Valley. If Blue Valley exercises its option to defer payments of interest, the junior subordinated debentures would be treated as redeemed and reissued for OID purposes. The sum of the remaining interest payments, and any de minimis OID, on the junior subordinated debentures will thereafter be treated as OID. The OID would accrue, and be includible in a Holder's taxable income, on a daily economic accrual basis, regardless of a Holder's method of accounting for income tax purposes, over the remaining term of the junior subordinated debentures, including any period of interest deferral, without regard to the timing of payments under the junior subordinated debentures. Subsequent distributions of interest on the junior subordinated debentures generally would not be taxable. The amount of OID that would accrue in any period would approximately equal the amount of interest that accrued on the junior subordinated 94 98 debentures in that period at the stated interest rate. Consequently, during any period of interest deferral, a Holder will include OID in gross income in advance of the receipt of cash, and if a Holder disposes of a trust preferred security prior to the record date for payment of distributions on the junior subordinated debentures following that deferral period, a Holder will be subject to income tax on OID accrued through the date of disposition, and not previously included in income, but will not receive cash from BVBC Trust with respect to the OID. If the possibility of Blue Valley's exercise of its option to defer payments of interest is not remote, the junior subordinated debentures would be treated as initially issued with OID in an amount equal to the aggregate stated interest, plus any de minimis OID, over the term of the junior subordinated debentures. A Holder would include that OID in its taxable income, over the term of the junior subordinated debentures, on a daily economic accrual basis. CHARACTERIZATION OF INCOME. Because the income underlying the trust preferred securities will be characterized as interest, not as dividends, for United States federal income tax purposes, if a Holder is a corporate holder of the trust preferred securities, it will not be entitled to a dividends-received deduction for any income it recognizes with respect to the trust preferred securities. MARKET DISCOUNT AND BOND PREMIUM. Under some circumstances, a Holder may be considered to have acquired its undivided interest in the junior subordinated debentures with market discount or acquisition premium, as each phrase is defined for United States federal income tax purposes. In this situation, such Holder needs to contact its own tax advisor to determine its particular tax consequences. RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF BVBC TRUST. Under the circumstances described above, BVBC Trust may distribute a pro-rata share of the junior subordinated debentures to Holders in exchange for their trust preferred securities and in liquidation of BVBC Trust. See "Description of the Trust Preferred Securities -- Distribution of Junior Subordinated Debentures." Except as discussed below, that type of a distribution would not be a taxable event for United States federal income tax purposes, and consequently a Holder (1) would have an aggregate adjusted basis in the junior subordinated debentures received for United States federal income tax purposes equal to the Holder's aggregate adjusted basis in the Holder's trust preferred securities, and (2) would have a holding period in the junior subordinated debentures received in such a liquidation of BVBC Trust which includes the period during which the Holder held the trust preferred securities. If, however, the event causing the liquidation of the BVBC Trust is a tax event, which results in BVBC Trust being treated as an association taxable as a corporation, the distribution would constitute a taxable event to a Holder for United States federal income tax purposes. The Holder would recognize gain or loss as if the Holder had sold or exchanged its trust preferred securities for the junior subordinated debentures and received them upon liquidation. See "Sales of Trust Preferred Securities" below. The Holder would recognize interest income in respect of the junior subordinated debentures received from BVBC Trust in the manner described above under "Interest Income and Original Issue Discount." Under circumstances described above, Blue Valley may redeem junior subordinated debentures for cash and distribute the proceeds of the redemption to Holders in redemption of their trust preferred securities. See "Description of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley." The redemption would be taxable for United States federal income tax purposes, and a Holder would recognize gain or loss as if it had sold the trust preferred securities for cash. See "Sales of Trust Preferred Securities" below. SALES OF TRUST PREFERRED SECURITIES. Upon the sale or other taxable disposition, including a redemption for cash, of the trust preferred securities, a Holder will recognize gain or loss in an amount equal to the difference between its adjusted tax basis in the trust preferred securities and the amount realized in the sale, except to the extent of any amount received in respect to accrued but unpaid interest or OID not previously included in income. A Holder's adjusted tax basis in the trust preferred securities generally will be its initial purchase price, increased by OID, if any, previously includible in a Holder's gross income to the date of disposition and decreased by payments, if any, received on the trust preferred 95 99 securities in respect of OID to the date of disposition. The gain or loss generally will be a capital gain or loss, and will be a long-term capital gain or loss if the Holder has held the trust preferred securities for more than one year prior to the date of disposition. The trust preferred securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest, or OID, with respect to the underlying junior subordinated debentures. A Holder who disposes of its trust preferred securities between record dates for payments of distributions thereon will be required to include in its taxable income for United States federal income tax purposes (1) any portion of the amount realized that is attributable to the accrued but unpaid interest to the extent not previously included in income or (2) any amount of OID, in either case, that has accrued on its pro rata share of the underlying junior subordinated debentures during the taxable year of sale through the date of disposition. Any income inclusion will increase a Holder's adjusted tax basis in the trust preferred securities of which it disposes. To the extent that the amount realized in the sale is less than a Holder's adjusted tax basis, a Holder will recognize a capital loss. Subject to certain limited exceptions applicable to non-corporate taxpayers, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. EFFECT OF CHANGES IN TAX LAWS In recent years there have been several legislative proposals which, if enacted, could have adversely affected the ability of Blue Valley to deduct interest paid on the junior subordinated debentures. These proposals, however, were not enacted. Nevertheless, there can be no assurance that other legislation enacted in the future after the date hereof will not otherwise adversely affect the ability of Blue Valley to deduct the interest payable on the junior subordinated debentures. Legislation affecting the deductibility of such interest may cause a tax event. Such a tax event would give us the right to redeem the junior subordinated debentures. See "Description of Junior Subordinated Debentures -- Redemption" and "Description of Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley -- Tax Event Redemption, Investment Company Event Redemption, Capital Event Redemption or Distribution of Junior Subordinated Debentures." A petition was filed during 1998 in the United States Tax Court as a result of a challenge by the IRS of a taxpayer's treatment as indebtedness of a security issued with characteristics similar to the junior subordinated debentures. The IRS ultimately agreed to dismiss the related adjustments. Nevertheless, the IRS could assert similar adjustments against other taxpayers. If adjustments were proposed and the issue litigated resulting in the IRS's position being sustained, a determination would constitute a tax event resulting in early redemption of the trust preferred securities. See "Sales of Trust Preferred Securities" above for the United States federal income tax consequences of a redemption to a Holder. NON-UNITED STATES HOLDERS The following discussion applies to you if you are not a "Holder" as described above. Payments of interest, including OID, to a non-United States Holder on a trust preferred security will generally not be subject to withholding of income tax, provided that: - the non-United States Holder did not, directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of Blue Valley stock entitled to vote; - the non-United States Holder is not a controlled foreign corporation that is related to Blue Valley through stock ownership; - the interest does not constitute contingent interest as described in Section 871(h)(4) of the Code; - the non-United States Holder is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; and 96 100 - either (1) the non-United States Holder certifies to BVBC Trust or its agent under penalties of perjury, that the non-United States Holder is not a United States Holder and provides its name and address, or (2) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institution"), and holds the trust preferred security in that capacity, certifies to BVBC Trust or its agent, under penalties of perjury and in accordance with applicable Treasury regulations, that it requires and has received the required statement from the non-United States Holder or another Financial Institution between it and the holder in the chain of ownership, and furnishes BVBC Trust or its agent with a copy. Recently finalized Treasury regulations, that are generally effective with respect to payments made after December 31, 2000, would provide alternative methods for satisfying the certification requirements described above. As discussed above, it is possible that changes in the law affecting the income tax consequences of the junior subordinated debentures could adversely affect Blue Valley's ability to deduct interest payable on the junior subordinated debentures. These changes could also cause the junior subordinated debentures to be classified as Blue Valley's equity, rather than our debt, for United States federal income tax purposes. This might cause the income derived from the junior subordinated debentures to be characterized as dividends, generally subject to a 30%, or lower rate under an applicable income tax treaty, income tax, on a withholding basis, when paid to you if you are not a United States Holder, rather than as portfolio interest which, as discussed above, generally is exempt from income tax in the hands of a foreign corporation or nonresident alien who is not a United States Holder. If a non-United States Holder holds the trust preferred securities in connection with the active conduct of a United States trade or business, the non-United States Holder will be subject to income tax on all income and gains recognized with respect to its proportionate share of the junior subordinated debentures. INFORMATION REPORTING AND BACKUP WITHHOLDING In general, information reporting requirements will apply to payments made on, and proceeds from the sale of, the trust preferred securities held by a noncorporate Holder within the United States. In addition, payments made on, and payments of the proceeds from the sale of, the trust preferred securities to or through the United States office of a broker are subject to information reporting unless the Holder certifies as to its non-United States Holder status or otherwise establish as an exemption from information reporting and backup withholding. Taxable income on the trust preferred securities for a calendar year should be reported to United States Holders on the appropriate forms by the following January 31st. Payments made on, and proceeds from the sale of, the trust preferred securities may be subject to a "backup" withholding tax of 31% unless a Holder complies with various identification or exemption requirements. Any amounts so withheld will be allowed as a credit against a Holder's income tax liability, or refunded, provided the required information is provided to the IRS. In addition, a non-United States Holder will generally not be subject to withholding of income tax on any gain realized upon the sale or other disposition of a trust preferred security. THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE CONSEQUENCES TO PARTICULAR PERSONS OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST PREFERRED SECURITIES. POTENTIAL PURCHASERS OF THE TRUST PREFERRED SECURITIES ARE URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX CONSEQUENCES. ERISA CONSIDERATIONS We and certain of our affiliates may each be considered to be a "party in interest" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or a "disqualified 97 101 person" within the meaning of Section 4975 of the Code with respect to many employee benefit plans that are subject to ERISA. The purchase of the trust preferred securities by an employee benefit plan that is subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of Section 4975(e)(1) of the Code and with respect to which we, or any affiliate of ours, is a service provider, or otherwise 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 the trust preferred securities are acquired pursuant to and in accordance with an applicable exemption. Any pension or other employee benefit plan proposing to acquire any trust preferred securities should consult with its counsel. UNDERWRITING Subject to the terms and conditions of the underwriting agreement between us, BVBC Trust, and the underwriter, the underwriter has agreed to purchase from BVBC Trust, and BVBC Trust has agreed to sell to the underwriter, 1,250,000 trust preferred securities. The obligations of the underwriter to purchase the trust preferred securities are subject to approval of certain legal matters by its counsel and to various other conditions. Under the terms and conditions of the underwriting agreement, the underwriter is committed to accept and pay for all of the trust preferred securities, other than trust preferred securities covered by the over-allotment option described below, if any are taken. The underwriter proposes to offer the trust preferred securities directly to the public at the public offering price set forth on the cover page of this prospectus. Any trust preferred securities sold by the underwriter to securities dealers may be sold at a concession of up to $ per trust preferred security from the initial public offering price. These securities dealers may resell any trust preferred securities purchased from the underwriter to other brokers and dealers at a concession of up to $ per trust preferred security from the initial public offering price. After the trust preferred securities are released for sale to the public, the offering price and other selling terms may from time to time be changed by the underwriter. BVBC Trust has granted to the underwriter an option, exercisable within 30 days after the date of this prospectus, to purchase up to 187,500 additional trust preferred securities at the same price per trust preferred security to be paid by the underwriter for the other trust preferred securities being offered hereby. The underwriter may exercise the option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the trust preferred securities being offered hereby. If the underwriter exercises its option to purchase additional trust preferred securities, BVBC Trust will issue and sell to us additional common securities and we will issue and sell to BVBC Trust junior subordinated debentures in an aggregate principal amount equal to the total aggregate liquidation amount of the additional trust preferred securities being purchased under the option and the additional common securities sold to us. The following table summarizes the price and proceeds on a per security and aggregate basis. The proceeds to be received by BVBC Trust as shown in the below do not reflect estimated expenses in connection with this offering of the trust preferred securities of $800,000 payable by us.
PER TRUST PREFERRED SECURITY TOTAL ------------------ ----------- Public Offering Price....................................... $8.00 $10,000,000 Proceeds to BVBC Trust...................................... $8.00 $10,000,000
In view of that fact that the proceeds of the sale of the trust preferred securities will be used by BVBC Trust to purchase the junior subordinated debentures from us, we have agreed to pay the underwriter $ per preferred security, or a total of $ , as compensation for arranging the investment in the junior subordinated debentures. Should the 98 102 underwriter exercise the over-allotment option, an aggregate of $ will be paid to the underwriter for arranging the investment in the junior subordinated debentures. During a period of 30 days from the date of this prospectus, neither BVBC Trust nor we will, subject to certain exceptions, without the prior written consent of the underwriter, directly or indirectly, sell, offer to sell, grant any option for sale of, or otherwise dispose of, any trust preferred securities, any security convertible into or exchangeable for trust preferred securities or junior subordinated debentures or any debt securities substantially similar to the junior subordinated debentures or equity securities substantially similar to the trust preferred securities, except for junior subordinated debentures and the trust preferred securities being offered hereby. Because the National Association of Securities Dealers may view the trust preferred securities as interests in a direct participation program, the offer and sale of the trust preferred securities is being made in compliance with the provisions of Rule 2810 under the NASD Conduct Rules. Although we have applied to have the trust preferred securities listed on the American Stock Exchange under the trading symbol "BLV.Pr", we cannot make any assurances as to the liquidity of the trust preferred securities or that an active and liquid market will develop or, if developed, that the market will continue. Trading is expected to commence on or prior to delivery of the trust preferred securities. The offering price and distribution rate for the trust preferred securities have been determined by negotiations among our representatives and the underwriter, and the offering price of the trust preferred securities may not be indicative of their market price following this offering. Blue Valley and the underwriter have agreed to indemnify, or to contribute to payments made by, each other against certain civil liabilities, including certain civil liabilities arising under the Securities Act. This offering of the trust preferred securities is made for delivery when, as and if accepted by the underwriter and subject to prior sale and to withdrawal, cancellation or modification of this offering without notice. The underwriter reserves the right to reject any order for the purchase of the trust preferred securities. The underwriter has advised us that it does not intend to confirm any sales to any accounts over which it exercises discretionary authority. In connection with this offering, the underwriter may engage in transactions that are intended to stabilize, maintain or otherwise affect the price of the trust preferred securities during and after the offering, such as the following: - the underwriter may over-allot or otherwise create a short position in the trust preferred securities for their own account by selling more trust preferred securities than have been sold to them; - the underwriter may elect to cover any short position by purchasing trust preferred securities in the open market or by exercising the over-allotment option; - the underwriter may stabilize or maintain the price of the trust preferred securities by bidding; and - the underwriter may impose penalty bids, under which selling concessions allowed to syndicate members or broker-dealers participating in this offering are reclaimed if trust preferred securities previously distributed in this offering are repurchased in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the trust preferred securities to the extent that it discourages resales. No representation is made as to the magnitude or effect of any of these stabilization or other transactions. These transactions may be effected on the American Stock Exchange or otherwise and, if commenced, may be discontinued at any time. The underwriter has advised us that it will not make any sales to any accounts over which it exercises discretionary authority without the prior specific written approval of the customer. 99 103 AVAILABLE INFORMATION We have filed a registration statement on Form S-1 under the Securities Act with the SEC in connection with the offering described in this prospectus. This prospectus omits certain information, exhibits and undertakings contained in the registration statement we filed with the SEC. You may read and copy, upon payment of a fee set by the SEC, any document that we file with the SEC at its public reference rooms in Washington, D.C., 450 Fifth Street, N.W., 20549, New York, New York, Seven World Trade Center, 13th Floor, Suite 1300, 10048, and Chicago, Illinois, Citicorp Center, 500 West Madison Street, 14th Floor, Suite 1400, 60661. You may also call the SEC at 1-800-432-0330 for more information on the public reference rooms. Our filings are also available to the public on the Internet, through the SEC's EDGAR database. You may access the EDGAR database at the SEC's web site at http://www.sec.gov. Separate financial statements of BVBC Trust are not included in this prospectus. We do not believe separate financial statements would be helpful because: - BVBC Trust is a subsidiary of Blue Valley, which will file consolidated financial information under the Exchange Act. - BVBC Trust does not have any independent operations other than issuing the preferred and common securities and purchasing the junior subordinated debentures of Blue Valley. - BVBC Trust's only material assets will be the junior subordinated debentures of Blue Valley when issued. - The combined obligations of Blue Valley under the junior subordinated debentures, the guarantee, the trust agreement and the indenture have the effect of providing a full and unconditional guarantee of BVBC Trust's obligations under its trust preferred securities. See "Description of Junior Subordinated Securities," "Description of the Trust Preferred Securities," "Description of Trust Preferred Securities Guarantee" and "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Trust Preferred Securities Guarantee." LEGAL MATTERS The validity of the trust preferred securities and matters relating to United States federal income tax consequences of this offering, will be passed upon for us and for BVBC Trust by Blackwell Sanders Peper Martin LLP, Kansas City, Missouri. Morris, Nichols, Arsht & Tunnell, Delaware, will pass upon certain matters relating to Delaware law for BVBC Trust. Certain legal matters will be passed upon for the underwriter by Lewis, Rice & Fingersh, L.C., St. Louis, Missouri. EXPERTS The consolidated financial statements of Blue Valley for each of the years in the three-year period ended December 31, 1999, included in this prospectus, have been audited by Baird, Kurtz & Dobson, independent accountants, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 100 104 INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS OF BLUE VALLEY BAN CORP Independent Accountants' Review Report...................... F-2 Consolidated Balance Sheet (unaudited) -- March 31, 2000.... F-3 Consolidated Statements of Income (unaudited) -- three months ended March 31, 2000 and 1999...................... F-5 Consolidated Statements of Changes in Stockholders' Equity (unaudited) -- three months ended March 31, 2000.......... F-6 Consolidated Statements of Cash Flows (unaudited) -- three months ended March 31, 2000 and 1999...................... F-7 Notes to Consolidated Financial Statements (unaudited) -- three months ended March 31, 2000.......... F-8 Independent Accountants' Report............................. F-9 Consolidated Balance Sheets -- December 31, 1999 and 1998... F-10 Consolidated Statements of Income -- years ended December 31, 1999, 1998 and 1997................................... F-12 Consolidated Statements of Changes in Stockholders' Equity -- years ended December 31, 1999, 1998 and 1997.... F-13 Consolidated Statements of Cash Flows -- years ended December 31, 1999, 1998 and 1997.......................... F-14 Notes to Consolidated Financial Statements -- December 31, 1999, 1998 and 1997....................................... F-15
F-1 105 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors Blue Valley Ban Corp Overland Park, Kansas 66225 We have reviewed the consolidated balance sheet of BLUE VALLEY BAN CORP as of March 31, 2000, and the related consolidated statements of income and cash flows for the three month periods ended March 31, 2000 and 1999 and stockholders' equity for the three months ended March 31, 2000. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A Review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. /s/ BAIRD, KURTZ & DOBSON Kansas City, Missouri May 24, 2000 F-2 106 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
MARCH 31, 2000 -------------- (UNAUDITED) Cash and due from banks..................................... $ 12,703 Federal funds sold.......................................... 3,000 -------- Cash and cash equivalents................................. 15,703 Available-for-sale securities............................... 51,733 Mortgage loans held for sale................................ 2,528 Loans....................................................... 254,325 Less allowance for loan losses............................ (3,995) -------- Net loans................................................. 250,330 Premises and equipment...................................... 5,587 Foreclosed assets held for sale, net........................ 311 Interest receivable......................................... 2,175 Deferred income taxes....................................... 1,924 Prepaid expenses and other assets........................... 908 Federal Home Loan Bank stock................................ 1,053 Excess of cost over fair value of net assets acquired, at amortized cost............................................ 1,410 -------- Total Assets.............................................. $333,662 ========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report F-3 107 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, 2000 -------------- (UNAUDITED) LIABILITIES Demand deposits............................................. $ 39,491 Savings, NOW and money market deposits...................... 133,235 Time deposits............................................... 106,135 -------- Total Deposits............................................ 278,861 Securities sold under agreements to repurchase.............. 11,874 Short-term debt............................................. 7,263 Long-term debt.............................................. 11,874 Advances from borrowers for taxes and insurance............. 1,179 Accrued interest and other liabilities...................... 2,984 -------- Total Liabilities......................................... 314,035 -------- STOCKHOLDERS' EQUITY Capital stock Common stock, par value $1 per share; Authorized 15,000,000 shares; issued and outstanding 2,141,720 shares...................................... 2,142 Additional paid-in capital.................................. 5,277 Retained earnings........................................... 13,290 Accumulated other comprehensive income Unrealized depreciation on available-for-sale securities, net of income taxes of $(721).......................... (1,082) -------- Total Stockholders' Equity................................ 19,627 -------- Total Liabilities and Stockholders' Equity................ $333,662 ========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report F-4 108 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- (UNAUDITED) (UNAUDITED) INTEREST INCOME Interest and fees on loans.................................. $6,273 $4,027 Federal funds sold.......................................... 38 152 Available-for-sale securities............................... 753 713 ------ ------ Total Interest Income..................................... 7,064 4,892 ------ ------ INTEREST EXPENSE Deposits.................................................... 2,951 2,229 Securities sold under repurchase agreements................. 91 57 Long-term debt and advances................................. 413 237 ------ ------ Total Interest Expense.................................... 3,455 2,523 ------ ------ NET INTEREST INCOME......................................... 3,609 2,369 PROVISION FOR LOAN LOSSES................................... 465 300 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 3,144 2,069 ------ ------ NONINTEREST INCOME Service fees................................................ 600 659 Other income................................................ 75 56 ------ ------ Total Noninterest Income.................................. 675 715 ------ ------ NONINTEREST EXPENSE Salaries and employee benefits.............................. 1,409 997 Net occupancy expense....................................... 257 198 Other operating expense..................................... 932 613 ------ ------ Total Noninterest Expense................................. 2,598 1,808 ------ ------ INCOME BEFORE INCOME TAXES.................................. 1,221 976 PROVISION FOR INCOME TAXES.................................. 388 321 ------ ------ NET INCOME.................................................. $ 833 $ 655 ====== ====== BASIC EARNINGS PER SHARE.................................... $ .39 $ .31 ====== ====== DILUTED EARNINGS PER SHARE.................................. $ .38 $ .30 ====== ======
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report F-5 109 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED OTHER COMPREHENSIVE INCOME UNREALIZED ADDITIONAL DEPRECIATION ON COMPREHENSIVE COMMON PAID-IN RETAINED AVAILABLE-FOR-SALE INCOME STOCK CAPITAL EARNINGS SECURITIES, NET TOTAL ------------- ------ ---------- -------- ------------------ ------- BALANCE, DECEMBER 31, 1999......... $2,138 5,230 $12,458 $ (957) $18,869 Issuance of 4,000 shares of common stock............................ 4 47 51 Net income......................... $832 832 832 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $(83)..... (125) (125) (125) ---- ------ ------ ------- ------- ------- BALANCE, MARCH 31, 2000............ $707 $2,142 $5,277 $13,290 $(1,082) $19,627 ==== ====== ====== ======= ======= ======= RECLASSIFICATION DISCLOSURE: Unrealized depreciation on available-for-sale securities, net of income taxes of $(83)........................................................ $ (125) Less: reclassification adjustments for appreciation (depreciation) included in net income................................................ 0 ------- Change in unrealized depreciation on available-for-sale securities, net of income taxes of $(83).............................................. $ (125) =======
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report F-6 110 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (DOLLARS IN THOUSANDS)
MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 833 $ 655 Items not requiring (providing) cash: Depreciation and amortization............................. 146 128 Amortization (accretion) of premiums and discounts on securities............................................. 21 (14) Provision for loan losses................................. 465 300 Changes in: Accrued interest receivable............................... (136) (268) Mortgage loans held for sale.............................. (1,576) 933 Prepaid expenses and other assets......................... (69) (1,198) Accrued interest payable and other liabilities............ 562 189 -------- -------- Net cash provided by operating activities.............. 246 725 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans................................... (4,476) (25,114) Proceeds from sales of loan participations.................. 110 Purchase of premises and equipment.......................... (120) (102) Proceeds from the sale of foreclosed assets................. 39 22 Proceeds from maturities of available-for-sale securities... 205 8,000 Purchases of available-for-sale securities.................. (3,541) (12) -------- -------- Net cash used in investing activities.................. (7,783) (17,206) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, NOW and savings accounts.......................................... 9,378 13,042 Net increase (decrease) in certificates of deposit.......... 1,338 (4,483) Repayments of long-term debt................................ (34) (32) Net payments on short-term debt............................. (10,187) (125) Proceeds from sale of common stock.......................... 51 Net increase (decrease) in other borrowings................. 614 (1,595) Net increase (decrease) in advances from borrowers for taxes and insurance............................................. (1,380) 170 -------- -------- Net cash provided by (used in) financing activities.... (220) 6,977 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS....................... (7,757) (9,504) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 23,460 28,999 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 15,703 $ 19,495 ======== ========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report F-7 111 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) NOTE 1: BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's consolidated financial position as of March 31, 2000, and the consolidated results of its operations, changes in stockholders' equity and cash flows for the periods ended March 31, 2000 and 1999, and are of a normal recurring nature. NOTE 2: RESULTS OF OPERATIONS The results of operations for the period are not necessarily indicative of the results to be expected for the full year. NOTE 3: EARNINGS PER SHARE Basic earnings per share is computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of per share earnings is as follows:
MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net income.................................................. $ 833 $ 655 ---------- ---------- Average common shares outstanding........................... 2,140,929 2,130,396 Average common share stock options outstanding.............. 34,372 18,688 ---------- ---------- Average diluted common shares............................... 2,175,301 2,149,084 ---------- ---------- Basic earnings per share.................................... $ .39 $ .31 ========== ========== Diluted earnings per share.................................. $ .38 $ .30 ========== ==========
See Independent Accountants' Review Report. F-8 112 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors Blue Valley Ban Corp Overland Park, Kansas We have audited the accompanying consolidated balance sheets of BLUE VALLEY BAN CORP as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of BLUE VALLEY BAN CORP as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Baird, Kurtz & Dobson March 1, 2000 Kansas City, Missouri F-9 113 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
1999 1998 -------- -------- Cash and due from banks..................................... $ 15,460 $ 8,299 Federal funds sold.......................................... 8,000 20,700 -------- -------- Cash and cash equivalents.............................. 23,460 28,999 Available-for-sale securities............................... 48,646 53,427 Mortgage loans held for sale................................ 952 1,954 Loans....................................................... 250,410 161,444 Less allowance for loan losses............................ 3,817 2,341 -------- -------- Net loans.............................................. 246,593 159,103 Premises and equipment...................................... 5,574 5,422 Foreclosed assets held for sale, net........................ 186 46 Interest receivable......................................... 2,039 1,501 Deferred income taxes....................................... 1,841 471 Prepaid expenses and other assets........................... 840 584 Federal Home Loan Bank stock................................ 1,034 617 Excess of cost over fair value of net assets acquired, at amortized cost............................................ 1,448 1,600 -------- -------- Total Assets.............................................. $332,613 $253,724 ======== ========
See Notes to Consolidated Financial Statements F-10 114 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998 -------- -------- LIABILITIES Demand deposits............................................. $ 36,950 $ 33,752 Savings, NOW and money market deposits...................... 126,398 63,215 Time deposits............................................... 104,797 112,857 -------- -------- Total Deposits....................................... 268,145 209,824 Securities sold under agreements to repurchase.............. 11,260 8,817 Short-term debt............................................. 17,450 3,575 Long-term debt.............................................. 11,908 12,038 Advances from borrowers for taxes and insurance............. 2,559 712 Accrued interest and other liabilities...................... 2,422 1,742 -------- -------- Total Liabilities.................................... 313,744 236,708 -------- -------- STOCKHOLDERS' EQUITY Capital stock Common stock, par value $1 per share; Authorized 15,000,000 shares; issued and outstanding 1999 -- 2,137,720 shares; 1998 -- 2,130,396 shares.... 2,138 2,130 Additional paid-in capital.................................. 5,230 5,159 Retained earnings........................................... 12,458 9,375 Accumulated other comprehensive income Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $(638) in 1999 and $235 in 1998........................ (957) 352 -------- -------- Total Stockholders' Equity........................... 18,869 17,016 -------- -------- Total Liabilities and Stockholders' Equity........... $332,613 $253,724 ======== ========
See Notes to Consolidated Financial Statements F-11 115 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 ------- ------- ------- INTEREST INCOME Interest and fees on loans.................................. $20,422 $14,608 $12,000 Federal funds sold.......................................... 431 396 276 Available-for-sale securities............................... 2,755 2,814 2,275 ------- ------- ------- Total Interest Income..................................... 23,608 17,818 14,551 ------- ------- ------- INTEREST EXPENSE Deposits.................................................... 9,832 8,232 6,634 Securities sold under repurchase agreements................. 287 438 167 Long-term debt and advances................................. 1,085 535 457 ------- ------- ------- Total Interest Expense.................................... 11,204 9,205 7,258 ------- ------- ------- NET INTEREST INCOME......................................... 12,404 8,613 7,293 PROVISION FOR LOAN LOSSES................................... 2,144 1,061 660 ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 10,260 7,552 6,633 ------- ------- ------- NONINTEREST INCOME Service fees................................................ 2,835 2,084 1,045 Other income................................................ 189 562 409 ------- ------- ------- Total Noninterest Income.................................. 3,024 2,646 1,454 ------- ------- ------- NONINTEREST EXPENSE Salaries and employee benefits.............................. 4,578 3,312 2,304 Net occupancy expense....................................... 894 748 663 Other operating expense..................................... 3,208 1,936 1,689 ------- ------- ------- Total Noninterest Expense................................. 8,680 5,996 4,656 ------- ------- ------- INCOME BEFORE INCOME TAXES.................................. 4,604 4,202 3,431 PROVISION FOR INCOME TAXES.................................. 1,521 1,386 1,145 ------- ------- ------- NET INCOME.................................................. $ 3,083 $ 2,816 $ 2,286 ======= ======= ======= BASIC EARNINGS PER SHARE.................................... $ 1.45 $ 1.36 $ 1.24 ======= ======= ======= DILUTED EARNINGS PER SHARE.................................. $ 1.42 $ 1.35 $ 1.22 ======= ======= =======
See Notes to Consolidated Financial Statements F-12 116 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED OTHER COMPREHENSIVE INCOME ------------------ UNREALIZED APPRECIATION ADDITIONAL (DEPRECIATION) ON COMPREHENSIVE COMMON PAID-IN RETAINED AVAILABLE-FOR-SALE INCOME STOCK CAPITAL EARNINGS SECURITIES, NET TOTAL ------------- ------ ---------- -------- ------------------ ------- BALANCE, DECEMBER 31, 1996......... $1,841 $4,026 $ 4,273 $ (40) $10,100 Issuance of 186,600 shares of common stock..................... 187 591 778 Net income......................... $ 2,286 2,286 2,286 Change in unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $200...... 300 300 300 ------- ------ ------ ------- ------- ------- BALANCE, DECEMBER 31, 1997......... $ 2,586 2,028 4,617 6,559 260 13,464 ======= ====== ====== ======= ======= ======= Issuance of 102,336 shares of common stock..................... 102 542 644 Net income......................... $ 2,816 2,816 2,816 Change in unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $61....... 92 92 92 ------- ------ ------ ------- ------- ------- BALANCE, DECEMBER 31, 1998......... $ 2,908 2,130 5,159 9,375 352 17,016 ======= ====== ====== ======= ======= ======= Issuance of 7,324 shares of common stock............................ 8 71 79 Net income......................... $ 3,083 3,083 3,083 Change in unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $(872).... (1,309) (1,309) (1,309) ------- ------ ------ ------- ------- ------- BALANCE, DECEMBER 31, 1999......... $ 1,774 $2,138 $5,230 $12,458 $ (957) $18,869 ======= ====== ====== ======= ======= =======
1999 1998 1997 -------- ------ ------- RECLASSIFICATION DISCLOSURE: Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $(871), $106 and $203 for 1999, 1998 and 1997, respectively..................... $(1,307) $ 159 $ 305 Less: reclassification adjustments for appreciation (depreciation) included in net income, net of income taxes of $1, $45 and $3 for 1999, 1998 and 1997, respectively... (2) (67) (5) ------- ------ ------- Change in unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $(872), $61 and $200 for 1999, 1998 and 1997, respectively.............................................. $(1,309) $ 92 $ 300 ======= ====== =======
See Notes to Consolidated Financial Statements F-13 117 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
1999 1998 1997 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 3,083 $ 2,816 $ 2,286 Items not requiring (providing) cash: Depreciation and amortization............................. 533 445 388 Amortization (accretion) of premiums and discounts on securities............................................. 50 27 Provision for loan losses................................. 2,144 1,061 660 Deferred income taxes..................................... (497) (298) (103) Provision for losses on foreclosed assets................. 116 Gain on sales of available-for-sale securities............ (3) (112) (8) (Gain) loss on sale of foreclosed assets.................. (78) 45 Changes in: Accrued interest receivable............................... (538) (141) (204) Mortgage loans held for sale.............................. 1,002 (1,063) 610 Prepaid expenses and other assets......................... (259) 38 212 Accrued interest payable and other liabilities............ 680 730 283 ------- ------- ------- Net cash provided by operating activities.............. 6,195 3,398 4,312 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans................................... (92,460) (38,869) (27,802) Proceeds from sales of loan participations.................. 2,231 4,394 254 Purchase of premises and equipment.......................... (530) (1,203) (286) Proceeds from the sale of foreclosed assets................. 455 827 329 Proceeds from sales of available-for-sale securities........ 2,003 11,115 3,865 Proceeds from maturities of available-for-sale securities... 10,105 7,270 4,422 Purchases of available-for-sale securities.................. (9,973) (31,433) (11,947) ------- ------- ------- Net cash used in investing activities.................. (88,169) (47,899) (31,165) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, NOW and savings accounts.......................................... 66,381 18,861 9,665 Net increase (decrease) in certificates of deposit.......... (8,060) 20,171 21,199 Repayments of long-term debt................................ (130) (120) (112) Proceeds from long-term debt................................ 10,000 Net proceeds (payments) on short-term debt.................. 13,875 (463) 1,150 Proceeds from sale of common stock.......................... 79 644 778 Net increase in other borrowings............................ 2,443 704 2,382 Net increase (decrease) in advances from borrowers for taxes and insurance............................................. 1,847 (1,277) 973 ------- ------- ------- Net cash provided by financing activities.............. 76,435 48,520 36,035 ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (5,539) 4,019 9,182 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......................................... 28,999 24,980 15,798 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR............................................... $23,460 $28,999 $24,980 ======= ======= =======
See Notes to Consolidated Financial Statements F-14 118 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Company is a holding company for Bank of Blue Valley (the Bank) and Blue Valley Building Corporation through 100% ownership of each. The Bank is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers in southern Johnson County. The Bank is subject to competition from other financial institutions. The Bank also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The Blue Valley Building Corporation is primarily engaged in leasing real property at its only facility in Overland Park, Kansas. OPERATING SEGMENT The Company provides community banking services through its subsidiary bank, including such products and services as loans; time deposits, checking and savings accounts; trust services; and investment services. These activities are reported as one operating segment. USE OF ESTIMATES 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. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties. Management believes that the allowances for losses on loans and the valuation of foreclosed assets held for sale are adequate. While management uses available information to recognize losses on loans and foreclosed assets held for sale, changes in economic conditions may necessitate revision of these estimates in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for losses on loans and valuation of foreclosed assets held for sale. Such agencies may require the Company to recognize additional losses based on their judgements of information available to them at the time of their examination. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Blue Valley Ban Corp and its 100% owned subsidiaries, Bank of Blue Valley and Blue Valley Building Corporation. Significant intercompany accounts and transactions have been eliminated in consolidation. F-15 119 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) CASH EQUIVALENTS The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 1999 and 1998, cash equivalents consisted of federal funds sold. INVESTMENT IN DEBT SECURITIES Available-for-sale securities, which include any security for which the Company has no immediate plan to sell, but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the specific security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' equity. Premiums and discounts are amortized and accreted, respectively, to interest income using a method which approximates the level-yield method over the period to maturity. Interest on investments in debt securities is included in income when earned. OTHER INVESTMENTS The Company, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB. No ready market exists for the FHLB stock, and it has no quoted market value. Such stock is recorded at cost and reported as other investments in the accompanying consolidated balance sheets. MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs. Forward commitments to sell mortgage loans are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Amounts paid to investors to obtain forward commitments are deferred until such time as the related loans are sold. The fair values of the forward commitments are not recognized in the financial statements. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid, commitment fees paid and considering a normal servicing rate. Fees received from borrowers to guarantee the funding of mortgage loans held for sale are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used. LOANS Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-offs, are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is increased by provisions charged to expense and reduced by loans charged off, net of recoveries. The allowance is management's best estimate of probable losses which have been incurred as of the balance sheet date based on management's evaluation of risk in the portfolio, local economic conditions, and historical loss experience. F-16 120 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) The adequacy of the allowance is analyzed monthly based on internal loan reviews and quality measurements of the loan portfolio. The Bank computes its allowance by assigning specific reserves to impaired loans, and then applies a general reserve based on a loss factor applied to the rest of the loan portfolio. The loss factor is determined based on such items as management's evaluation of risk in the portfolio, local economic conditions and historical loss experience. Specific allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more (nonaccrual loans) and certain other loans identified by management. Accrual of interest is discontinued, and interest accrued and unpaid is removed, at the time such amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only upon receipt, and only after all principal amounts are current according to the terms of the contract. PREMISES AND EQUIPMENT Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. FORECLOSED ASSETS HELD FOR SALE Assets acquired by foreclosure or in settlement of debt and held for sale are valued at estimated fair value as of the date of foreclosure, and a related valuation allowance is provided for estimated costs to sell the assets. Management evaluates the value of foreclosed assets held for sale periodically and increases the valuation allowance for any subsequent declines in fair value. Increases in the valuation allowance and gains/losses on sales of foreclosed assets are included in non-interest expenses, net. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED Unamortized costs in excess of the fair value of underlying net tangible assets acquired aggregated $1,448,000 and $1,600,000 (originally $2,286,000) at December 31, 1999 and 1998, respectively, and are being amortized over a 15-year period using the straight-line method. Amortization expense related to purchased subsidiaries and acquired deposits was $152,000 for each of the years 1999, 1998 and 1997. FEE INCOME Loan origination fees, net of direct origination costs, are recognized as income using the level-yield method over the term of the loans. RECLASSIFICATION Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 financial statement presentation. These reclassifications had no effect on net income. INCOME TAXES Deferred tax liabilities and assets are recognized for the tax effect of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. F-17 121 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) EARNINGS PER SHARE Basic earnings per share is computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of per share earnings is as follows:
1999 1998 1997 ------------- ------------- ------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net income........................................... $ 3,083 $ 2,816 $ 2,286 ---------- ---------- ---------- Average common shares outstanding.................... 2,131,372 2,065,400 1,843,228 Average common share stock options outstanding....... 34,636 18,688 24,616 ---------- ---------- ---------- Average diluted common shares........................ 2,166,008 2,084,088 1,867,844 ---------- ---------- ---------- Basic earnings per share........................... $ 1.45 $ 1.36 $ 1.24 ========== ========== ========== Diluted earnings per share......................... $ 1.42 $ 1.35 $ 1.22 ========== ========== ==========
NOTE 2: INVESTMENT IN DEBT SECURITIES The amortized cost and approximate fair value of available-for-sale securities at December 31, 1999 are as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED APPROXIMATE COST GAINS LOSSES FAIR VALUE --------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS) U.S. Treasury.................................. $10,012 $20 $ (83) $ 9,949 U.S. Government agencies....................... 25,591 (1,365) 24,226 State and political subdivisions............... 14,638 33 (200) 14,471 ------- --- ------- ------- $50,241 $53 $(1,648) $48,646 ======= === ======= =======
Maturities of available-for-sale debt instruments at December 31, 1999 are as follows:
AMORTIZED APPROXIMATE COST FAIR VALUE --------- ----------- (DOLLARS IN THOUSANDS) In one year or less......................................... $ 3,262 $ 3,255 After one through five years................................ 15,239 15,025 After five through ten years................................ 31,740 30,366 After ten years............................................. ------- ------- $50,241 $48,646 ======= =======
F-18 122 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) The amortized cost and approximate fair value of available-for-sale securities at December 31, 1998 are as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED APPROXIMATE COST GAINS LOSSES FAIR VALUE --------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS) U.S. Treasury.................................. $12,024 $198 $ (10) $12,212 U.S. Government agencies....................... 26,660 142 (155) 26,647 State and political subdivisions............... 14,156 416 (4) 14,568 ------- ---- ----- ------- $52,840 $756 $(169) $53,427 ======= ==== ===== =======
The book value of securities pledged as collateral to secure public deposits amounted to $22,177,000 at December 31, 1999 and $28,231,000 at December 31, 1998. The approximate fair value of pledged securities amounted to $21,597,000 at December 31, 1999 and $28,568,000 at December 31, 1998. The Company entered into sales of securities under agreements to repurchase. The amounts deposited under these agreements represent short-term borrowings and are reflected as a liability in the consolidated balance sheets. The securities underlying the agreements are book-entry securities. During the period, securities held in safekeeping were pledged to the depositors under a written custodial agreement that explicitly recognizes the depositors' interest in the securities. At December 31, 1999, or at any month end during the period, no material amount of agreements to repurchase securities sold was outstanding with any individual dealer. Securities sold under agreements to repurchase averaged $9,500,000 and $7,042,000 during 1999 and 1998, and the maximum amounts outstanding at any month-end were $13,056,000 and $8,886,000, respectively. The book value of securities pledged to secure agreements to repurchase amounted to $15,110,000, and $10,092,000 at December 31, 1999 and 1998, respectively. The approximate fair value of these securities was $14,235,000 at December 31, 1999 and $10,012,000 at December 31, 1998. Gross gains of $3,000, $112,000 and $8,000 were realized at December 31, 1999, 1998 and 1997, respectively, resulting from sales of available-for-sale securities. F-19 123 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES Categories of loans at December 31, 1999 and 1998 include the following:
1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Commercial.................................................. $ 64,552 $ 52,310 Commercial real estate...................................... 26,617 15,457 Construction................................................ 41,336 25,834 Residential real estate..................................... 33,251 28,367 Leases...................................................... 30,174 13,765 Personal.................................................... 44,747 19,751 Home equity................................................. 9,820 6,170 -------- -------- TOTAL LOANS................................................. 250,497 161,654 Less: Unearned discount and fees................................ 87 210 Allowance for loan losses................................. 3,817 2,341 -------- -------- Net loans................................................... $246,593 $159,103 ======== ========
Activity in the allowance for loan losses was as follows:
1999 1998 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) BALANCE, BEGINNING OF YEAR.................................. $2,341 $1,618 $1,275 Provision charged to expense................................ 2,144 1,061 660 Losses charged off, net of recoveries of $104,000, $48,000 and $142,000 for 1999, 1998 and 1997, respectively........ (668) (338) (317) ------ ------ ------ BALANCE, END OF YEAR........................................ $3,817 $2,341 $1,618 ====== ====== ======
Impaired loans totaled $5,153,000 and $5,237,000 at December 31, 1999 and 1998, respectively, with related allowances for loan losses of $825,000 and $747,000, respectively. Interest of $713,000 and $600,000 was recognized on average impaired loans of $4,092,000 and $3,496,000 for 1999 and 1998, respectively. Interest of $140,000 and $85,000 was recognized on impaired loans on a cash basis during 1999 and 1998, respectively. NOTE 4: PREMISES AND EQUIPMENT Major classifications of these assets are as follows:
1999 1998 ------ ------ (DOLLARS IN THOUSANDS) Land........................................................ $1,477 $1,477 Building and improvements................................... 3,567 3,405 Furniture and equipment..................................... 1,651 1,282 Land improvements, net...................................... 230 230 ------ ------ 6,925 6,394 Less accumulated depreciation............................... 1,351 972 ------ ------ Total premises and equipment................................ $5,574 $5,422 ====== ======
F-20 124 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) NOTE 5: INTEREST-BEARING DEPOSITS Interest-bearing deposits in denominations of $100,000 or more were $34,957,000 on December 31, 1999 and $35,846,000 on December 31, 1998. At December 31, 1999, the scheduled maturities of certificates of deposit are as follows:
(DOLLARS IN THOUSANDS) ---------------------- 2000........................................................ $ 66,492 2001........................................................ 16,192 2002........................................................ 10,851 2003........................................................ 7,024 2004 and thereafter......................................... 4,238 -------- $104,797 ========
NOTE 6: OPERATING LEASES Blue Valley Building Corp. leases office space to others under noncancellable operating leases expiring in various years through 2004. Minimum future rentals receivable under noncancellable operating leases at December 31, 1999 are as follows:
(DOLLARS IN THOUSANDS) ---------------------- 2000........................................................ $160 2001........................................................ 132 2002........................................................ 133 2003........................................................ 138 2004........................................................ 143 ---- Future minimum lease receivable............................. $706 ====
NOTE 7: INCOME TAXES The provision for income taxes consists of the following:
1999 1998 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) Taxes currently payable..................................... $2,018 $1,684 $1,248 Deferred income taxes....................................... (497) (298) (103) ------ ------ ------ $1,521 $1,386 $1,145 ====== ====== ======
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below:
1999 1998 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) Computed at the statutory rate (34%)........................ $1,565 $1,428 $1,167 Increase (decrease) resulting from: Tax-exempt interest....................................... (190) (213) (140) Stock options............................................. (22) (6) (60) State income taxes........................................ 138 139 130 Other..................................................... 30 38 48 ------ ------ ------ Actual tax provision........................................ $1,521 $1,386 $1,145 ====== ====== ======
F-21 125 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) The tax effects of temporary differences related to deferred taxes shown on the December 31, 1999 and 1998 consolidated balance sheets are as follows:
1999 1998 ------ ------ (DOLLARS IN THOUSANDS) Deferred tax assets: Allowance for loan losses................................. $1,239 $ 739 Accrued compensated absences.............................. 50 37 Accumulated depreciation on available-for- sale securities............................................. 638 ------ ------ 1,927 776 ------ ------ Deferred tax liabilities: Accumulated depreciation.................................. (41) (49) Accumulated appreciation on available-for-sale securities............................................. (235) Other..................................................... (45) (21) ------ ------ (86) (305) ------ ------ Net deferred tax asset.................................... $1,841 $ 471 ====== ======
NOTE 8: SHORT-TERM DEBT Short-term debt at December 31, 1999 and 1998 consisted of the following components:
1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Note payable to bank (A).................................... $ 7,450 $ 3,575 Line of credit (B).......................................... 10,000 ------- ------- Total short-term debt....................................... $17,450 $ 3,575 ======= =======
- --------------- (A) Due on demand, but no later than July 2000; payable in quarterly installments of $187,500 plus interest at prime less 1.0%; collateralized by 258,000 shares of the Bank's capital stock. (B) Line of credit with the Federal Home Loan Bank. Amount outstanding is a two-week advance with principal and interest payable at maturity. The line is collateralized by various assets including mortgage-backed loans and securities, and U.S. Treasury and Agency securities. The interest rate is adjusted daily and is tied to the Federal Funds rate. Availability is determined quarterly; at December 31, 1999 an additional $396,000 was available. NOTE 9: LONG-TERM DEBT Long-term debt at December 31, 1999 and 1998 consisted of the following components:
1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Note payable -- other (A)................................... $ 1,908 $ 2,038 Federal Home Loan Bank advances (B)......................... 10,000 10,000 ------- ------- Total long-term debt........................................ $11,908 $12,038 ======= =======
- --------------- (A) Due in August 2009; payable in monthly installments of $23,175 including interest at 7.5%; collateralized by land, building and assignment of future rents. F-22 126 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) (B) Due in 2008; collateralized by various assets including mortgage-backed loans and securities, and U.S. Treasury and Agency securities. The interest rates on the advances range from 4.63% to 5.682%. Aggregate annual maturities of long-term debt at December 31, 1999 are as follows:
(DOLLARS IN THOUSANDS) ---------------------- 2000........................................................ $ 140 2001........................................................ 151 2002........................................................ 162 2003........................................................ 175 2004........................................................ 188 Thereafter.................................................. 11,092 ------- $11,908 =======
NOTE 10: REGULATORY MATTERS The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 1999, that the Company and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 1999, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category. F-23 127 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) The Company and the Bank's actual capital amounts and ratios are also presented in the table.
TO BE WELL CAPITALIZED UNDER PROMPT FOR CAPITAL CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ----------------- ------------------ ----------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------- ------ -------- ------ ---------- --------- (DOLLARS IN THOUSANDS) AS OF DECEMBER 31, 1999: Total Capital (to Risk Weighted Assets) Consolidated................. $21,749 8.07% $21,573 8.00% N/A ======= ====== ======= ===== Bank Only.................... $27,396 10.31% $21,256 8.00% $26,570 10.00% ======= ====== ======= ===== ======= ====== Tier 1 Capital (to Risk Weighted Assets) Consolidated................. $18,378 6.82% $10,786 4.00% N/A ======= ====== ======= ===== Bank Only.................... $24,074 9.06% $10,628 4.00% $15,942 6.00% ======= ====== ======= ===== ======= ====== Tier 1 Capital (to Average Assets) Consolidated................. $18,378 5.80% $12,678 4.00% N/A ======= ====== ======= ===== Bank Only.................... $24,074 7.69% $12,525 4.00% $15,656 5.00% ======= ====== ======= ===== ======= ====== AS OF DECEMBER 31, 1998: Total Capital (to Risk Weighted Assets) Consolidated................. $17,319 9.62% $14,406 8.00% N/A ======= ====== ======= ===== Bank Only.................... $19,012 10.79% $14,100 8.00% $17,625 10.00% ======= ====== ======= ===== ======= ====== Tier 1 Capital (to Risk Weighted Assets) Consolidated................. $15,064 8.37% $ 7,203 4.00% N/A ======= ====== ======= ===== Bank Only.................... $16,809 9.54% $ 7,050 4.00% $10,575 6.00% ======= ====== ======= ===== ======= ====== Tier 1 Capital (to Average Assets) Consolidated................. $15,064 6.13% $ 9,837 4.00% N/A ======= ====== ======= ===== Bank Only.................... $16,809 6.94% $ 9,684 4.00% $12,104 5.00% ======= ====== ======= ===== ======= ======
The Bank is subject to certain restrictions on the amounts of dividends that it may declare without prior regulatory approval. At December 31, 1999, approximately $6,140,000 of retained earnings were available for dividend declaration without prior regulatory approval. F-24 128 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) NOTE 11: TRANSACTIONS WITH RELATED PARTIES At December 31, 1999 and 1998, the Company had loans outstanding to executive officers, directors and to companies in which the Banks' executive officers or directors were principal owners, in the amounts of $1,384,000 and $1,713,000, respectively. Related party transactions for 1999 were as follows:
(DOLLARS IN THOUSANDS) ---------------------- Balance, beginning of year.................................. $1,713 New loans................................................... 202 Repayments.................................................. (531) ------ Balance, end of year........................................ $1,384 ======
In management's opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management's opinion, these loans did not involve more than the normal risk of collectibility or present other unfavorable features. NOTE 12: PROFIT SHARING PLAN The Company's profit sharing plan covers substantially all employees. Contributions to the plan are determined annually by the Board of Directors, and participant interests are vested over a period from two to six years of service. Employer contributions charged to expense for 1999, 1998 and 1997 were $216,000, $152,000 and $132,000, respectively. NOTE 13: STOCK OPTIONS The Company has a fixed option plan under which the Company may grant options which vest two years from the date of grant to its employees for shares of common stock. At December 31, 1999, the Company had 215,284 options available to be granted (options granted prior to 1998 were subject to an earlier plan with similar terms). The exercise price of each option is intended to equal the fair value of the Company's stock on the date of grant, and maximum terms are 10 years. A summary of the status of the plan at December 31, 1999, 1998 and 1997, and changes during the years then ended, is presented below:
1999 1998 1997 ------------------ ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- -------- -------- -------- -------- -------- Outstanding, beginning of year.... 101,340 $ 9.18 138,160 $6.17 264,260 $4.45 Granted........................... 64,000 14.38 65,516 11.02 60,500 7.50 Exercised......................... (7,324) 10.75 (102,336) 6.30 (186,600) 4.17 Forfeited......................... (800) ------- ------ -------- ----- -------- ----- Outstanding, end of year.......... 157,216 $11.21 101,340 $9.18 138,160 $6.17 ======= ====== ======== ===== ======== ===== Options exercisable, end of year............................ 88,860 $11.19 68,984 $7.34 138,160 $6.17 ======= ====== ======== ===== ======== =====
The weighted-average remaining contractual life at December 31, 1999 was 8.86 years. Exercise prices ranged from $3.75 to $14.38. F-25 129 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) The fair value of options granted is estimated on the date of the grant using the minimum value method with the following weighted-average assumptions:
1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Dividend per Share.......................................... $ -- $ -- $ -- Risk-Free Interest Rate..................................... 6% 6% 6% Expected Life of Options.................................... 2 years 2 years 2 years Weighted-average fair value of options granted during the year...................................................... $ 101 $ 79 $ 50 ======== ======== ========
The expected life of options outstanding is based on the historical experience of the Company. The Company applies APB Opinion 25 and related Interpretations in accounting for the plan and no compensation cost has been recognized. Had compensation cost for the Company's plan been determined based on the fair value at the grant dates using the minimum value method under Statement of Financial Accounting Standards No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ------- ------ ------ (DOLLARS IN THOUSANDS) Net income As reported............................................... $ 3,083 $2,816 $2,286 Pro forma................................................. $ 3,023 $2,790 $2,253 Basic earnings per share As reported............................................... $ 1.45 $ 1.36 $ 1.24 Pro forma................................................. $ 1.42 $ 1.35 $ 1.22 Diluted earnings per share As reported............................................... $ 1.42 $ 1.34 $ 1.22 Pro forma................................................. $ 1.40 $ 1.34 $ 1.21
NOTE 14: ADDITIONAL CASH FLOWS INFORMATION NONCASH INVESTING AND FINANCING ACTIVITIES
1999 1998 1997 ------- ------ ------ (DOLLARS IN THOUSANDS) Loans transferred to foreclosed assets held for sale........ $ 595 $ 82 $ 647 ADDITIONAL CASH PAYMENT INFORMATION Interest paid............................................. 11,411 8,995 7,061 Income taxes paid......................................... 1,655 1,551 1,165
F-26 130 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) NOTE 15: OTHER INCOME/EXPENSE OTHER INCOME/EXPENSE Other operating expenses consist of the following:
1999 1998 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) Advertising................................................. $ 475 $ 269 $ 119 Data processing............................................. 352 266 206 Professional fees........................................... 259 154 203 Other expense............................................... 2,122 1,247 1,161 ------ ------ ------ Total..................................................... $3,208 $1,936 $1,689 ====== ====== ======
Other income consists of the following:
1999 1998 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) Rental income............................................... $ 143 $ 273 $ 352 Other income................................................ 46 289 57 ------ ------ ------ Total..................................................... $ 189 $ 562 $ 409 ====== ====== ======
NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND CASH EQUIVALENTS For these short-term instruments, the carrying amount approximates fair value. AVAILABLE-FOR-SALE SECURITIES Fair values for available-for-sale securities, which also are the amounts recognized in the consolidated balance sheets, equal quoted market prices, if available. If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities. MORTGAGE LOANS HELD FOR SALE For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. LOANS The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value. F-27 131 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) DEPOSITS The fair value of demand deposits, savings accounts, NOW accounts and certain money market deposits is the amount payable on demand at the reporting date (i.e., their carrying amount). The fair value of fixed maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE The fair value of advances from borrowers for taxes and insurance is the amount payable at the reporting date (i.e., their carrying amount). SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER LIABILITIES For these short-term instruments, the carrying amount is a reasonable estimate of fair value. NOTES PAYABLE AND LONG-TERM DEBT Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. COMMITMENTS TO EXTEND CREDIT, LETTERS OF CREDIT AND LINES OF CREDIT The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit and lines of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. F-28 132 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) The following table presents estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgements by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments, and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instrument could be sold individually or in the aggregate.
1999 1998 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Financial assets: Cash and cash equivalents........................... $ 23,460 $ 23,460 $ 28,999 $ 28,999 Available-for-sale securities....................... 48,646 48,646 53,427 53,427 Mortgage loans held for sale........................ 952 952 1,954 1,954 Interest receivable................................. 2,039 2,039 1,501 1,501 Loans, net of allowance for loan losses............. 246,593 246,090 159,103 159,160 Financial liabilities: Deposits............................................ 268,145 262,913 209,824 211,219 Advances from borrowers for taxes and insurance..... 2,559 2,559 712 712 Securities sold under agreements to repurchase...... 11,260 11,260 8,817 8,817 Short-term debt..................................... 17,450 17,450 3,575 3,575 Long-term debt...................................... 11,908 11,348 12,038 12,002 Interest payable.................................... 870 870 976 976 Unrecognized financial instruments (net of amortization): Commitments to extend credit........................ 0 0 0 0 Letters of credit................................... 0 0 0 0 Lines of credit..................................... 0 0 0 0 Forward commitments................................. 0 0 0 0
NOTE 17: COMMITMENTS AND CREDIT RISKS The Company extends credit for commercial real estate mortgages, residential mortgages, working capital financing and consumer loans to businesses and residents principally in southern Johnson County. The Bank also purchases indirect leases from various leasing companies throughout Kansas and Missouri. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. At December 31, 1999 and 1998, the Company had outstanding commitments to originate loans aggregating approximately $36,826,000 and $14,518,000, respectively. The commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at F-29 133 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) fixed rates of interest amounted to $2,116,000 and $3,333,000 at December 31, 1999 and 1998, respectively, with the remainder at floating market rates. Mortgage loans in the process of origination represent amounts which the Company plans to fund within a normal period of 60 to 90 days and which are intended for sale to investors in the secondary market. Forward commitments to sell mortgage loans are obligations to deliver loans at a specified price on or before a specified future date. The Bank acquires such commitments to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Total mortgage loans in the process of origination amounted to $9,204,000 and $8,858,000 and mortgage loans held for sale amounted to $952,000 and $1,954,000 at December 31, 1999 and 1998, respectively. Related forward commitments to sell mortgage loans amounted to approximately $10,156,000 and $10,812,000 at December 31, 1999 and 1998, respectively. Mortgage loans in the process of origination represent commitments to originate loans at fixed rates. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $4,267,000 and $2,318,000 at December 31, 1999 and 1998, respectively. Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance sheet instruments. At December 31, 1999 and 1998, unused lines of credit borrowings aggregated approximately $75,112,000 and $58,786,000, respectively. Additionally, the Company periodically has excess funds which are loaned to other banks as federal funds sold. At December 31, 1999 and 1998, federal funds sold totaling $8,000,000 and $20,700,000, respectively, were loaned to various banks, as approved by the Board of Directors, with the largest balance at any one bank being $5,000,000 and $17,700,000 (Federal Home Loan Bank) at December 31, 1999 and 1998. NOTE 18: SIGNIFICANT ESTIMATES AND CONCENTRATIONS Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the footnote regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk. NOTE 19: FUTURE CHANGES IN ACCOUNTING PRINCIPLE The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). This F-30 134 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) statement, as amended by SFAS No. 137, requires all derivatives to be recorded on the balance sheet at fair value and establishes standard accounting methodologies for hedging activities. The standard will result in the recognition of offsetting changes in value or cash flows of both the hedge and the hedged item in earnings or comprehensive income in the same period. The statement is effective for Blue Valley's fiscal year ending December 31, 2001. Because Blue Valley generally does not hold derivative instruments, the adoption of this statement is not expected to have a material impact on the financial statements. NOTE 20: SUBSEQUENT EVENT Subsequent to year end, the stockholders authorized: - An increase in the number of authorized shares of the Company's common stock from 1,000,000 to 15,000,000. - A reduction in the par value of the Company's common stock from $10.00 to $1.00 per share. - The issuance of up to 15,000,000 shares of preferred stock in one or more series with such limitations and restrictions as may be determined by the Board's sole discretion. In addition, the Board of Directors authorized a 4-for-1 stock split. All shares and per share amounts presented in these financial statements have been restated to give effect to the stock split, retroactively. NOTE 21: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
1999 1998 ------- ------- (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 136 $ 318 Investments in subsidiaries: Bank of Blue Valley....................................... 24,565 18,762 Blue Valley Building Corp................................. 1,425 1,404 Loans....................................................... 300 200 Other assets................................................ 334 202 ------- ------- Total Assets.............................................. $26,760 $20,886 ======= ======= LIABILITIES Long-term debt.............................................. $ 7,450 $ 3,575 Other liabilities........................................... 441 295 ------- ------- Total Liabilities......................................... 7,891 3,870 ------- ------- STOCKHOLDERS' EQUITY Common stock................................................ 2,138 2,130 Additional paid-in capital.................................. 5,230 5,159 Undivided profits........................................... 12,458 9,375 Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $(638) and $235 at 1999 and 1998, respectively.................................... (957) 352 ------- ------- Total stockholders' equity................................ 18,869 17,016 ------- ------- Total Liabilities and Stockholders' Equity................ $26,760 $20,886 ======= =======
F-31 135 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ------- ------- ------- (IN THOUSANDS) INCOME Dividends from subsidiaries................................. $ 695 $ 100 $ 445 Other income................................................ 5 7 3 ------- ------- ------- 700 107 448 Expenses.................................................... 379 350 250 ------- ------- ------- Income before income taxes and equity in undistributed net income of subsidiaries.................................... 321 (243) 198 Credit for income taxes..................................... (128) (118) (84) ------- ------- ------- Income before equity in undistributed net income of subsidiaries.............................................. 449 (125) 282 Equity in undistributed net income of subsidiaries.......... 2,634 2,941 2,004 ------- ------- ------- Net income.................................................. $ 3,083 $ 2,816 $ 2,286 ======= ======= =======
F-32 136 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ------- ------- ------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 3,083 $ 2,816 $ 2,286 Items not requiring (providing) cash: Deferred income taxes..................................... (128) (198) (4) Equity in undistributed income of subsidiaries............ (2,634) (2,941) (2,004) Changes in: Other assets.............................................. (3) Other liabilities......................................... 146 257 (14) ------- ------- ------- Net cash provided by (used in) operating activities.... 464 (66) 264 ------- ------- ------- CASH FLOW FROM INVESTING ACTIVITIES Capital contributed to subsidiary........................... (4,500) (615) Net originations of loans................................... (100) ------- ------- Net cash used in investing activities.................. (4,600) (615) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Repayments of long-term debt................................ (625) (463) (300) Proceeds from long-term debt................................ 4,500 1,500 Proceeds from sale of common stock.......................... 79 644 778 ------- ------- ------- Net cash provided by financing activities.............. 3,954 181 1,978 ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................................... (182) 115 1,627 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......................................... 318 203 76 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR............................................... $ 136 $ 318 $ 1,703 ======= ======= =======
F-33 137 - ------------------------------------------------------ - ------------------------------------------------------ TABLE OF CONTENTS
PAGE ------ Prospectus Summary..................... 1 Risk Factors........................... 6 Cautionary Note on Forward-looking Statements........................... 13 Use of Proceeds........................ 14 Market for the Trust Preferred Securities........................... 14 Accounting Treatment................... 14 Capitalization......................... 15 Selected Consolidated Financial Data... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 18 Business............................... 43 Regulation and Supervision............. 52 Management............................. 59 Security Ownership of Management and Certain Beneficial Owners............ 65 Description of the Trust Preferred Securities........................... 65 Description of Junior Subordinated Debentures........................... 79 Description of the Trust Preferred Securities Guarantee................. 88 Description of the Expense Agreement... 90 Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Trust Preferred Securities Guarantee................. 90 Material Federal Income Tax Consequences......................... 93 ERISA Considerations................... 97 Underwriting........................... 98 Available Information.................. 100 Legal Matters.......................... 100 Experts................................ 100 Index to Financial Statements.......... F-1
------------------------ - - WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION THAT DIFFERS FROM THE INFORMATION IN THIS PROSPECTUS. IF YOU RECEIVE ANY DIFFERENT INFORMATION, YOU SHOULD NOT RELY ON IT. - - THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT BLUE VALLEY BAN CORP IS OPERATING UNDER THE SAME CONDITIONS THAT IT WAS OPERATING UNDER WHEN THIS PROSPECTUS WAS WRITTEN. DO NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AT ANY TIME PAST THE DATE INDICATED. - - THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. - - THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, THE SECURITIES TO WHICH IT RELATES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. - - UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT EFFECT TRANSACTIONS IN THE TRUST PREFERRED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------ - ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ 1,250,000 TRUST PREFERRED SECURITIES BVBC CAPITAL TRUST I % CUMULATIVE TRUST PREFERRED SECURITIES FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED ON A SUBORDINATED BASIS BY [BLUE VALLEY BAN CORP LOGO] BLUE VALLEY BAN CORP --------------------------- $10,000,000 % SUBORDINATED DEBENTURES OF BLUE VALLEY BAN CORP --------------------------- PROSPECTUS , 2000 --------------------------- STIFEL, NICOLAUS & COMPANY INCORPORATED - ------------------------------------------------------ - ------------------------------------------------------ 138 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
NATURE OF EXPENSE AMOUNT - ----------------- -------- SEC filing fee(2)........................................... $ 3,036 American Stock Exchange listing fee......................... 15,000 NASD filing fee............................................. 1,650 Printing, postage and mailing............................... 70,000 Legal fees and expenses..................................... 130,000 Accounting fees and expenses................................ 60,000 Trustee, Transfer agent and Registrar fees and expenses..... 5,000 Blue Sky fees and expenses.................................. 10,000 Miscellaneous............................................... 5,314 -------- Total..................................................... $300,000 ========
- --------------- (1) The amounts set forth above, except for the SEC filing fee, the American Stock Exchange listing fee and the NASD filing fee are in each case estimated. (2) Based upon the sale of 1,437,500 trust preferred securities at $8.00 per trust preferred security. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Amended and Restated Articles of Incorporation of the registrant, together with its Bylaws, provide that the registrant shall indemnify each person who is or was an officer or director of the registrant, or who is or was serving at the request of the registrant as a director, officer, employee, partner, trustee or agent of the registrant to the fullest extent permitted by applicable law. The laws of the State of Kansas permit, and in some cases require, corporations to indemnify officers, directors, employees and agents who are or who have been a party to or are threatened to be made a party to litigation against judgments, fines, settlements and reasonable expenses under certain circumstances. The registrant has also adopted provisions in its Amended and Restated Articles of Incorporation that limit the liability of its directors to the fullest extent permitted by the laws of the State of Kansas. Under the registrant's Amended and Restated Articles of Incorporation, as permitted by the laws of the State of Kansas, a director is not liable to the registrant or its stockholders for monetary damages for a breach of fiduciary duty as a director, except to the extent such exemption from liability, or limitation thereof, is not permitted under the Kansas General Corporation Code (the "KGCC") as presently in effect or as the same may hereafter be amended. As of the filing date of this registration statement, KGCC sec. 17-6002 provides, in pertinent part, that corporations "shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, policyholders or members, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under the provisions of K.S. 17-6424, and amendments thereto, or (d) for any transaction from which the director derived an improper personal benefit." The registrant has agreed to indemnify the underwriter and the underwriter has agreed to indemnify the registrant against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On January 31, 2000, the registrant effected a 4-for-1 stock split of its common stock. In connection with such stock split, the registrant issued to its stockholders of record an aggregate of 1,603,290 shares of common stock. All common share and per share amounts herein have been retroactively adjusted to reflect the stock split. II-1 139 Since December 31, 1996, the registrant has granted options to purchase an aggregate of 190,016 shares of common stock (after giving effect to the stock split) under its 1998 Equity Incentive Plan and its 1994 Stock Option Plan (together, the "Plans"), exercisable at a weighted average price of $11.03 per share (after giving effect to the stock split). During this same period, options granted under the Plans to purchase 296,260 shares of the registrant's common stock were exercised at a weighted average price of $5.07 per share. No underwriters were involved in the foregoing transactions. The January 31, 2000 stock split was effected in reliance upon the definition of "sale" set forth in Section 2(a)(3) of the Securities Act. Each of the options granted under the Plans and the exercises thereof were effected in reliance on Rule 701 under the Securities Act, and are deemed restricted securities for the purposes of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS The following is a complete list of exhibits filed as a part of this registration statement. 1.1* Draft form of Underwriting Agreement between Blue Valley Ban Corp, BVBC Capital Trust I and Stifel, Nicolaus & Company, Incorporated 3.1* Amended and Restated Articles of Incorporation of Blue Valley Ban Corp 3.2* Bylaws, as amended, of Blue Valley Ban Corp 4.1* 1998 Equity Incentive Plan 4.2* 1994 Stock Option Plan 4.3 Draft form of Indenture of Blue Valley Ban Corp 4.4 Draft form of % Junior Subordinated Debentures, due September 30, 2030 4.5* Certificate of Trust of BVBC Capital Trust I 4.6 Draft form of Amended and Restated Trust Agreement of BVBC Capital Trust I 4.7* Draft form of % Cumulative Preferred Security Certificate for BVBC Capital Trust I 4.8* Draft form of Trust preferred securities Guarantee Agreement of Blue Valley Ban Corp relating to the % Cumulative Trust preferred securities 4.9* Draft form of Agreement as to Expenses and Liabilities 5.1* Opinion of Blackwell Sanders Peper Martin LLP as to the legality of the % junior subordinated debentures, due September 30, 2030 and the Trust Preferred Securities Guarantee Agreement relating to the % Cumulative Trust preferred securities 5.2* Opinion of Morris, Nichols, Arsht & Tunnell (special Delaware counsel) as to the legality of the % cumulative trust preferred securities to be issued by BVBC Capital Trust I 8.1* Opinion of Blackwell Sanders Peper Martin LLP as to certain federal income tax matters. 10.1* Security Agreement of Blue Valley Ban Corp in favor of Boatmen's First National Bank of Kansas City, dated as of June 7, 1994 10.2* Agreement between Blue Valley Ban Corp, Bank of Blue Valley and Boatmen's First National Bank of Kansas City, dated as of January 2, 1997 10.3* Amendment of Loan Documents between Blue Valley Ban Corp, Bank of Blue Valley and NationsBank, N.A. (successor to Boatmen's First National Bank of Kansas City), dated as of December 26, 1997 10.4* Second Amendment of Loan Documents between Blue Valley Ban Corp, Bank of Blue Valley and NationsBank, N.A., dated as of January 31, 1999 10.5* Third Amendment of Loan Documents between Blue Valley Ban Corp, Bank of Blue Valley and NationsBank, N.A., dated as of June 21, 1999 10.6* Fourth Amendment of Loan Documents between Blue Valley Ban Corp, Bank of Blue Valley and NationsBank, N.A., dated as of December 30, 1999
II-2 140 10.7* Amended and Restated Promissory Note of Blue Valley Ban Corp, dated December 30, 1999 10.8* Promissory Note of Blue Valley Building, dated July 15, 1994 10.9* Mortgage, Assignment of Leases and Rents and Security Agreement between Blue Valley Building and Businessmen's Assurance Company of America, dated July 15, 1994 10.10* Assignment of Leases and Rents between Blue Valley Building and Businessmen's Assurance Company of America, dated July 15, 1994 10.11* Lease Agreement between Bank of Blue Valley and CMI, Inc., dated January 18, 1999 12.1* Statements re: computations of ratios 15.1 Letter from Baird, Kurtz & Dobson acknowledging awareness of the use of a report on unaudited interim financial information 21.1* Subsidiaries of Blue Valley Ban Corp 23.1 Consent of Blackwell Sanders Peper Martin LLP (see exhibits 5.1 and 8.1) 23.2 Consent of Morris, Nichols, Arsht & Tunnell (special Delaware counsel) (see exhibit 5.2) 23.3 Consent of Baird, Kurtz & Dobson 24.1* Power of attorney 25.1* Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Indenture 25.2* Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Amended and Restated Trust Agreement 25.3* Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Trust Preferred Securities Guaranty Agreement 27.1* Financial Data Schedule
- --------------- * Previously filed (b) Financial Statement Schedules No financial statement schedules are applicable. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to officers, directors 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 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. (c) 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. II-3 141 (d) 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. II-4 142 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Overland Park, State of Kansas, on June 29, 2000. BLUE VALLEY BAN CORP By: /s/ ROBERT D. REGNIER ------------------------------------ Robert D. Regnier, President and Chief Executive Officer II-5 143 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Overland Park, State of Kansas, on June 29, 2000. BVBC CAPITAL TRUST I By: /s/ ROBERT D. REGNIER ------------------------------------ Robert D. Regnier, Administrative Trustee II-6 144 SIGNATURES 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.
SIGNATURE TITLE DATE --------- ----- ---- * President, Chief Executive Officer & June 29, 2000 - --------------------------------------------- Director Robert D. Regnier * Director June 29, 2000 - --------------------------------------------- Donald H. Alexander * Director June 29, 2000 - --------------------------------------------- Wayne A. Henry, Jr. * Director June 29, 2000 - --------------------------------------------- C. Ted McCarter * Director June 29, 2000 - --------------------------------------------- Thomas A. McDonnell * Treasurer and Principal Finance and June 29, 2000 - --------------------------------------------- Accounting Officer Mark A. Fortino
* By: /s/ MARK A. FORTINO -------------------------------------------- Mark A. Fortino, Attorney-in-Fact II-7 145 SIGNATURES 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.
SIGNATURE TITLE DATE --------- ----- ---- * Administrative Trustee June 29, 2000 - --------------------------------------------- Robert D. Regnier * Administrative Trustee June 29, 2000 - --------------------------------------------- Mark A. Fortino
* By: /s/ MARK A. FORTINO -------------------------------------------- Mark A. Fortino, Attorney-in-Fact II-8 EX-4.3 2 ex4-3.txt DRAFT FORM OF INDENTURE OF BLUE VALLY BAN CORP 1 EX-4.3 ------------------------------------------------------ SUBORDINATED INDENTURE BLUE VALLEY BAN CORP., as Issuer to WILMINGTON TRUST COMPANY, as Trustee _____% Junior Subordinated Debentures Dated as of ________________, 2000 ------------------------------------------------------ 2 TABLE OF CONTENTS Page ARTICLE I.....................................................................1 1.01 DEFINITIONS...........................................................1 ARTICLE II....................................................................8 2.01 DESIGNATION AND PRINCIPAL AMOUNT......................................8 2.02 MATURITY..............................................................9 2.03 FORM AND PAYMENT......................................................9 2.04 GLOBAL SUBORDINATED DEBENTURE.........................................9 2.05 INTEREST.............................................................11 2.06 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.......................12 2.07 REGISTRATION AND TRANSFER............................................12 2.08 MUTILATED, DESTROYED, LOST AND STOLEN JUNIOR SUBORDINATED DEBENTURES.........................................13 ARTICLE III..................................................................14 3.01 REDEMPTION...........................................................14 3.02 SPECIAL EVENT REDEMPTION.............................................14 3.03 OPTIONAL REDEMPTION BY COMPANY.......................................14 3.04 NOTICE OF REDEMPTION.................................................15 3.05 PAYMENT UPON REDEMPTION..............................................16 3.06 NO SINKING FUND......................................................17 ARTICLE IV...................................................................17 4.01 EXTENSION OF INTEREST PAYMENT PERIOD.................................17 4.02 NOTICE OF EXTENSION..................................................17 4.03 LIMITATION OF TRANSACTIONS DURING EXTENSION..........................18 ARTICLE V....................................................................18 5.01 PAYMENT OF PRINCIPAL AND INTEREST....................................18 5.02 MAINTENANCE OF AGENCY................................................18 5.03 PAYING AGENTS........................................................19 5.04 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.....................20 i 3 5.05 COMPLIANCE WITH CONSOLIDATION PROVISIONS.............................20 5.06 RESTRICTIONS ON CERTAIN PAYMENTS.....................................20 5.07 COVENANTS AS TO THE TRUST............................................20 ARTICLE VI...................................................................21 6.01 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF SECURITYHOLDERS.................................................21 6.02 PRESERVATION OF INFORMATION; COMMUNICATIONS WITH SECURITYHOLDERS.................................................21 6.03 REPORTS BY THE COMPANY...............................................21 6.04 REPORTS BY THE TRUSTEE...............................................22 ARTICLE VII..................................................................22 7.01 EVENTS OF DEFAULT....................................................22 7.02 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE......................................................24 7.03 APPLICATION OF MONEYS COLLECTED......................................26 7.04 LIMITATION ON SUITS..................................................26 7.05 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER...........................................................27 7.06 CONTROL BY SECURITYHOLDERS...........................................27 7.07 UNDERTAKING TO PAY COSTS.............................................28 ARTICLE VIII.................................................................28 8.01 FORM OF JUNIOR SUBORDINATED DEBENTURE................................28 8.02 ORIGINAL ISSUE OF JUNIOR SUBORDINATED DEBENTURES.....................28 ARTICLE IX...................................................................29 9.01 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE...................29 9.02 CERTAIN RIGHTS OF TRUSTEE............................................30 9.03 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF THE JUNIOR SUBORDINATED DEBENTURES..............................31 9.04 MAY HOLD JUNIOR SUBORDINATED DEBENTURES..............................32 9.05 MONEYS HELD IN TRUST.................................................32 9.06 COMPENSATION AND REIMBURSEMENT.......................................32 9.07 RELIANCE ON OFFICERS' CERTIFICATE....................................33 9.08 DISQUALIFICATION; CONFLICTING INTERESTS..............................33 ii 4 9.09 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY..............................33 9.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR....................33 9.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...............................34 9.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS........................................................35 9.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.........................................................35 9.14 APPOINTMENT OF AUTHENTICATING AGENT..................................35 9.15 CO-TRUSTEES AND SEPARATE TRUSTEES....................................37 ARTICLE X....................................................................38 10.01 EVIDENCE OF ACTION BY SECURITYHOLDERS...............................38 10.02 PROOF OF EXECUTION BY SECURITYHOLDERS...............................39 10.03 WHO MAY BE DEEMED OWNERS............................................39 10.04 CERTAIN JUNIOR SUBORDINATED DEBENTURES OWNED BY COMPANY DISREGARDED..........................................39 10.05 ACTIONS BINDING ON FUTURE SECURITYHOLDERS...........................40 ARTICLE XI...................................................................40 11.01 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF SECURITYHOLDERS..............................................40 11.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS..............................................41 11.03 EFFECT OF SUPPLEMENTAL INDENTURES...................................41 11.04 JUNIOR SUBORDINATED DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES......................................41 11.05 EXECUTION OF SUPPLEMENTAL INDENTURES................................42 ARTICLE XII..................................................................42 12.01 COMPANY MAY CONSOLIDATE, ETC........................................42 12.02 SUCCESSOR SUBSTITUTED...............................................43 12.03 EVIDENCE OF CONSOLIDATTION, ETC., TO TRUSTEE........................43 ARTICLE XIII.................................................................43 13.01 SATISFACTION AND DISCHARGE OF INDENTURE.............................43 13.02 DISCHARGE OF OBLIGATIONS............................................44 13.03 DEPOSITED MONEYS TO BE HELD IN TRUST................................44 iii 5 13.04 PAYMENT OF MONEYS HELD BY PAYING AGENTS.............................44 13.05 REPAYMENT TO COMPANY................................................44 ARTICLE XIV..................................................................45 14.01 NO RECOURSE.........................................................45 ARTICLE XV...................................................................45 15.01 EFFECT ON SUCCESSORS AND ASSIGNS....................................45 15.02 ACTIONS BY SUCCESSOR................................................45 15.03 SURRENDER OF COMPANY POWERS.........................................45 15.04 NOTICES.............................................................45 15.05 GOVERNING LAW.......................................................46 15.06 TREATMENT OF JUNIOR SUBORDINATED DEBENTURES AS DEBT.................46 15.07 COMPLIANCE CERTIFICATES AND OPINIONS................................46 15.08 PAYMENTS ON BUSINESS DAYS...........................................46 15.09 CONFLICT WITH TRUST INDENTURE ACT...................................47 15.10 COUNTERPARTS........................................................47 15.11 SEPARABILITY........................................................47 15.12 ASSIGNMENT..........................................................47 15.13 ACKNOWLEDGMENT OF RIGHTS............................................47 ARTICLE XVI..................................................................47 16.01 AGREEMENT TO SUBORDINATE............................................47 16.02 DEFAULT ON SENIOR AND SUBORDINATED DEBT.............................48 16.03 LIQUIDATION; DISSOLUTION; BANKRUPTCY................................48 16.04 SUBROGATION.........................................................49 16.05 TRUSTEE TO EFFECTUATE SUBORDINATION.................................50 16.06 NOTICE BY THE COMPANY...............................................50 16.07 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR AND SUBORDINATED DEBT............................................51 16.08 SUBORDINATION MAY NOT BE IMPAIRED...................................51 EXHIBIT A....................................................................54 iv 6 BLUE VALLEY BAN CORP. RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939, AS AMENDED, AND SUBORDINATED INDENTURE, DATED AS OF _______________, 2000 TRUST INDENTURE ACT SECTION SUBORDINATED INDENTURE SECTION Section 310 .......................................................... 15.09 Section 310(b) ............................................................9.08 Section 311 ...........................................................15.09 Section 311(a) ............................................................9.13 (b) ............................................................9.13 Section 312 ...........................................................15.09 Section 312(b) ............................................................6.02 Section 313 ...........................................................15.09 Section 313(a) ............................................................6.04 (b) ............................................................6.04 (c) ............................................................6.04 Section 314 ...........................................................15.09 Section 315 ...........................................................15.09 Section 316 ...........................................................15.09 Section 317 ...........................................................15.09 NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Subordinated Indenture. v 7 SUBORDINATED INDENTURE SUBORDINATED INDENTURE (the "Indenture"), dated as of ________________, 2000, between BLUE VALLEY BAN CORP., a Kansas corporation (the "Company") and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the "Trustee"); WHEREAS, for its lawful corporate purposes, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its securities to be known as its _____% Junior Subordinated Debentures due September 30, 2030 (hereinafter referred to as the "Junior Subordinated Debentures"), the form and substance of such Junior Subordinated Debentures and the terms, provisions and conditions thereof to be set forth as provided in this Indenture; and WHEREAS, BVBC Capital Trust I, a Delaware statutory business trust (the "Trust"), has offered to the public up to $11,500,000 aggregate liquidation amount of its _____% Cumulative Trust Preferred Securities (the "Preferred Securities"), representing undivided beneficial interests in the assets of the Trust 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 $355,672 aggregate liquidation amount of its _____% Common Securities, in $11,855,672 aggregate principal amount of the Junior Subordinated Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this Indenture and all requirements necessary to make this Indenture a valid instrument in accordance with its terms, and to make the Junior Subordinated Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company; and WHEREAS, to provide the terms and conditions upon which the Junior Subordinated Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery 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 Junior Subordinated Debentures by the holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the holders of Junior Subordinated Debentures: ARTICLE I DEFINITIONS 1.01 DEFINITIONS. The terms defined in this Section (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 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 of 1939, as amended, or that are by reference in said Trust Indenture Act defined in the Securities Act of 1933, as amended (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the 8 meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. "Accelerated Maturity Date" means, if the Company elects to accelerate the Maturity Date in accordance with Section 2.02, the date selected by the Company which is prior to the Scheduled Maturity Date, but is after September 30, 2005. "Additional Sums" shall have the meaning set forth in Section 2.05(c). "Administrative Trustees" has 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. "Authenticating Agent" means an authenticating agent with respect to the Junior Subordinated Debentures appointed by the Trustee pursuant to Section 9.14. "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 any day other than a day on which federal or state banking institutions in the State of Kansas or Delaware are authorized or obligated by law, executive order or regulation to close or a day on which the Trustee is closed. "Capital Treatment Event" means the receipt by the Company and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any proposed change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official or administrative pronouncement or action or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such proposed change, 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 of impairment of the Company's ability to treat the Preferred Securities (or any substantial portion thereof) as Tier 1 Capital for purposes of any then applicable capital adequacy guidelines of the Federal Reserve, as then in effect and 2 9 applicable to the Company; provided, however, that the inability of the Company to treat all or any portion of the Liquidation Amount of the Preferred Securities as Tier 1 Capital shall not constitute the basis for a Capital Treatment Event if such inability results from the Company having cumulative preferred stock, minority interests in consolidated subsidiaries, or any other class of security or interest which the Federal Reserve now or may hereafter accord Tier 1 Capital treatment in excess of the amount which may qualify for treatment as Tier 1 Capital under applicable capital adequacy guidelines of the Federal Reserve; provided, further, however, that the distribution of Junior Subordinated Debentures in connection with the dissolution of the Trust shall not in and of itself constitute a Capital Treatment Event. "Certificate" means a certificate signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company. The Certificate need not comply with the provisions of Section 15.07. "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 Indenture 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 Preferred 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 Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "Company" means Blue Valley Ban Corp., a corporation duly organized and existing under the laws of the State of Kansas, 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 4.01. "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 date hereof is located at 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. "Coupon Rate" shall have the meaning set forth in Section 2.05(a). "Custodian" means any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. "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, (a) every obligation of such Person for money borrowed; (b) 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; (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (d) every obligation of such Person issued or assumed as the deferred purchase price of property 3 10 or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (e) every capital lease obligation of such Person; and (f) every obligation of the type referred to in clauses (a) through (e) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or for which such Person 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 4.01. "Depositary" means, with respect to Junior Subordinated Debentures issued as a Global Subordinated Debenture, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Exchange Act, or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to either Section 2.01 or 2.04. "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 Junior Subordinated Debentures held by the Property Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Trust Agreement. "Distributions" shall have the meaning set forth in the Trust Agreement. "Event of Default" means any event specified in Section 7.01, continued for the period of time, if any, therein designated. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Extended Interest Payment Period" shall have the meaning set forth in Section 4.01. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Global Subordinated Debenture" means a Junior Subordinated Debenture executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with this Indenture, which shall be registered in the name of the Depositary or its nominee. "Governmental Obligations" means securities that are (a) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (b) 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 of 1933, as amended) 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 4 11 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," when used with respect to any installment of interest on the Junior Subordinated Debentures, means the date specified in the Junior Subordinated Debenture as the fixed date on which an installment of interest with respect to the Junior Subordinated Debentures is due and payable. "Investment Company Act" means the Investment Company Act of 1940, as amended. "Investment Company Event" means the receipt by the Company and the Trust 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 (a "Change in Investment Company Act Law"), the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after the date of original issuance of the Preferred Securities under the Trust Agreement. "Junior Subordinated Debentures" means the _____% Junior Subordinated Debentures due 2030 authenticated and delivered under this Indenture. "Liquidation Amount" means the stated amount of $8.00 per Trust Security. "Maturity Date" shall have the meaning set forth in Section 2.02. "Non Book-Entry Preferred Securities" shall have the meaning set forth in Section 2.04(a). "Officers' Certificate" means a certificate signed by the Chief Executive Officer, the President or a Vice President and by the Chief Accounting Officer 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 15.07, 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 15.07, if and to the extent required by the provisions thereof. 5 12 "Outstanding," when used with reference to Junior Subordinated Debentures means, subject to the provisions of Section 10.04, as of any particular time, all Junior Subordinated Debentures theretofore authenticated and delivered by the Trustee under this Indenture, except (a) Junior Subordinated 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) Junior Subordinated 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 Junior Subordinated Debentures or portions of such Junior Subordinated Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article III, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Junior Subordinated Debentures in lieu of or in substitution for which other Junior Subordinated Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.08. "Person" means any individual, corporation, partnership, joint venture, joint-stock company, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Junior Subordinated Debenture" means every previous Junior Subordinated Debenture evidencing all or a portion of the same debt as that evidenced by such particular Junior Subordinated Debenture; and, for the purposes of this definition, any Junior Subordinated Debenture authenticated and delivered under Section 2.08 in lieu of a lost, destroyed or stolen Junior Subordinated Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Junior Subordinated 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 Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "Preferred Securities Certificate" has the meaning set forth in the Trust Agreement. "Preferred Securities Guarantee" means any guarantee that the Company may enter into with the Property Trustee or other Persons that operates directly or indirectly for the benefit of holders of Preferred Securities of the Trust. "Property Trustee" has the meaning set forth in the Trust Agreement. "Redemption Price" means the amount equal to 100% of the principal amount of Junior Subordinated Debentures to be redeemed plus any accrued and unpaid interest thereon to the date of the redemption of such Junior Subordinated Debentures. "Responsible Officer" when used with respect to the Trustee means any Vice President or any corporate trust officer with direct responsibility for the administration of this Indenture or any other officer or assistant officer of the Trustee customarily performing functions similar to 6 13 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 September 30, 2030. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 2.07. "Securityholder," "Holder," "Registered Holder," or other similar term, means the Person or Persons in whose name or names particular Junior Subordinated Debentures shall be registered in the Securities Register. "Senior and 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 of the Company, 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 Junior Subordinated Debentures or to other Debt which is pari passu with, or subordinated to, the Junior Subordinated Debentures; provided, however, that Senior and Subordinated Debt shall not be deemed to include (a) 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, (b) any Debt to any employee of the Company, (c) any Debt which by its terms is subordinated to any trade accounts payable or accrued liabilities arising in the ordinary course of business but only to the extent that payments made to the holders of such Debt by the Holders of the Junior Subordinated 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, (d) the Preferred Securities Guarantee, and (e) any other debt securities issued pursuant to this Indenture. "Special Event" means a Tax Event, an Investment Company Event or a Capital Treatment Event. "Subsidiary" means, with respect to any Person, (a) 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, (b) any general partnership, joint venture 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 (c) any limited partnership of which such Person or any of its Subsidiaries is a general partner. "Tax Event" means the receipt by the Company and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to, or change 7 14 (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 Junior Subordinated Debentures there is more than an insubstantial risk that (a) interest payable by the Company on the Junior Subordinated Debentures is not, or within 90 days after the date of such Opinion of Counsel will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, (b) the Trust 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 Junior Subordinated Debentures, or (c) the Trust 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. "Trust" means BVBC Capital Trust I, a Delaware statutory business trust created for the purpose of issuing Trust Securities in connection with the issuance of Junior Subordinated Debentures under this Indenture. "Trust Agreement" means the Amended and Restated Trust Agreement, dated as of _______________, 2000, of the Trust. "Trustee" means Wilmington Trust Company 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. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date of execution of this Indenture; provided, however, that in the event the Trust Indenture Act of 1939 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 Securities" means Common Securities and Preferred Securities of the Trust. "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 DESCRIPTION, TERMS, CONDITIONS, REGISTRATION AND EXCHANGE OF THE JUNIOR SUBORDINATED DEBENTURES 2.01 DESIGNATION AND PRINCIPAL AMOUNT. There is hereby authorized a series of Securities designated the "_____% Junior Subordinated Debentures due 2030," limited in aggregate principal amount to $11,855,672, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Junior Subordinated Debentures pursuant to Section 8.02 of this Indenture. 8 15 2.02 MATURITY. (a) The Maturity Date will be either: (i) the Scheduled Maturity Date; or (ii) if the Company elects to accelerate the Maturity Date to be a date prior to the Scheduled Maturity Date in accordance with Section 2.02(b), 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 shorten the Maturity Date only once to the Accelerated Maturity Date, provided that the Company has received the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, but in no case shall such Accelerated Maturity Date be a date before September 30, 2005. (c) If the Company elects to accelerate the Maturity Date in accordance with Section 2.02(b), the Company shall give notice to the Registered Holders of the Junior Subordinated Debentures, the Property Trustee and the Trustee of the acceleration of the Maturity Date and the Accelerated Maturity Date at least 90 days before the Accelerated Maturity Date. 2.03 FORM AND PAYMENT. Except as provided in Section 2.04, the Junior Subordinated Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Junior Subordinated Debentures issued in certificated form will be payable, the transfer of such Junior Subordinated Debentures will be registrable and such Junior Subordinated Debentures will be exchangeable for Junior Subordinated 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 Securities Register. Notwithstanding the foregoing, so long as the Holder of any Junior Subordinated Debentures is the Property Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Sums, if any) on such Junior Subordinated Debentures held by the Property Trustee will be made at such place and to such account as may be designated by the Property Trustee. 2.04 GLOBAL SUBORDINATED DEBENTURE. (a) In connection with a Dissolution Event: (i) the Junior Subordinated Debentures in certificated form may be presented to the Trustee by the Property Trustee in exchange for a Global Subordinated Debenture in an aggregate principal amount equal to the aggregate principal amount of all outstanding Junior Subordinated Debentures (a "Global Subordinated Debenture"), to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Administrative Trustees. The Company upon any such presentation shall execute a Global 9 16 Subordinated Debenture in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with this Indenture. Payments on the Junior Subordinated Debentures issued as a Global Subordinated Debenture will be made to the Depositary; and (ii) if any Preferred Securities are held in non book-entry certificated form, the Junior Subordinated Debentures in certificated form may be presented to the Trustee by the Property Trustee and any Preferred Securities Certificate which represents Preferred Securities other than Preferred Securities held by the Depositary or its nominee ("Non Book-Entry Preferred Securities") will be deemed to represent beneficial interests in Junior Subordinated Debentures presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate Liquidation Amount of the Non Book-Entry Preferred Securities until such Preferred Securities Certificates are presented to the Securities Registrar for transfer or reissuance at which time such Preferred Securities Certificates will be canceled and a Junior Subordinated Debenture, registered in the name of the holder of the Preferred Securities Certificate or the transferee of the holder of such Preferred Securities Certificate, as the case may be, with an aggregate principal amount equal to the aggregate Liquidation Amount of the Preferred Securities Certificate canceled, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with this Indenture. On issue of such Junior Subordinated Debentures, Junior Subordinated Debentures with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been canceled. (b) A Global Subordinated Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary, or to a successor Depositary selected or approved by the Company or to a nominee of such successor Depositary. (c) If at any time the Depositary notifies the Company that it is unwilling or unable to continue as Depositary or if at any time the Depositary for such series shall no longer be registered or in good standing under the Exchange Act or other applicable statute or regulation, and a successor Depositary for such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, the Company will execute, and the Trustee, upon written notice from the Company, will authenticate and deliver the Junior Subordinated Debentures in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Subordinated Debenture in exchange for such Global Subordinated Debenture. In addition, the Company may at any time determine that the Junior Subordinated Debentures shall no longer be represented by a Global Subordinated Debenture. In such event the Company will execute, and the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and deliver the Junior Subordinated Debentures in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Subordinated Debenture in exchange for such Global Subordinated Debenture. 10 17 Upon the exchange of the Global Subordinated Debenture for such Junior Subordinated Debentures in definitive registered form without coupons, in authorized denominations, the Global Subordinated Debenture shall be canceled by the Trustee. Such Junior Subordinated Debentures in definitive registered form issued in exchange for the Global Subordinated Debenture shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Junior Subordinated Debentures to the Depositary for delivery to the Persons in whose names such Junior Subordinated Debentures are so registered. 2.05 INTEREST. (a) Each Junior Subordinated Debenture will 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 March 31, June 30, September 30 and December 31 of each year (each, an "Interest Payment Date"), commencing on September 30, 2000, to the Person in whose name such Junior Subordinated Debenture or any Predecessor Junior Subordinated Debenture is registered at the close of business on the regular record date for such interest installment, which, in respect of (i) Junior Subordinated Debentures of which the Property Trustee is the Holder and the Preferred Securities are in book-entry-only form or (ii) a Global Subordinated Debenture, shall be the close of business on the Business Day next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if (A) the Junior Subordinated Debentures are held by the Property Trustee and the Preferred Securities are no longer in book-entry only form or (B) the Junior Subordinated Debentures are not represented by a Global Subordinated Debenture, the record date for such interest installment shall be the 15th day of the month in which such payment is to be made. The amount of each interest payment due with respect to the Junior Subordinated Debentures will include amounts accrued through the date the interest payment is payable. (b) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed in such a quarterly period. In the event that any date on which interest is payable on the Junior Subordinated Debentures is not a Business Day, then payment of interest payable on such date will 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), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (c) If, at any time while the Property Trustee is the Holder of any Junior Subordinated Debentures, the Trust or the Property Trustee is required to pay any taxes, 11 18 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 will pay as additional interest ("Additional Sums") on the Junior Subordinated 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 will 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. 2.06 EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Junior Subordinated Debentures shall be executed on behalf of the Company by its Chief Executive Officer, its President or any Vice President and attested by its Secretary or Assistant Secretary. The signature of any of these officers on the Junior Subordinated Debentures may be manual or facsimile. Junior Subordinated Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Junior Subordinated Debentures or did not hold such offices at the date of such Junior Subordinated Debentures. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Junior Subordinated Debentures executed by the Company to the Trustee for authentication, together with a Company order for the authentication and delivery of such Junior Subordinated Debentures. The Trustee in accordance with such Company order shall authenticate and deliver such Junior Subordinated Debentures as provided in this Indenture and not otherwise. Upon the initial issuance, each Junior Subordinated Debenture shall be dated ________________, 2000, and thereafter Junior Subordinated Debentures issued hereunder shall be dated the date of their authentication. No Junior Subordinated Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Junior Subordinated Debenture a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Junior Subordinated Debenture shall be conclusive evidence, and the only evidence, that such Junior Subordinated Debenture has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. 2.07 REGISTRATION AND TRANSFER. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office or any other office or agency pursuant to Section 5.02 being herein sometimes referred to as the "Securities Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Junior Subordinated Debentures and transfers of the Junior Subordinated Debentures. The Trustee is hereby appointed "Securities Registrar" 12 19 for the purpose of registering the Junior Subordinated Debentures and transfers of the Junior Subordinated Debentures as herein provided. Upon surrender for registration of transfer of any Junior Subordinated Debenture at an office or agency of the Company designated pursuant to Section 5.02 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, a new Junior Subordinated Debenture of the authorized denomination. All Junior Subordinated Debentures issued upon any registration of transfer of Junior Subordinated Debentures shall be valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture as the Junior Subordinated Debentures surrendered upon such registration of transfer. Every Junior Subordinated Debenture presented or surrendered for registration of transfer shall be duly endorsed for transfer (if so required by the Company or the Trustee), or shall be accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by the Holder thereof or such Holder's attorney duly authorized in writing. No service charge shall be made for any registration of transfer of Junior Subordinated Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer of Junior Subordinated Debentures. The Company shall not be required to issue or register the transfer of any Junior Subordinated Debenture during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Junior Subordinated Debentures selected for redemption pursuant to Article III and ending at the close of business on the day of such mailing. 2.08 MUTILATED, DESTROYED, LOST AND STOLEN JUNIOR SUBORDINATED DEBENTURES. If any mutilated Junior Subordinated Debenture is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Junior Subordinated Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (a) evidence to their satisfaction of the destruction, loss or theft of any Junior Subordinated Debenture and (b) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Junior Subordinated Debenture has been acquired by a protected purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Junior Subordinated Debenture, a new Junior Subordinated Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Junior Subordinated Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Junior Subordinated Debenture, pay such Junior Subordinated Debenture. 13 20 Upon the issuance of any new Junior Subordinated Debenture under this Section, 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. Every new Junior Subordinated Debenture issued pursuant to this Section in lieu of any destroyed, lost or stolen Junior Subordinated Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Junior Subordinated Debenture shall be at any time enforceable by anyone, and shall be entitled to all of the benefits of this Indenture. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Junior Subordinated Debentures. ARTICLE III REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES 3.01 REDEMPTION. Subject to the Company having received prior approval of the Federal Reserve, if then required under the applicable capital guidelines or policies of the Federal Reserve, the Company may redeem the Junior Subordinated Debentures in accordance with this Article III. 3.02 SPECIAL EVENT REDEMPTION. Subject to the Company having received the prior approval of the Federal Reserve, if then required under the applicable capital guidelines or policies of the Federal Reserve, if a Special Event has occurred and is continuing, then, notwithstanding Section 3.03, the Company shall have the right upon not less than 30 days' nor more than 60 days' notice to the Holders of the Junior Subordinated Debentures to redeem the Junior Subordinated Debentures, in whole but not in part, for cash within 90 days following the occurrence of such Special Event (the "90-Day Period") at the Redemption Price, provided that if at the time there is available to the Company the opportunity to eliminate, within the 90-Day Period, the Tax Event by taking some ministerial action ("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 Junior Subordinated Debentures while the Trust is pursuing any Ministerial Action to eliminate the Tax Event. The Redemption Price shall be paid prior to 2:00 p.m., Overland Park, Kansas 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 12:00 noon, Overland Park, Kansas time, on the date such Redemption Price is to be paid. 3.03 OPTIONAL REDEMPTION BY COMPANY. (a) Except as otherwise may be specified in this Indenture, the Company shall have the right to redeem the Junior Subordinated Debentures, in whole or in part, from time to time, on or after September 30, 2005, at the Redemption Price. Any redemption 14 21 pursuant to this Section 3.03 will be made upon not less than 30 days' nor more than 60 days' notice to the Holders of the Junior Subordinated Debentures, at the Redemption Price. If the Junior Subordinated Debentures are only partially redeemed pursuant to this Section 3.03, the Junior Subordinated Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided, that if at the time of redemption the Junior Subordinated Debentures are registered as a Global Subordinated Debenture, the Depositary shall determine, in accordance with its procedures, the principal amount of such Junior Subordinated Debentures held by each Holder of Junior Subordinated Debentures to be redeemed. The Redemption Price shall be paid prior to 2:00 p.m., Overland Park, Kansas 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 12:00 noon, Overland Park, Kansas time, on the date such Redemption Price is to be paid. (b) If a partial redemption of the Junior Subordinated Debentures would result in the delisting of the Preferred Securities issued by the Trust from the American Stock Exchange or any national securities exchange or other organization on which the Preferred Securities may then be listed, if any, the Company shall not be permitted to effect such partial redemption and may only redeem the Junior Subordinated Debentures in whole or in part to such extent as would not cause such delisting. 3.04 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 Junior Subordinated Debentures in accordance with the right reserved so to do, the Company shall, or shall cause the Trustee to, give notice of such redemption to Holders of the Junior Subordinated Debentures to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 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 Securities Register. 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 Junior Subordinated 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 Junior Subordinated Debentures. In the case of any redemption of Junior Subordinated Debentures prior to the expiration of any restriction on such redemption provided 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 of such Junior Subordinated Debentures to be redeemed will be made at the office or agency of the Property Trustee in Wilmington, Delaware upon presentation and surrender of such Junior Subordinated Debentures, that interest accrued to the date fixed for redemption will be paid as specified in said notice, that from and after said date interest will cease to accrue. If less than all the Junior Subordinated Debentures are to be redeemed, the notice 15 22 to the Holders of Junior Subordinated Debentures to be redeemed in whole or in part shall specify the particular Junior Subordinated Debentures to be so redeemed. In case any Junior Subordinated Debenture is to be redeemed in part only, the notice that relates to such Junior Subordinated Debenture 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 Junior Subordinated Debenture, a new Junior Subordinated Debenture or Junior Subordinated Debentures in principal amount equal to the unredeemed portion thereof shall be issued to the Holder. (b) If less than all the Junior Subordinated 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 Junior Subordinated 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 and that may provide for the selection of a portion or portions (equal to eight dollars U.S. ($8) or any integral multiple thereof), the Junior Subordinated Debentures to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Junior Subordinated Debentures to be redeemed, in whole or in part. The Company may, if and whenever it shall so elect, by delivery of instructions signed on its behalf by its Chief Executive Officer, its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Junior Subordinated Debentures for redemption and to give notice of redemption in the manner set forth in this Section, such notice to be in the name of the Company or in the name of the Trustee or the paying agent, 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 Securities 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. 3.05 PAYMENT UPON REDEMPTION. (a) If the giving of notice of redemption shall have been completed as above provided, the Junior Subordinated Debentures or portions of Junior Subordinated 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 Redemption Price (which includes interest accrued to the date fixed for redemption) and interest on such Junior Subordinated Debentures or portions of Junior Subordinated 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 Junior Subordinated Debentures or portions thereof. On presentation and surrender of such Junior Subordinated Debentures on or after the date fixed for redemption at the place of payment specified in the notice, such Junior Subordinated Debentures shall be paid and redeemed at the Redemption Price (which includes the interest accrued thereon to the date fixed for redemption) (but if the date fixed for redemption is an Interest Payment 16 23 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 2.05(a)). (b) Upon presentation of any Junior Subordinated 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 Junior Subordinated Debenture is presented shall deliver to the Holder thereof, at the expense of the Company, a new Junior Subordinated Debenture or Junior Subordinated Debentures of authorized denominations in principal amount equal to the unredeemed portion of the Junior Subordinated Debenture so presented. 3.06 NO SINKING FUND. The Junior Subordinated Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV EXTENSION OF INTEREST PAYMENT PERIOD 4.01 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 Junior Subordinated Debentures, to defer payments of interest by extending the interest payment period of such Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters (the "Extended Interest Payment Period"), during which Extended Interest Payment Period no interest shall be due and payable; provided that no Extended Interest Payment Period may extend beyond the Maturity Date. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.01, will bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period ("Compounded Interest"). At the end of the Extended Interest Payment Period, the Company shall pay all interest accrued and unpaid on the Junior Subordinated Debentures, including any Additional Sums and Compounded Interest (together, "Deferred Interest") that shall be payable to the Holders of the Junior Subordinated Debentures in whose names the Junior Subordinated Debentures are registered in the Securities Register on the record date for the Interest Payment Date coinciding with the end of the Extended Interest Payment Period. Before the termination of any Extended Interest Payment 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. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extended Interest Payment Period. 4.02 NOTICE OF EXTENSION. (a) If the Property Trustee is the only Registered Holder of the Junior Subordinated Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give written notice to the Administrative Trustees, the 17 24 Property Trustee and the Trustee of its selection of such Extended Interest Payment Period five Business Days before the earlier of (i) the next succeeding date on which Distributions 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 Preferred Securities holders or to the American Stock Exchange or other applicable self-regulatory organization, if any, but in any event at least five Business Days before such record date. (b) If the Property Trustee is not the only Holder of the Junior Subordinated Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give the Holders of the Junior Subordinated Debentures and the Trustee written notice of its selection of such Extended Interest Payment Period at least five 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 Holders of the Junior Subordinated Debentures or to the American Stock Exchange or other applicable self-regulatory organization, if any. (c) The quarter in which any notice is given pursuant to paragraph (a) or paragraph (b) of this Section 4.02 shall be counted as one of the 20 quarters permitted in the maximum Extended Interest Payment Period permitted under Section 4.01. 4.03 LIMITATION OF TRANSACTIONS DURING EXTENSION. If (a) the Company shall exercise its right to defer payment of interest as provided in Section 4.01; or (b) there shall have occurred any Event of Default, then the Company shall be subject to the restrictions on payments set forth under Section 5.06. ARTICLE V PARTICULAR COVENANTS OF THE COMPANY 5.01 PAYMENT OF PRINCIPAL AND INTEREST. The Company will duly and punctually pay or cause to be paid the principal of and interest on the Junior Subordinated Debentures at the time and place and in the manner provided herein and established with respect to such Junior Subordinated Debentures. 5.02 MAINTENANCE OF AGENCY. So long as any Junior Subordinated Debentures remain Outstanding, the Company agrees to maintain an office or agency in Wilmington, Delaware, or at such other location or locations as may be designated as provided in this Section 5.02, where (a) Junior Subordinated Debentures may be presented for payment, (b) Junior Subordinated Debentures may be presented as hereinabove authorized for registration of transfer and exchange, and (c) notices and demands to or upon the Company in respect of the Junior Subordinated 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 Chief Executive Officer, 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. 18 25 5.03 PAYING AGENTS. (a) If the Company shall appoint one or more paying agents for the Junior Subordinated Debentures, other than the Trustee, the Company will 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: (i) that it will hold all sums held by it as such agent for the payment of the principal of or interest on the Junior Subordinated Debentures (whether such sums have been paid to it by the Company or by any other obligor) in trust for the benefit of the Persons entitled thereto; (ii) that it will give the Trustee notice of any failure by the Company (or by any other obligor) to make any payment of the principal of or interest on the Junior Subordinated Debentures when the same shall be due and payable; (iii) that it will, 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 will perform all other duties of paying agent as set forth in this Indenture. (b) If the Company shall act as its own paying agent with respect to the Junior Subordinated Debentures, it will on or before each due date of the principal of or interest on Junior Subordinated 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 until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of such action, or any failure (by it or any other obligor) to take such action. Whenever the Company shall have one or more paying agents for the Junior Subordinated Debentures, it will, prior to each due date of the principal of or interest on the Junior Subordinated 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 will promptly notify the Trustee of this action or failure so to act. (c) Notwithstanding anything in this Section to the contrary, (i) the agreement to hold sums in trust as provided in this Section is subject to the provisions of Section 13.05, 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. 19 26 5.04 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 9.10, a Trustee, so that there shall at all times be a Trustee hereunder. 5.05 COMPLIANCE WITH CONSOLIDATION PROVISIONS. The Company will not, while any of the Junior Subordinated 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 complied with. 5.06 RESTRICTIONS ON CERTAIN PAYMENTS. If at any time (a) there shall have occurred any event of which the Company has actual knowledge that (i) with the giving of notice or the lapse of time, or both, would constitute an Event of Default and (ii) in respect to which the Company shall not have taken reasonable steps to cure, or (b) the Company shall have given notice of its election of an Extended Interest Payment Period as provided herein with respect to the Junior Subordinated Debentures and shall not have rescinded such notice, or such Extended Interest Payment Period, or any extension thereof, shall be continuing; or (c) while the Junior Subordinated Debentures are held by the Trust, the Company shall be in default with respect to its payment of any obligation under the Preferred Securities Guarantee, then the Company will not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including the Junior Subordinated Debentures) that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu or junior in interest to the Junior Subordinated Debentures (other than (A) dividends or distributions in common stock, (B) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (C) payments under the Preferred Securities Guarantee and (D) purchases of common stock related to the issuance of common stock or rights under any of the Company's benefit plans for its directors, officers or employees). 5.07 COVENANTS AS TO THE TRUST. For so long as the Trust Securities of the Trust remain outstanding, the Company will (a) 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, (b) use its reasonable efforts to cause the Trust (i) to remain a business trust, except in connection with a distribution of Junior Subordinated 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 (ii) to otherwise continue not to be treated as an association taxable as a corporation or partnership for United States federal income tax purposes and (c) to use its reasonable efforts to cause each Holder of Trust Securities to be treated as owning an individual undivided beneficial interest in the Junior Subordinated Debentures. If the Junior Subordinated Debentures are issued in connection with the distribution of the Junior Subordinated Debentures to the holders of the Preferred Securities issued by the Trust 20 27 upon a Dissolution Event, the Company will use its best efforts to list such Junior Subordinated Debentures on The American Stock Exchange LLC or on such other exchange as the Preferred Securities may then be listed; provided, however, that any redemption of the junior subordinated debentures, in whole or in part, effected in accordance with this Indenture shall not cause or result in a violation of this Section 5.07. For so long as the Junior Subordinated Debentures shall remain Outstanding, the Company shall fulfill all reporting and filing obligations under the Securities Exchange Act of 1934, as amended, as applicable to companies having a class of securities registered under Section 12(b) or 12(g) thereunder. ARTICLE VI SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 6.01 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF SECURITYHOLDERS. The Company will furnish or cause to be furnished to the Trustee (a) on each regular record date (as defined in Section 2.05(a)) a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders 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 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 Securities Registrar. 6.02 PRESERVATION OF INFORMATION; COMMUNICATIONS WITH SECURITYHOLDERS. (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 contained in the most recent list furnished to it as provided in Section 6.01 and as to the names and addresses of Holders received by the Trustee in its capacity as Securities Registrar (if acting in such capacity). (b) The Trustee may destroy any list furnished to it as provided in Section 6.01 upon receipt of a new list so furnished. (c) Securityholders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Securityholders with respect to their rights under this Indenture or under the Junior Subordinated Debentures. 6.03 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 21 28 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 any applicable rules and regulations of the Commission. (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time 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 Securityholders, as their names and addresses appear upon the Securities 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 as may be required by rules and regulations prescribed from time to time by the Commission. 6.04 REPORTS BY THE TRUSTEE. (a) Beginning July 31, 2001, on or before July 31 in each year in which any of the Junior Subordinated Debentures are Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to the Securityholders, as their names and addresses appear upon the Securities Register, a brief report dated as of the preceding December 31, 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 Securityholders, be filed by the Trustee with the Company, and also with the Commission. ARTICLE VII REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT 7.01 EVENTS OF DEFAULT. (a) Whenever used herein, "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 Junior Subordinated Debentures, as and when the same shall 22 29 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 of any of the Junior Subordinated Debentures as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise; (iii) the Company fails to observe or perform any other of its covenants or agreements hereunder with respect to the Junior Subordinated 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 Junior Subordinated Debentures at the time Outstanding; (iv) the Company pursuant to or within the meaning of any Bankruptcy Law (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property or (D) makes a general assignment for the benefit of its creditors; (v) a court of competent jurisdiction enters an order under any Bankruptcy Law that (A) is for relief against the Company in an involuntary case, (B) appoints a custodian of the Company for all or substantially all of its property, or (C) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days; or (vi) in the event Junior Subordinated Debentures are issued to the Trust or a trustee of the Trust in connection with the issuance of Trust Securities by the Trust, the Trust shall have voluntarily or involuntarily dissolved, wound up its business or otherwise terminated its existence, except in connection with (A) the distribution of Junior Subordinated Debentures to holders of Trust Securities in liquidation of their interests in the Trust, (B) the redemption of all of the outstanding Trust Securities of the Trust or (C) 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 Junior Subordinated 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 Junior Subordinated Debentures then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Securityholders) may declare the principal of all the Junior Subordinated Debentures to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, 23 30 notwithstanding anything contained in this Indenture or in the Junior Subordinated Debentures to the contrary. (c) At any time after the principal of the Junior Subordinated 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 Junior Subordinated Debentures then Outstanding, 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 Junior Subordinated Debentures and the principal of any and all Junior Subordinated Debentures that shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate per annum expressed in the Junior Subordinated Debentures to the date of such payment or deposit) and the amount payable to the Trustee under Section 9.06, and (ii) any and all Events of Default under this Indenture, other than the nonpayment of principal on Junior Subordinated Debentures that shall not have become due by their terms, shall have been remedied or waived as provided in Section 7.06. Should the Holders fail to annul such declaration and waive such default, then the holders of a majority in aggregate Liquidation Amount of the Preferred Securities shall have such right. 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 Junior Subordinated 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. 7.02 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. (a) The Company covenants that (i) in case it shall default in the payment of any installment of interest on any of the Junior Subordinated Debentures as and when the same shall have become due and payable, and such default shall have continued for a period of 90 Business Days, or (ii) in case it shall default in the payment of the principal of any of the Junior Subordinated Debentures when the same shall have become due and payable, whether upon maturity of the Junior Subordinated Debentures or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the Holders of the Junior Subordinated Debentures, the whole amount that then shall have become due and payable on all such Junior Subordinated Debentures for principal or interest, or both, as the case may be, with interest upon the overdue principal and (to the extent that payment of such 24 31 interest is enforceable under applicable law and, if the Junior Subordinated 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 Junior Subordinated 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 9.06. (b) If the Company shall fail to pay such amounts 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 Junior Subordinated 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 Junior Subordinated 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 of either, 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 Junior Subordinated 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 9.06; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Holders 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 Securityholders, to pay to the Trustee any amount due it under Section 9.06. (d) All rights of action and of asserting claims under this Indenture may be enforced by the Trustee without the possession of any of the Junior Subordinated Debentures, or the production thereof at any trial or other 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 9.06, be for the ratable benefit of the Holders of the Junior Subordinated 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 25 32 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 Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Junior Subordinated Debentures or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. 7.03 APPLICATION OF MONEYS COLLECTED. Any moneys collected by the Trustee pursuant to this Article with respect to the Junior Subordinated 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 Junior Subordinated Debentures, and notation thereon 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 9.06; SECOND, to the payment of all Senior and Subordinated Debt 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 Junior Subordinated 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 Junior Subordinated Debentures for principal and interest, respectively. 7.04 LIMITATION ON SUITS. No Holder shall have any right by virtue of or by availing 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 (a) such Holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof; (b) the Holders of not less than 25% in aggregate principal amount of the Junior Subordinated 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; (c) such Holder or Holders shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby; and (d) 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 (e) during such 60-day period, the Holders of a majority in principal amount of the Junior Subordinated Debentures do not give the Trustee a direction inconsistent with the request. Notwithstanding any other provisions of this Indenture to the contrary, the right of any Holder to receive payment of the principal of and interest on the Junior Subordinated Debentures on or after the respective due dates (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 26 33 accepting a Junior Subordinated Debenture hereunder it is expressly understood, intended and covenanted by the Holder thereof with every other such Holder and the Trustee, that no one or more Holders shall have any right in any manner whatsoever by virtue of or by availing any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or seek to obtain priority over or preference to any such other Holders, 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 Junior Subordinated Debentures. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. 7.05 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER. (a) Except as otherwise provided in Section 7.02, all powers and remedies given by this Article to the Trustee or to the Securityholders 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 Junior Subordinated 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 Junior Subordinated Debentures. (b) No delay or omission of the Trustee or of any Holder of any of the Junior Subordinated 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 on acquiescence therein; and, subject to the provisions of Section 7.04, every power and remedy given by this Article or by law to the Trustee or the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. 7.06 CONTROL BY SECURITYHOLDERS. The Holders of a majority in aggregate principal amount of the Junior Subordinated Debentures at the time Outstanding, determined in accordance with Section 10.04, 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 Section 9.01, 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 Junior Subordinated Debentures at the time Outstanding affected thereby, determined in accordance with Section 10.04, may on behalf of the Holders of all of the Junior Subordinated Debentures waive any past default in the performance of any of the covenants contained herein and its consequences, except (a) a default in the payment of the principal of or interest on any of the Junior Subordinated Debentures as and when the same shall become due by its terms 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 7.01(c)), (b) a default in the covenants contained in Section 5.06 or (c) in respect of a covenant or provision hereof which under Article XI cannot be 27 34 modified or amended without the consent of the Holder of each Outstanding Junior Subordinated Debenture affected; provided, however, that if the Junior Subordinated 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 Amount 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 Junior Subordinated 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 Junior Subordinated 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. 7.07 UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each Holder of any Junior Subordinated 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 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding more than 10% in aggregate principal amount of the Outstanding Junior Subordinated Debentures, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or interest on the Junior Subordinated Debentures on or after the due dates thereof. ARTICLE VIII FORM OF JUNIOR SUBORDINATED DEBENTURE AND ORIGINAL ISSUE 8.01 FORM OF JUNIOR SUBORDINATED DEBENTURE. The Junior Subordinated Debenture and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the forms contained as Exhibit A to this Indenture, attached hereto and incorporated herein by reference. 8.02 ORIGINAL ISSUE OF JUNIOR SUBORDINATED DEBENTURES. Junior Subordinated Debentures in the aggregate principal amount of $10,309,280 may, upon execution of this Indenture, be executed by the Company and delivered to the Trustee for authentication. If the Underwriter exercises its Option and there is an Option Closing Date (as such terms are defined in the Trust Agreement), then, on such Option Closing Date, Junior Subordinated Debentures in the aggregate principal amount of up to $1,546,392 may be executed by the Company and delivered to the Trustee for authentication. In either such event, the Trustee shall thereupon authenticate and deliver the Junior Subordinated Debentures to or upon the written order of the Company, signed by its Chairman, its Vice Chairman, its Chief Executive Officer, its President or any Vice President, without any further action by the Company. 28 35 ARTICLE IX CONCERNING THE TRUSTEE 9.01 CERTAIN DUTIES AND RESPONSIBILITIES OF THE 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 Junior Subordinated 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) and is known to the Trustee, 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 person 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: (i) 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: (A) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable 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 (B) in the absence of bad faith on the part of the Trustee, the 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 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 requirement of this Indenture; (ii) 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; (iii) 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 Junior Subordinated Debentures at the time Outstanding relating to the time, method and place of 29 36 conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture; and (iv) 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. (c) Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Securities, the Trustee shall transmit by mail to all Holders of Securities, as their names and addresses appear in the Securities 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 of (or premium, if any) or interest (including any Additional Interest) on any Security, 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 directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of Securities. For the purpose of this Section 9.01, the term "default" means any event that is, or after notice or lapse of time or both would become, an Event of Default with respect to the Securities. 9.02 CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided in Section 9.01: (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 Chief Executive Officer, the President or any Vice President and by the Secretary or an Assistant Secretary or the Chief Accounting Officer thereof (unless other evidence in respect thereof is specifically prescribed herein); (c) 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; (d) 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 Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders 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 30 37 shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (that has not been cured or waived) known to the Trustee, to exercise 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 person would exercise or use under the circumstances in the conduct of his own affairs; (e) 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; (f) 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 Junior Subordinated Debentures (determined as provided in Section 10.04); provided, however, that if the 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; (g) 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; and (h) the Trustee shall not be charged with knowledge of any default or Event of Default hereunder unless a Responsible Officer of the Trustee shall have knowledge of the default or Event of Default. 9.03 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF THE JUNIOR SUBORDINATED DEBENTURES. (a) The recitals contained herein and in the Junior Subordinated 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 Junior Subordinated Debentures. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Junior Subordinated Debentures or of the proceeds of such Junior Subordinated 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. 31 38 9.04 MAY HOLD JUNIOR SUBORDINATED DEBENTURES. The Trustee or any paying agent or Securities Registrar, in its individual or any other capacity, may become the owner or pledgee of Junior Subordinated Debentures with the same rights it would have if it were not Trustee, paying agent or Securities Registrar. 9.05 MONEYS HELD IN TRUST. Subject to the provisions of Section 13.05, 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. 9.06 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 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 will 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 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. (c) The additional indebtedness described in Section 9.06(b) shall be secured by a lien prior to that of the Junior Subordinated Debentures upon all property and funds held or collected by the Trustee. (d) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 7.01(iv), (v) or (vi) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Reform Act of 1978 or any successor statute. (e) The provisions of Section 9.06(a), (b) and (d) shall survive the termination of this Indenture. 32 39 9.07 RELIANCE ON OFFICERS' CERTIFICATE. Except as otherwise provided in Section 9.01, 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. 9.08 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. 9.09 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee with respect to the Junior Subordinated 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 purposes of this Section, 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. No Affiliate of the Company may serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.10. 9.10 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 Securityholders, as their names and addresses appear upon the Securities Register. Upon receiving such notice of resignation, the Company shall promptly 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 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, or any Securityholder who has been a bona fide Holder of Junior Subordinated Debentures for at least six months may, subject to the provisions of Section 7.07, on behalf of such Securityholder and all other Holders, 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. 33 40 (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 9.08 after written request therefor by the Company or by any Securityholder who has been a bona fide Holder of Junior Subordinated Debentures for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.09 and shall fail to resign after written request therefor by the Company or by any such Securityholder; 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 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 7.07, unless the Trustee's duty to resign is stayed as provided herein, any Securityholder who has been a bona fide Holder of Junior Subordinated Debentures for at least six months may, on behalf of that Holder and all other Holders, petition any court of competent jurisdiction for the removal of 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 Junior Subordinated 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 pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.11. 9.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor trustee, every such 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 34 41 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 such 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. (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. (d) Upon acceptance of appointment by a successor trustee as provided in this Section, the Company shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Securityholders, as their names and addresses appear upon the Securities 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. 9.12 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 and eligible under the provisions of this Article IX, 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 Junior Subordinated 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 Junior Subordinated Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Junior Subordinated Debentures. 9.13 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. 9.14 APPOINTMENT OF AUTHENTICATING AGENT. At any time when any of the Junior Subordinated Debentures remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Junior Subordinated Debentures issued upon original issuance, exchange, registration of transfer or partial redemption thereof or pursuant to Section 2.08, and Junior Subordinated 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. Wherever reference is made in this Indenture to the authentication and delivery of Junior Subordinated Debentures by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an 35 42 Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or state authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of such supervision or examining authority, for the purposes of this Section, the combined capital and surplus of such Authenticating Agent 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 an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such notice of resignation or upon such termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first class mail, postage prepaid, to all Securityholders as their names and addresses appear in the Securities Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with the like effect as if originally named as an Authenticating Agent herein. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 9.06. If an appointment is made pursuant to this Section, the Junior Subordinated Debentures may have endorsed thereon, in lieu of the form of certificate of authentication set forth in Section 8.01, a certificate of authentication in the following form: "This is one of the Junior Subordinated Debentures described in the within mentioned Indenture." 36 43 -------------------------------, as Trustee ------------------------------- By ----------------------------- as Authenticating Agent ------------------------------- By ----------------------------- Authorized Signature 9.15 CO-TRUSTEES AND SEPARATE TRUSTEES. At any time or times, for the purpose of meeting the legal requirements of any applicable jurisdiction, the Company and the Trustee shall have power to appoint, and, upon the written request of the Trustee or of the Holders of at least 25% in aggregate principal amount of the Junior Subordinated Debentures then outstanding, the Company shall for such purpose join with the Trustee in the execution and delivery of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Trustee either to act as co-trustee, jointly with the Trustee, or to act as separate trustee, 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 9.15. If the Company does not join in such appointment within 15 days after the receipt by it of a request so to do, or if an Event of Default shall have occurred and be continuing, the Trustee alone shall have power to make such appointment. Should any written instrument or instruments from the Company be required by any co-trustee or separate trustee so appointed to more fully confirm 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 Company. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following conditions: (a) the Junior Subordinated Debentures shall be authenticated 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 Trustee hereunder, shall be exercised solely, by the Trustee; (b) the rights, powers, duties and obligations hereby conferred or imposed upon the Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed either by the Trustee or by the Trustee and such co-trustee or separate trustee jointly, as shall be provided in the 37 44 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 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; (c) the Trustee at any time, by an instrument in writing executed by it, with the concurrence of the Company, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 9.15, and, if an Event of Default shall have occurred and be continuing, the Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Company. Upon the written request of the Trustee, the Company shall join with the Trustee in the execution and delivery of all instruments and agreements, necessary or proper to 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; (d) no co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Trustee, or any other such trustee hereunder; and (e) any notice from the Holders of Junior Subordinated Debentures delivered to the Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. ARTICLE X CONCERNING THE SECURITYHOLDERS 10.01 EVIDENCE OF ACTION BY SECURITYHOLDERS. Whenever in this Indenture it is provided that the Holders of a majority or specified percentage in aggregate principal amount of the Junior Subordinated 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 in Person or by agent or proxy appointed in writing. If the Company shall solicit from the Securityholders 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 Securityholders 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 Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of Outstanding Junior Subordinated 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 Junior Subordinated 38 45 Debentures shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Securityholders 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. 10.02 PROOF OF EXECUTION BY SECURITYHOLDERS. Subject to the provisions of Section 6.01, proof of the execution of any instrument by a Securityholder (such proof will not require notarization) or his agent or proxy and proof of the holding by any Person of any of the Junior Subordinated 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 Junior Subordinated Debentures shall be proved by the Securities Register or by a certificate of the Securities Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. 10.03 WHO MAY BE DEEMED OWNERS. Prior to the due presentment for registration of transfer of any Junior Subordinated Debenture, the Company, the Trustee, any paying agent and any Securities Registrar may deem and treat the Person in whose name such Junior Subordinated Debenture shall be registered upon the books of the Company as the absolute owner of such Junior Subordinated Debenture (whether or not such Junior Subordinated Debenture shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Securities Registrar) for the purpose of receiving payment of or on account of the principal of and (subject to Section 2.03) interest on such Junior Subordinated Debenture and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any Securities Registrar shall be affected by any notice to the contrary. 10.04 CERTAIN JUNIOR SUBORDINATED DEBENTURES OWNED BY COMPANY DISREGARDED. In determining whether the Holders of the requisite aggregate principal amount of Junior Subordinated Debentures have concurred in any direction, consent or waiver under this Indenture, the Junior Subordinated Debentures that are owned by the Company or any other obligor on the Junior Subordinated 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 Junior Subordinated 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 Junior Subordinated Debentures that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. The Junior Subordinated Debentures so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right with respect to such Junior Subordinated Debentures and that the pledgee is not a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any 39 46 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. 10.05 ACTIONS BINDING ON FUTURE SECURITYHOLDERS. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 10.01, of the taking of any action by the Holders of the majority or percentage in aggregate principal amount of the Junior Subordinated Debentures specified in this Indenture in connection with such action, any Holder who is shown by the evidence to have consented to such action may, by filing written notice with the Trustee, and upon proof of holding as provided in Section 10.02, revoke such action so far as concerns such Holder's Junior Subordinated Debentures. Except as aforesaid any such action taken by the Holder shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Holder's Junior Subordinated Debentures, and of any Junior Subordinated Debentures 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 Junior Subordinated Debentures. Any action taken by the Holders of the majority or percentage in aggregate principal amount of the Junior Subordinated 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 Junior Subordinated Debentures. ARTICLE XI SUPPLEMENTAL INDENTURES 11.01 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF SECURITYHOLDERS. 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 Securityholders, for one or more of the following purposes: (a) to cure any ambiguity, defect, or inconsistency herein, or in the Junior Subordinated Debentures, provided that any such action does not materially adversely affect the interests of the Holders or the holders of the Preferred Securities so long as they remain outstanding; (b) to comply with Article XII; (c) to provide for uncertificated Junior Subordinated Debentures in addition to or in place of certificated Junior Subordinated Debentures; (d) to add to the covenants of the Company for the benefit of the Holders 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 Junior Subordinated Debentures, as herein set forth; (f) to make any change that does not adversely affect the rights of any Securityholder in any material respect; or 40 47 (g) to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or to add to the rights of the Holders. 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 may be executed by the Company and the Trustee without the consent of the Holders of any of the Junior Subordinated Debentures at the time Outstanding, notwithstanding any of the provisions of Section 11.02. 11.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS. With the consent (evidenced as provided in Section 10.01) of the Holders of not less than a majority in aggregate principal amount of the Junior Subordinated 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 11.01 the rights of the Holders of the Junior Subordinated Debentures under this Indenture; provided, however, that no such supplemental indenture shall without the consent of the Holders of each Junior Subordinated Debenture then Outstanding, (a) change (except as expressly provided herein pursuant to Section 2.02) the stated maturity of the Junior Subordinated Debentures or reduce the principal amount thereof; or reduce the rate or extend (except as expressly provided herein pursuant to Section 4.01) the time of payment of interest thereon; or (b) reduce the percentage of principal amount of Junior Subordinated Debentures, the Holders of which are required to consent to any such supplemental indenture; provided, further, that if the Junior Subordinated 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 aggregate Liquidation Amount of Preferred Securities shall have consented to such supplemental indenture; provided further, that if the consent of the Holder of each Outstanding Junior Subordinated Debenture is required, such supplemental indenture shall not be effective until each Holder of the Trust Securities shall have consented to such supplemental indenture. It shall not be necessary for the consent of the Securityholders to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. 11.03 EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture pursuant to the provisions of this Article or of Section 12.01, this Indenture shall be and be deemed to be modified and amended in accordance therewith. 11.04 JUNIOR SUBORDINATED DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES. Junior Subordinated Debentures, affected by a 41 48 supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article or of Section 12.01, may bear a notation in form approved by the Company, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Junior Subordinated Debentures so modified as to conform, in the opinion of the Board of Directors, 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 Junior Subordinated Debentures then Outstanding. 11.05 EXECUTION OF SUPPLEMENTAL INDENTURES. Upon the request of the Company, accompanied by Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders 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 Section 9.01, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article is authorized or permitted by, and conforms to, the terms of this Article and that it is proper for the Trustee under the provisions of this Article to join in the execution thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall transmit by mail, first class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Securityholders as their names and addresses appear upon the Securities Register. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. ARTICLE XII SUCCESSOR CORPORATION 12.01 COMPANY MAY CONSOLIDATE, ETC. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless (a) in case the Company 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 the Company's obligations on the Junior Subordinated Debentures issued under this Indenture; (b) immediately after giving effect thereto, no 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; and (c) such successor Person expressly assumes the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept and performed by the Company by executing and delivering a supplemental indenture in form and substance satisfactory to the Trustee. 42 49 12.02 SUCCESSOR SUBSTITUTED. (a) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor Person 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 Junior Subordinated 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 Person 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 Junior Subordinated 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 Junior Subordinated Debentures thereafter to be issued as may be appropriate. 12.03 EVIDENCE OF CONSOLIDATION, ETC., TO TRUSTEE. The Trustee, subject to the provisions of Section 9.01, 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. ARTICLE XIII SATISFACTION AND DISCHARGE 13.01 SATISFACTION AND DISCHARGE OF INDENTURE. If at any time: (a) the Company shall have delivered to the Trustee for cancellation all Junior Subordinated Debentures theretofore authenticated (other than any Junior Subordinated Debentures that shall have been destroyed, lost or stolen and that shall have been replaced or paid as provided in Section 2.08) and Junior Subordinated 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 13.05); or (b) all such Junior Subordinated 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 Junior Subordinated 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 2.02, 2.03, 2.04, 2.05, 4.01, 4.02, 4.03 and 9.10, that shall survive until the date of maturity or redemption date, as the case may be, and Sections 9.06 and 13.05, that shall 43 50 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. 13.02 DISCHARGE OF OBLIGATIONS. If at any time all such Junior Subordinated Debentures not theretofore delivered to the Trustee for cancellation or that have not become due and payable as described in Section 13.01 shall have been paid by the Company by depositing irrevocably with the Trustee, as trust funds, moneys or an amount of Governmental Obligations sufficient to pay at maturity or upon redemption all such Junior Subordinated 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 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 2.02, 2.03, 2.04, 2.05, 4.01, 4.02, 4.03, 9.06, 9.10 and 13.05 hereof that shall survive until such Junior Subordinated Debentures shall mature and be paid. Thereafter, Sections 9.06 and 13.05 shall survive. 13.03 DEPOSITED MONEYS TO BE HELD IN TRUST. All moneys or Governmental Obligations deposited with the Trustee pursuant to Sections 13.01 or 13.02 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 Junior Subordinated Debentures for the payment or redemption of which such moneys or Governmental Obligations have been deposited with the Trustee. 13.04 PAYMENT OF MONEYS 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. 13.05 REPAYMENT TO COMPANY. Any moneys 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 Junior Subordinated Debentures that are not applied but remain unclaimed by the Holders of such Junior Subordinated Debentures for at least two years after the date upon which the principal of or interest on such Junior Subordinated Debentures shall have respectively become due and payable, shall be repaid to the Company on the second annual anniversary of when such payment was originally due 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 Junior Subordinated Debentures entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company for the payment thereof. 44 51 ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 14.01 NO RECOURSE. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Junior Subordinated Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director as such, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through 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 Junior Subordinated 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 Junior Subordinated 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 Junior Subordinated Debentures. ARTICLE XV MISCELLANEOUS PROVISIONS 15.01 EFFECT ON SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company or the Trustee shall bind their respective successors and assigns, whether so expressed or not. 15.02 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. 15.03 SURRENDER OF COMPANY POWERS. The Company by instrument in writing executed by authority of two-thirds 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 and as to any successor corporation. 15.04 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 Junior Subordinated Debentures to or on the Company may be given or served by being deposited first class postage prepaid in a post-office letterbox addressed 45 52 (until another address is filed in writing by the Company with the Trustee), as follows: c/o Blue Valley Ban Corp., 11935 Riley, Overland Park, Kansas 66225-6128, Attention: Chief Executive Officer. Any notice, election, request or demand by the Company or any Securityholder 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. 15.05 GOVERNING LAW. This Indenture and each Junior Subordinated Debenture shall be deemed to be a contract made under the internal laws of the State of Kansas and for all purposes shall be construed in accordance with the laws of said state, provided that the immunities and the standard of care of the Trustee shall be governed by Delaware law. 15.06 TREATMENT OF JUNIOR SUBORDINATED DEBENTURES AS DEBT. It is intended that the Junior Subordinated Debentures will 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. 15.07 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) Every certificate or opinion delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture shall include (i) a statement that the Person making such certificate or opinion has read such covenant or condition; (ii) 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; (iii) a statement that, in the opinion of such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. 15.08 PAYMENTS ON BUSINESS DAYS. In any case where the date of maturity of interest or principal of the Junior Subordinated Debentures or the date of redemption of the Junior Subordinated Debentures shall not be a Business Day, then payment of interest or principal will be made on the next succeeding Business Day (without any additional interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. 46 53 15.09 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. 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. 15.11 SEPARABILITY. In case any one or more of the provisions contained in this Indenture or in the Junior Subordinated 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 Junior Subordinated Debentures, but this Indenture and the Junior Subordinated Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. 15.12 ASSIGNMENT. The Company will 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 will 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 hereto. 15.13 ACKNOWLEDGMENT OF RIGHTS. The Company acknowledges that, with respect to any Junior Subordinated Debentures held by the Trust or a trustee of the Trust, if the Property Trustee of the Trust fails to enforce its rights under this Indenture as the Holder of the Junior Subordinated 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, 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 Junior Subordinated 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 Junior Subordinated 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 Junior Subordinated Debentures. This Section 15.13 may not be amended without the prior written consent of the holders of all of the Preferred Securities. ARTICLE XVI SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES 16.01 AGREEMENT TO SUBORDINATE. The Company covenants and agrees, and each Holder of Junior Subordinated Debentures issued hereunder by such Holder's acceptance thereof likewise covenants and agrees, that all Junior Subordinated Debentures shall be issued subject to the provisions of this Article XVI; and each Holder, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. 47 54 The payment by the Company of the principal of and interest on all Junior Subordinated 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 and Subordinated Debt, 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. 16.02 DEFAULT ON SENIOR AND SUBORDINATED DEBT. 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 and Subordinated Debt of the Company or in the event that the maturity of any Senior and Subordinated Debt 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 of or interest on the Junior Subordinated Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 16.02, subject to Section 16.06, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior and Subordinated Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior and Subordinated Debt may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior and Subordinated Debt (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 and Subordinated Debt and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior and Subordinated Debt. 16.03 LIQUIDATION; DISSOLUTION; BANKRUPTCY. 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 and Subordinated Debt 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 Junior Subordinated 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 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 or by the Trustee under the Indenture if received by them or it, directly to the holders of Senior and Subordinated Debt of the Company (pro rata to such holders on the basis of the respective amounts of Senior and Subordinated Debt 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 and Subordinated Debt may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior and Subordinated Debt in full, in money or money's worth, after giving effect to any concurrent payment or 48 55 distribution to or for the holders of such Senior and Subordinated Debt, before any payment or distribution is made to the Holders or to the Trustee. 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 and Subordinated Debt of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, subject to Section 16.06, 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 and Subordinated Debt or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior and Subordinated Debt may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior and Subordinated Debt of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior and Subordinated Debt 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 and Subordinated Debt. 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 Junior Subordinated Debentures to the payment of all Senior and Subordinated Debt of the Company, as the case may be, that may at the time be outstanding, provided that (a) such Senior and Subordinated Debt is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (b) the rights of the holders of such Senior and Subordinated Debt are not, without the consent of such holders, altered by such reorganization 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 of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 16.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII of this Indenture. Nothing in Section 16.02 or in this Section 16.03 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.06 of this Indenture. 16.04 SUBROGATION. Subject to the payment in full of all Senior and Subordinated Debt of the Company, the rights of the Holders of the Junior Subordinated Debentures shall be subrogated to the rights of the holders of such Senior and Subordinated Debt to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Senior and Subordinated Debt until the principal of and interest on the Junior Subordinated Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior and Subordinated Debt of any cash, property or securities to which the Holders of the Junior Subordinated 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 and Subordinated Debt by Holders of the Junior Subordinated Debentures or the Trustee, shall, as 49 56 between the Company, its creditors other than holders of Senior and Subordinated Debt of the Company, and the Holders of the Junior Subordinated Debentures, be deemed to be a payment by the Company to or on account of such Senior and Subordinated Debt. 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 Junior Subordinated Debentures, on the one hand, and the holders of such Senior and Subordinated Debt on the other hand. Nothing contained in this Article XVI or elsewhere in this Indenture or in the Junior Subordinated Debentures is intended to or shall impair, as between the Company, its creditors other than the holders of Senior and Subordinated Debt of the Company, and the Holders of the Junior Subordinated Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Junior Subordinated Debentures the principal of and interest on the Junior Subordinated 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 Junior Subordinated Debentures and creditors of the Company, other than the holders of Senior and Subordinated Debt of the Company, nor shall anything herein or therein prevent the Trustee or the Holder of any Junior Subordinated 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 and Subordinated Debt in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article XVI, the Trustee, subject to the provisions of Section 9.01, and the Holders of the Junior Subordinated 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 Junior Subordinated Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior and Subordinated Debt 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. 16.05 TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of Junior Subordinated 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. 16.06 NOTICE BY THE COMPANY. 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 moneys to or by the Trustee in respect of the Junior Subordinated 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 moneys to or by the Trustee in respect of the Junior Subordinated Debentures pursuant to the 50 57 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 and Subordinated Debt or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 9.01, 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 16.06 at least five 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 Junior Subordinated 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 it was received, and shall not be affected by any notice to the contrary that may be received by it within five Business Days prior to such date. The Trustee, subject to the provisions of Section 9.01, 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 and Subordinated Debt 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 and Subordinated Debt 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 and Subordinated Debt 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 as to the amount of such Senior and Subordinated Debt 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. 16.07 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR AND SUBORDINATED DEBT. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XVI in respect of any Senior and Subordinated Debt at any time held by it, to the same extent as any other holder of Senior and Subordinated Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior and Subordinated Debt 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 and Subordinated Debt 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 and Subordinated Debt and, subject to the provisions of Section 9.01, the Trustee shall not be liable to any holder of such Senior and Subordinated Debt if it shall pay over or deliver to Holders of Junior Subordinated Debentures, the Company or any other Person money or assets to which any holder of such Senior and Subordinated Debt shall be entitled by virtue of this Article XVI or otherwise. 16.08 SUBORDINATION MAY NOT BE IMPAIRED. No right of any present or future holder of any Senior and Subordinated Debt 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 51 58 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. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior and Subordinated Debt 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 Junior Subordinated Debentures, without incurring responsibility to the Holders of the Junior Subordinated Debentures and without impairing or releasing the subordination provided in this Article XVI or the obligations hereunder of the Holders of the Junior Subordinated Debentures to the holders of such Senior and Subordinated Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior and Subordinated Debt, or otherwise amend or supplement in any manner such Senior and Subordinated Debt or any instrument evidencing the same or any agreement under which such Senior and Subordinated Debt is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior and Subordinated Debt; (c) release any Person liable in any manner for the collection of such Senior and Subordinated Debt; and (d) exercise or refrain from exercising any rights against the Company and any other Person. THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK 59 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. BLUE VALLEY BAN CORP. By: ------------------------------- Robert D. Regnier Chief Executive Officer Attest: - ----------------------------- - ----------------------------- Secretary WILMINGTON TRUST COMPANY, as Trustee By: ------------------------------ Name: ---------------------------- Title: --------------------------- Attest: - ------------------------------- EX-4.4 3 ex4-4.txt DRAFT OF % OF JUNIOR SUBORDINATED DEBENTURES 1 EX-4.4 EXHIBIT A (FORM OF FACE OF JUNIOR SUBORDINATED DEBENTURE) Registered Principal Amount Registered No. $ --------------- ---------- CUSIP No. 096065 AA 5 BLUE VALLEY BAN CORP. % JUNIOR SUBORDINATED DEBENTURE ---- DUE SEPTEMBER 30, 2030 BLUE VALLEY BAN CORP., a Kansas corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to WILMINGTON TRUST COMPANY as Property Trustee of BVBC Capital Trust I or registered assigns, the principal sum of Dollars ($ ) on September 30, 2030 (which date may be shortened as provided in the Indenture, the "Stated Maturity"), and to pay interest on said principal sum from , 2000, 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, 2000, at the rate of % per annum until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of each interest payment due with respect to the Junior Subordinated Debentures will include amounts accrued through the date the interest payment is due. 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. In the event that any date on which interest is payable on this Junior Subordinated Debenture is not a Business Day (as defined in the Indenture), then payment of 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), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case 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 will, as provided in the Indenture, be paid to the person in whose name this Junior Subordinated Debenture (or one or more Predecessor Junior Subordinated Debentures, as defined in the 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 business day next preceding such Interest Payment Date unless otherwise provided in the Indenture. The principal of and the interest on this Junior Subordinated Debenture shall be payable at the office or agency of the Trustee (as defined in the Indenture) 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 52 2 option of the Company by check mailed to the Registered Holder (as defined in the Indenture) at such address as shall appear in the Securities Register (as defined in the Indenture). Notwithstanding the foregoing, so long as the Holder of this Junior Subordinated Debenture is the Property Trustee (as defined in the Indenture), the payment of the principal of and interest on this Junior Subordinated Debenture will be made at such place and to such account as may be designated by the Property Trustee. The Stated Maturity may be shortened at any time by the Company to any date not earlier than September 30, 2005, subject to the Company having received prior approval of the Federal Reserve (as defined in the Indenture) if then required under applicable capital guidelines or policies of the Federal Reserve. The indebtedness evidenced by this Junior Subordinated 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 and Subordinated Debt (as defined in the Indenture), and this Junior Subordinated Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Junior Subordinated 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 and Subordinated Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Junior Subordinated Debenture shall not be entitled to any benefit under the Indenture, 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 Junior Subordinated 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: ---------------- BLUE VALLEY BAN CORP. By: -------------------------------- -------------------------------- Chief Executive Officer Attest: By: ------------------------ -------------, Secretary [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Junior Subordinated Debentures described in the within-mentioned Indenture. Dated: ------------------- WILMINGTON TRUST COMPANY, as Trustee By: --------------------------------- Authorized Signature 3 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Junior Subordinated Debentures described in the within-mentioned Indenture. Dated: ------------------- WILMINGTON TRUST COMPANY, as Trustee By: --------------------------------- Authorized Signature 4 [FORM OF REVERSE OF JUNIOR SUBORDINATED DEBENTURE] % JUNIOR SUBORDINATED DEBENTURE ---- (CONTINUED) This Junior Subordinated Debenture is one of the junior subordinated debentures of the Company (herein sometimes referred to as the "Junior Subordinated Debentures"), specified in the Indenture, all issued under and pursuant to a Subordinated Indenture dated as of , 2000 (the "Indenture") duly executed and delivered between the Company and WILMINGTON TRUST COMPANY, 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 Junior Subordinated Debentures. The Junior Subordinated Debentures are limited in aggregate principal amount as specified in the Indenture. Because of the occurrence and continuation of a Special Event (as defined in the Indenture), in certain circumstances, this Junior Subordinated Debenture may become due and payable at the option of the Company at the principal amount together with any interest accrued thereon (the "Redemption Price"). The Redemption Price shall be paid prior to 2:00 p.m. Overland Park, Kansas 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 Junior Subordinated Debenture at the option of the Company, in whole or in part, from time to time, on or after September 30, 2005, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued but unpaid interest thereon to the date of such redemption. Any redemption pursuant to this paragraph will be made upon not less than 30 days' nor more than 60 days' notice. If the Junior Subordinated Debentures are only partially redeemed by the Company pursuant to this paragraph, the Junior Subordinated Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided that if, at the time of redemption, the Junior Subordinated Debentures are registered as a Global Subordinated Debenture (as defined in the Indenture), the Depositary (as defined in the Indenture) shall determine the principal amount of such Junior Subordinated Debentures held by each Junior Subordinated Debenture Holder to be redeemed in accordance with its procedures. In the event of redemption of this Junior Subordinated Debenture in part only, a new Junior Subordinated Debenture for the unredeemed portion hereof will 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 Junior Subordinated 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 Junior Subordinated 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 53 5 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 Junior Subordinated Debentures; provided, however, that no such supplemental indenture shall (i) change the stated maturity of the Junior Subordinated Debentures except as provided in the Indenture, or 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 Junior Subordinated Debenture so affected, or (ii) reduce the aforesaid percentage of Junior Subordinated Debentures, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Junior Subordinated Debenture then Outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Junior Subordinated Debentures at the time Outstanding, on behalf of all of the Holders of the Junior Subordinated 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 Junior Subordinated Debentures. Any such consent or waiver by the registered Holder of this Junior Subordinated 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 Junior Subordinated Debenture and of any Junior Subordinated Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Junior Subordinated Debenture. No reference herein to the Indenture and no provision of this Junior Subordinated Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Junior Subordinated 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 Junior Subordinated Debentures and from time to time to extend the interest payment period of such Junior Subordinated Debentures for up to 20 consecutive quarters (an "Extended Interest Payment 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 Junior Subordinated Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarters or extend beyond the Stated Maturity. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extended Interest Payment Period. The Company has agreed that if at any time (a) there shall have occurred any event of which the Company has actual knowledge that (i) with the giving of notice or the lapse of time, or both, would constitute an Event of Default and (ii) in respect to which the Company shall not have taken reasonable steps to cure, or (b) the Company shall have given notice of its election of an Extended Interest Payment Period as provided herein and shall not have rescinded such notice, or such Extended Interest Payment Period, or any extension thereof, shall be continuing; or (c) while the Junior Subordinated Debentures are held by the Trust, the Company shall be in default with respect to its payment of any obligation under the Preferred Securities Guarantee, then the Company will not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including the Junior Subordinated Debentures) that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu or junior in interest to the Junior Subordinated Debentures (other than (A) dividends or distributions in common stock, (B) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (C) payments under the Preferred Securities Guarantee and (D) purchases of common stock related to the issuance of common stock or rights under any of the Company's benefit plans for its directors, officers or employees). 6 As provided in the Indenture and subject to certain limitations therein set forth, this Junior Subordinated Debenture is transferable by the registered Holder hereof on the Securities Register of the Company, upon surrender of this Junior Subordinated 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 such Holder's attorney duly authorized in writing, and thereupon one or more new Junior Subordinated Debentures of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will 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 Junior Subordinated Debenture, the Company, the Trustee, any paying agent and the Securities Registrar (as defined in the Indenture) may deem and treat the Registered Holder hereof as the absolute owner hereof (whether or not this Junior Subordinated Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Securities 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 Securities 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 Junior Subordinated 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 Junior Subordinated Debentures are issuable only in registered form without coupons in denominations of $8 and any integral multiple thereof. All terms used in this Junior Subordinated Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-4.6 4 ex4-6.txt DRAFT FORM OF AMENDED AND RESTATED TRUST AGREEMT. 1 EXHIBIT 4.6 AMENDED AND RESTATED TRUST AGREEMENT ---------------------------------------------------------------- BVBC CAPITAL TRUST I AMENDED AND RESTATED TRUST AGREEMENT AMONG BLUE VALLEY BAN CORP., AS DEPOSITOR WILMINGTON TRUST COMPANY, AS PROPERTY TRUSTEE WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE AND THE ADMINISTRATIVE TRUSTEES NAMED HEREIN DATED AS OF , 2000 ------------- ---------------------------------------------------------------- 2 TABLE OF CONTENTS Page ARTICLE I....................................................................1 1.01 DEFINITIONS..........................................................1 ARTICLE II...................................................................9 2.01 NAME.................................................................9 2.02 OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS..........9 2.03 INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES......9 2.04 ISSUANCE OF THE PREFERRED SECURITIES................................10 2.05 ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF JUNIOR SUBORDINATED DEBENTURES.............................................10 2.06 DECLARATION OF TRUST................................................11 2.07 AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS....................11 2.08 ASSETS OF TRUST.....................................................15 2.09 TITLE TO TRUST PROPERTY.............................................15 ARTICLE III.................................................................15 3.01 PAYMENT ACCOUNT.....................................................15 ARTICLE IV..................................................................15 4.01 DISTRIBUTIONS.......................................................15 4.02 REDEMPTION..........................................................16 4.03 SUBORDINATION OF COMMON SECURITIES..................................18 4.04 PAYMENT PROCEDURES..................................................19 4.05 TAX RETURNS AND REPORTS.............................................19 4.06 PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.........................20 4.07 PAYMENTS UNDER INDENTURE............................................20 ARTICLE V...................................................................20 5.01 INITIAL OWNERSHIP...................................................20 5.02 THE TRUST SECURITIES CERTIFICATES...................................20 5.03 EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.............20 i 3 5.04 REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES CERTIFICATES...................................................... 20 5.05 MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES..21 5.06 PERSONS DEEMED SECURITYHOLDERS......................................22 5.07 ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES..............22 5.08 MAINTENANCE OF OFFICE OR AGENCY.....................................22 5.09 APPOINTMENT OF PAYING AGENT.........................................22 5.10 OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.........................23 5.11 BOOK-ENTRY PREFERRED SECURITIES CERTIFICATES; COMMON SECURITIES CERTIFICATE.........................................................23 5.12 NOTICES TO CLEARING AGENCY..........................................24 5.13 DEFINITIVE PREFERRED SECURITIES CERTIFICATES........................24 5.14 RIGHTS OF SECURITYHOLDERS...........................................25 ARTICLE VI..................................................................26 6.01 LIMITATIONS ON VOTING RIGHTS........................................26 6.02 NOTICE OF MEETINGS..................................................27 6.03 MEETINGS OF HOLDERS OF PREFERRED SECURITIES.........................27 6.04 VOTING RIGHTS.......................................................27 6.05 PROXIES, ETC........................................................27 6.06 SECURITYHOLDER ACTION BY WRITTEN CONSENT............................28 6.07 RECORD DATE FOR VOTING AND OTHER PURPOSES...........................28 6.08 ACTS OF SECURITYHOLDERS.............................................28 6.09 INSPECTION OF RECORDS...............................................29 ARTICLE VII.................................................................29 7.01 REPRESENTATIONS AND WARRANTIES OF THE TRUST COMPANY AND THE PROPERTY TRUSTEE............................................29 7.02 REPRESENTATIONS AND WARRANTIES OF THE TRUST COMPANY AND THE DELAWARE TRUSTEE.............................................................30 7.03 REPRESENTATION AND WARRANTIES OF DEPOSITOR..........................31 ARTICLE VIII................................................................31 8.01 CERTAIN DUTIES AND RESPONSIBILITIES.................................31 8.02 CERTAIN NOTICES.....................................................33 ii 4 8.03 CERTAIN RIGHTS OF PROPERTY TRUSTEE...................................33 8.04 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES...............35 8.05 MAY HOLD SECURITIES..................................................35 8.06 COMPENSATION; INDEMNITY; FEES........................................35 8.07 CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.........36 8.08 CONFLICTING INTERESTS................................................37 8.09 CO-TRUSTEES AND SEPARATE TRUSTEE.....................................37 8.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR....................38 8.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...............................40 8.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS..........40 8.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST.........40 8.14 REPORTS BY PROPERTY TRUSTEE..........................................40 8.15 REPORTS TO THE PROPERTY TRUSTEE......................................41 8.16 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.....................41 8.17 NUMBER OF TRUSTEES...................................................41 8.18 DELEGATION OF POWER..................................................42 8.19 VOTING...............................................................42 8.20 MAINTENANCE OF LISTING...............................................42 ARTICLE IX...................................................................42 9.01 DISSOLUTION UPON EXPIRATION DATE.....................................42 9.02 EARLY DISSOLUTION....................................................42 9.03 TERMINATION..........................................................43 9.04 LIQUIDATION..........................................................43 9.05 MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST..45 ARTICLE X....................................................................46 10.01 LIMITATION OF RIGHTS OF SECURITYHOLDERS.............................46 10.02 AMENDMENT...........................................................46 10.03 SEPARABILITY........................................................47 10.04 GOVERNING LAW.......................................................47 iii 5 10.05 PAYMENTS DUE ON NON-BUSINESS DAY...................................47 10.06 SUCCESSORS.........................................................47 10.07 HEADINGS...........................................................47 10.08 REPORTS, NOTICES AND DEMANDS.......................................48 10.09 AGREEMENT NOT TO PETITION..........................................48 10.10 TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.............49 10.11 ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE....49 10.12 COUNTERPARTS.......................................................49 10.13 EXCHANGE ACT OBLIGATIONS...........................................49 Exhibits Exhibit A - Certificate of Trust Exhibit B - Form of Certificate Depository Agreement Exhibit C - Form of Common Securities Certificate Exhibit D - Form of Expense Agreement Exhibit E - Form of Preferred Securities Certificate iv 6 AMENDED AND RESTATED TRUST AGREEMENT AMENDED AND RESTATED TRUST AGREEMENT, dated as of , 2000, among (i) BLUE VALLEY BAN CORP., a Kansas corporation (including any successors or assigns, the "Depositor"), (ii) WILMINGTON TRUST COMPANY, a Delaware banking corporation duly organized and existing under the laws of Delaware, as property trustee (the "Property Trustee"), (iii) WILMINGTON TRUST COMPANY, with its home office located in the State of Delaware, as Delaware trustee (the "Delaware Trustee," and, to the extent expressly provided herein, in its separate corporate capacity and not in its capacity as Property Trustee or Delaware Trustee, the "Trust Company"), (iv) Robert D. Regnier, an individual, and Mark A. Fortino, an individual, each of whose address is c/o BLUE VALLEY BAN CORP., 11935 Riley, Overland Park, Kansas 66225-6128 (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. WITNESSETH: WHEREAS, the Depositor, the Delaware Trustee, and the Administrative Trustees have heretofore duly formed BVBC Capital Trust I, a business trust (the "Trust"), pursuant to the Delaware Business Trust Act by the entering into of that certain Trust Agreement, dated as of March 30, 2000 (the "Original Trust Agreement"), and by the execution and filing by the Delaware Trustee and the Administrative Trustees with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on March 30, 2000, the form of which is attached as EXHIBIT A; and WHEREAS, the Depositor, the Delaware 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 below) by the Trust to the Depositor, (ii) the issuance and sale of the Preferred Securities (as defined below) by the Trust pursuant to the Underwriting Agreement, (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Junior Subordinated Debentures (as defined below), and (iv) the appointment of the Property Trustee; NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: ARTICLE I DEFINED TERMS 1.01..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 have the meanings assigned to them in this Article and include the plural as well as the singular; 1 7 (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. "Accelerated Maturity Date" has the meaning set forth in Section 1.01 of the Indenture. "Act" has the meaning specified in Section 6.08. "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and a given period, the amount of additional interest accrued on interest in arrears and paid by the Depositor on a Like Amount of Junior Subordinated Debentures for such period. "Additional Sums" has the meaning specified in Section 2.05 of the Indenture. "Administrative Trustee" means each of Robert D. Regnier and Mark A. Fortino, solely in each such person's capacity as Administrative Trustee of the Trust continued hereunder and not in such person's individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor Administrative Trustee appointed as herein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "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 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 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 2 8 (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 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 such Person shall make a general assignment for the benefit of creditors. "Bankruptcy Laws" has the meaning specified in Section 10.09. "Book-Entry Preferred Securities Certificates" means certificates representing Preferred Securities issued in global, fully registered form to the Clearing Agency as described in Section 5.11. "Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions in the State of Kansas or Delaware are authorized or required by law or executive order to remain closed, or (c) 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 Depository Agreement" means the agreement among the Trust, the Depositor and The Depository Trust Company, as the initial Clearing Agency, dated as of the Closing Date, relating to the Trust Securities Certificates, substantially in the form attached as EXHIBIT B, as the same may be amended and supplemented from time to time. "Certificate of Trust" means, as stated in the recitals to this Trust Agreement, the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, in the form attached as EXHIBIT A, as the same may be amended or restated from time to time. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. The Depository Trust Company will be the initial Clearing Agency. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means , 2000. "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 Trust Agreement 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 a common undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $8.00 and having the rights provided therefor in this 3 9 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 principal corporate trust office of the Property Trustee located at 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration. "Debenture Event of Default" means an "Event of Default" as defined in the Indenture. "Debenture Redemption Date" means, with respect to any Junior Subordinated Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Trustee" means Wilmington Trust Company, a Delaware banking corporation, organized under the laws of Delaware and any successor thereto, as trustee under the Indenture. "Definitive Preferred Securities Certificates" means either or both (as the context requires) of (a) Preferred Securities Certificates issued as Book-Entry Preferred Securities Certificates as provided in Section 5.11(a), and (b) Preferred Securities Certificates issued in certificated, fully registered form as provided in Section 5.13. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et. seq. as it may be amended from time to time. "Delaware Trustee" means the corporation identified as the "Delaware Trustee" in the preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor Delaware 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 4.01(a). "Distributions" means amounts payable in respect of the Trust Securities as provided in Section 4.01. "Event of Default" means any one of the following events that shall have occurred and be continuing (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 in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or 4 10 (c) default by the Trust 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 Property Trustee 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 Property Trustee 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 9.01. "Extension Period" means the "Extended Interest Payment Period" as defined in the Indenture. "Global Subordinated Debenture" has the meaning specified in the Indenture. "Guarantee" means the Preferred Securities Guarantee Agreement executed and delivered by the Depositor and Property Trustee, 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. "Holder" means a Securityholder. "Indenture" means the Subordinated Indenture, dated as of , 2000, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time. "Investment Company Act" means the Investment Company Act of 1940, as amended. "Junior Subordinated Debentures" means the $10,309,280 aggregate principal amount (or up to $11,855,672 aggregate principal amount if the Underwriter exercises its Option and there is an Option Closing Date) of the Depositor's % Junior Subordinated Debentures due 2030, issued pursuant to the Indenture. 5 11 "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 Junior Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture and the proceeds of which will be used to pay the Redemption Price of such Trust Securities and (b) with respect to a distribution of Junior Subordinated Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust, Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Junior Subordinated Debentures are distributed. "Liquidation Amount" means the stated amount of $8.00 per Trust Security. "Liquidation Date" means the date on which Junior Subordinated Debentures are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 9.04(a). "Liquidation Distribution" has the meaning specified in Section 9.04(d). "Maturity Date" has the meaning set forth in Section 2.02 of the Indenture. "Officers' Certificate" means a certificate signed by the Chief Executive Officer, the President or a Vice President and by the Chief Accounting Officer 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 8.16 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 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 (c) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means a written opinion of 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. 6 12 "Option" means the grant by the Trust to the Underwriter of an option to purchase all or any portion of an additional 187,500 Preferred Securities pursuant to the terms of the Underwriting Agreement. "Option Closing Date" means the time, date of payment and delivery of the Preferred Securities Certificates purchased pursuant to the Underwriter's exercise of the Option, as more particularly described in the Underwriting Agreement. "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 5.04, 5.05, 5.11 and 5.13; 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 (i) 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 (ii) 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 as to such Preferred Securities so owned. "Owner" means each Person who is the beneficial owner of a Book-Entry Preferred Securities Certificate as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing Agency). "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.09 and shall initially be the Trust Company. 7 13 "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee for the benefit of the Securityholders in which all amounts paid in respect of the Junior Subordinated Debentures will be held and from which the Property Trustee shall make payments to the Securityholders in accordance with Sections 4.01 and 4.02. "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 a preferred undivided beneficial interest in the assets of the Trust, designated " % Cumulative Trust Preferred Securities," having a Liquidation Amount of $8.00 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 Maturity Date of the Junior Subordinated Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security to be redeemed, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities to be redeemed. "Relevant Trustee" shall have the meaning specified in Section 8.10. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 5.04. "Securityholder" means a Person in whose name a Trust Security or Trust 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 BVBC Capital Trust I, the Delaware business trust continued hereby and which was created as stated in the recitals 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 such 8 14 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 Company" has the meaning specified in the preamble to this Trust Agreement. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this Trust Agreement was executed; provided, however, that in the event the Trust Indenture Act of 1939 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 Junior Subordinated 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. "Trustee" or "Trustees" means, individually or collectively, any of the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriter" means Stifel, Nicolaus & Company, Incorporated. "Underwriting Agreement" means the Underwriting Agreement dated as of , 2000, among the Trust, the Depositor and the Underwriter. ARTICLE II ESTABLISHMENT OF THE TRUST 2.01 NAME. The Trust heretofore created and continued hereby shall continue to be known as "BVBC CAPITAL TRUST I," 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. 2.02 OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS. The address of the Delaware Trustee in the State of Delaware is 1100 North Market Street, Wilmington, Delaware 19890, 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 Depositor. The principal executive office of the Trust is c/o BLUE VALLEY BAN CORP., 11935 Riley, Overland Park, Kansas 66225-6128. 2.03 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 9 15 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. 2.04 ISSUANCE OF THE PREFERRED SECURITIES. On , 2000, 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 5.02 and deliver, in accordance with the Underwriting Agreement, a Preferred Securities Certificate, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of Preferred Securities having an aggregate Liquidation Amount of $10,000,000 against receipt of the aggregate purchase price of such Preferred Securities of $10,000,000, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. If the Underwriter exercises its Option and there is an Option Closing Date, then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.02 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 187,500 Preferred Securities having an aggregate Liquidation Amount of up to $1,500,000 against receipt of the aggregate purchase price of such Preferred Securities equal to the product of $8 multiplied by the number of Preferred Securities purchased pursuant to the Option, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. 2.05 ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF JUNIOR SUBORDINATED 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 5.02 and deliver to the Depositor a Common Securities Certificate, registered in the name of the Depositor, in an aggregate amount of Common Securities having an aggregate Liquidation Amount of $309,280 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 Junior Subordinated Debentures, registered in the name of the Property Trustee on behalf of the Trust and having an aggregate principal amount equal to $10,309,280, and, in satisfaction of the purchase price for such Junior Subordinated Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $10,309,280. (b) If the Underwriter exercises the Option and there is an Option Closing Date, then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.02 and deliver to the Depositor, Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of up to 5,799 Common Securities having an aggregate Liquidation Amount of up to $46,392 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, Junior Subordinated Debentures, registered in the name of the Trust and having an aggregate 10 16 principal amount of up to $1,546,392, and, in satisfaction of the purchase price of such Junior Subordinated Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $1,546,392. 2.06 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 Junior Subordinated 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 will 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. 2.07 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 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, including, without limitation, the execution of the Trust Securities on behalf of the Trust in accordance with this Trust Agreement, and complying with the terms of the Underwriting Agreement regarding 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 the Certificate Depository Agreement and such other agreements or documents as may be necessary or desirable in connection with the purposes and function of the Trust; (C) to assist in the registration of the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue 11 17 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 American Stock Exchange LLC or such securities exchange or exchanges as shall be determined by the Depositor and, if required, 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 Junior Subordinated 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, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation of the Certificate of Trust 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; (I) the execution and delivery of an application for a taxpayer identification number for the Trust; and (J) 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 Junior Subordinated Debentures; 12 18 (C) the receipt and collection of interest, principal and any other payments made in respect of the Junior Subordinated 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 Junior Subordinated Debentures; (F) the sending of notices of default and other information regarding the Trust Securities and the Junior Subordinated 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 winding up of the affairs of and liquidation of the Trust; (I) after an Event of Default (other than under paragraph (b), (c), (d) or (e) of the definition of such term if the Event of Default is by or with respect to the Property Trustee) 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) so long as the Property Trustee is the Securities Registrar, registering transfers of the Trust Securities in accordance with this Trust Agreement; and (K) except as otherwise provided in this Section 2.07(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.07(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 13 19 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. (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 Junior Subordinated 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) in the discretion of the Depositor, the preparation for filing by the Trust and execution on behalf of the Trust of an application to The American Stock Exchange LLC or a national stock exchange 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) if required, 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; (vi) the negotiation of the terms of, and execution of, the Original Trust Agreement, and the preparation of this Trust Agreement and the selection of the Trustees; and (vii) 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 14 20 Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the Investment Company Act, will 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 Junior Subordinated Debentures will be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, subject to Section 10.02, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law or this Trust Agreement, that each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes. In no event shall the Trustees be liable to the Trust or the Securityholders for any failure to comply with this Section that results from a change in law or regulations or in the interpretation thereof. 2.08 ASSETS OF TRUST. The assets of the Trust shall consist of the Trust Property. 2.09 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 3.01 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 Junior Subordinated Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof. ARTICLE IV DISTRIBUTIONS; REDEMPTION 4.01 DISTRIBUTIONS. (a) Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from , 2000, and, except during any Extension Period with respect to the Junior Subordinated Debentures, shall be 15 21 payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing September 30, 2000. The amount of each Distribution due with respect to the Trust Securities will include amounts accrued through the date the Distribution payment is due. 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) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which Distributions are payable in accordance with this Section 4.01(a) a "Distribution Date"). (b) The Trust Securities represent undivided beneficial interests in the Trust Property, and, as a practical matter, the 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 Junior Subordinated Debentures, Distributions on the Preferred Securities will 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 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 one Business Day prior to such Distribution Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the 15th day of the month in which the relevant Distribution is payable. 4.02 REDEMPTION. (a) On each Debenture Redemption Date and on the Maturity Date of the Junior Subordinated Debentures, the Trust will 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: 16 22 (i) the Redemption Date; (ii) the Redemption Price, or if the Redemption Price cannot be calculated prior to the time the notice is required to be sent, the estimate of the Redemption Price provided pursuant to the Indenture together with a statement that it is an estimate and that the actual Redemption Price will be calculated on the third Business Day prior to the Redemption Date (and, if an estimate is provided, a further notice shall be sent of the actual Redemption Price on the date, or as soon as practicable thereafter, that notice of such actual Redemption Price is received pursuant to the Indenture); (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; (v) that on the Redemption Date the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that Distributions thereon will cease to accumulate on and after said date, except as provided in Section 4.02(d) below; and (vi) the place or places where Trust Securities are to be surrendered for the payment of the Redemption Price. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Junior Subordinated 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 10:00 a.m., Delaware time, on the Redemption Date, subject to Section 4.02(c), the Property Trustee will, so long as the Preferred Securities are in book-entry-only form, deposit with the Clearing Agency for the Preferred Securities funds sufficient to pay the applicable Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the Holders thereof. If the Preferred Securities are no longer in book-entry-only form, the Property Trustee, subject to Section 4.02(c), will deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will 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 17 23 Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price, but without interest on such Redemption Price, and such Securities will 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 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), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case, 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 will 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 will 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 one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date fifteen days prior to the relevant Redemption Date. (f) Subject to Section 4.03(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, 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 $8.00 or an integral multiple of $8.00 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $8.00. 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. 4.03 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 4.02(f), pro rata among the Common Securities and the Preferred 18 24 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. The existence of an Event of Default does not entitle the Holders of Preferred Securities to accelerate the maturity thereof. (b) In the case of the occurrence of any Event of Default resulting from a Debenture Event of Default, the Holder of Common Securities will 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 will have the right to direct the Property Trustee to act on their behalf. 4.04 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 or, if the Preferred Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons' accounts at such Clearing Agency on the applicable Distribution Dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Holder of the Common Securities. 4.05 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 19 25 federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. 4.06 PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST. Upon receipt under the Junior Subordinated Debentures of Additional Sums, 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. 4.07 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 5.14(b) or (c) hereof. ARTICLE V TRUST SECURITIES CERTIFICATES 5.01 INITIAL OWNERSHIP. Upon the formation of the Trust and the contribution by the Depositor pursuant to Section 2.03 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. 5.02 THE TRUST SECURITIES CERTIFICATES. The Preferred Securities Certificates shall be issued in minimum denominations of $8.00 Liquidation Amount and integral multiples of $8.00 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $8.00 Liquidation Amount and integral multiples of $8.00 in excess thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by manual signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual 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 5.04, 5.11 and 5.13. 5.03 EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES. On the Closing Date, and on the Option Closing Date, if applicable, the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 2.04 and 2.05, to be executed on behalf of the Trust by at least one of the Administrative Trustees and delivered, without further corporate action by the Depositor, in authorized denominations. 5.04 REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES CERTIFICATES. The Property Trustee shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.08, 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 20 26 the Property Trustee (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 (subject to Section 5.10 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. Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 5.08, 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 5.08. 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 such Holder's 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. 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. 5.05 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 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 denomination. In connection with the issuance of any new Trust Securities Certificate under this Section, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient 21 27 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 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. 5.06 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. 5.07 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 regular record date (as provided in Section 4.01(d)) and (b) promptly after receipt by any Administrative Trustee or the Depositor of a request therefor from the Property Trustee, such other information as the Property Trustee may reasonably require 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. 5.08 MAINTENANCE OF OFFICE OR AGENCY. The Administrative Trustees shall maintain 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 principal corporate trust office of the Property Trustee, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration, 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. 5.09 APPOINTMENT OF PAYING AGENT. 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 22 28 material respect. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee, and acceptable to the Administrative Trustees and the Depositor. 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 will 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 8.01, 8.03 and 8.06 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 Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. 5.10 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 12.01 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". 5.11 BOOK-ENTRY PREFERRED SECURITIES CERTIFICATES; COMMON SECURITIES CERTIFICATE. (a) The Preferred Securities Certificates, upon original issuance, will be issued in the form of a typewritten Preferred Securities Certificate or Certificates representing Book-Entry Preferred Securities Certificates, to be delivered to or held on behalf of The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such Book-Entry Preferred Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no beneficial owner will receive a Definitive Preferred Securities Certificate representing such beneficial owner's interest in such Preferred Securities, except as provided in Section 5.13. Unless and until Definitive Preferred Securities Certificates have been issued to beneficial owners pursuant to Section 5.13: (i) the provisions of this Section 5.11(a) shall be in full force and effect; (ii) the Securities Registrar, the Paying Agent and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust 23 29 Agreement relating to the Book-Entry Preferred Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Book-Entry Preferred Securities) as the sole Holder of Book-Entry Preferred Securities and shall have no obligations to the Owners thereof; (iii) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Trust Agreement, the provisions of this Section 5.11 shall control; and (iv) the rights of the Owners of the Book-Entry Preferred Securities Certificates shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Certificate Depository Agreement, unless and until Definitive Preferred Securities Certificates are issued pursuant to Section 5.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and will receive and transmit payments on the Preferred Securities to such Clearing Agency Participants. Any Clearing Agency designated pursuant hereto will not be deemed an agent of the Trustees for any purpose. (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. 5.12 NOTICES TO CLEARING AGENCY. To the extent that a notice or other communication to the Owners is required under this Trust Agreement, unless and until Definitive Preferred Securities Certificates shall have been issued to Owners pursuant to Section 5.13, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners. 5.13 DEFINITIVE PREFERRED SECURITIES CERTIFICATES. If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to discharge properly its responsibilities with respect to the Preferred Securities Certificates, and the Depositor is unable to locate a qualified successor, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency, or (c) after the occurrence of a Debenture Event of Default, Owners of Preferred Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount advise the Property Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Owners of Preferred Securities Certificates, then the Property Trustee shall notify the Clearing Agency, and the Clearing Agency shall notify all Owners of Preferred Securities Certificates, of the occurrence of any such event and of the availability of the Definitive Preferred Securities Certificates to Owners of such class or classes, as applicable, requesting the same. Upon surrender to the Property Trustee of the typewritten Preferred Securities Certificate or Certificates representing the Book-Entry Preferred Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Preferred Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery 24 30 of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Preferred Securities Certificates, the Trustees shall recognize the Holders of the Definitive Preferred Securities Certificates as Securityholders. The Definitive 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. 5.14 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 2.09, 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 will 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 Junior Subordinated Debentures fail to declare the principal of all of the Junior Subordinated Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have the right to make such declaration 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 Junior Subordinated Debentures shall become immediately due and payable, provided that the payment of principal and interest on such Junior Subordinated Debentures shall remain subordinated to the extent provided in the Indenture. If, as a result of a Debenture Event of Default, the Debenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures have declared the Junior Subordinated Debentures due and payable and if such default has been cured and a sum sufficient to pay all matured installments due (otherwise than by acceleration) under the Junior Subordinated Debentures has been deposited with the Debenture Trustee, then (if the holders of not less than a majority in aggregate outstanding principal amount of Junior Subordinated Debentures have not annulled such declaration and waived such default) the Holders of a majority in aggregate Liquidation Amount of the Preferred Securities may annul such declaration and waive such default. (c) For so long as any Preferred Securities remain outstanding, upon a Debenture Event of Default arising from the failure to pay interest or principal on the Junior Subordinated Debentures, the Holders of any Preferred Securities then 25 31 Outstanding shall, to the fullest extent permitted by law, have the right to institute directly proceedings for enforcement of payment to such Holders of principal of or interest on the Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holders. ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING 6.01 LIMITATIONS ON VOTING RIGHTS. (a) Except as provided in this Section, in Sections 5.14, 8.10 and 10.02 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 Junior Subordinated 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 Junior Subordinated Debentures, (ii) waive any past default which is waivable under Article Seven of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Junior Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Junior Subordinated 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 Junior Subordinated 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 Junior 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 shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that the Trust will 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 26 32 the Holders of Outstanding Preferred Securities as a class will 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. 6.02 NOTICE OF MEETINGS. Notice of all meetings of the Holders of Preferred Securities, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.08 to each Holder of Preferred Securities of record, at such Securityholder's 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. 6.03 MEETINGS OF HOLDERS OF PREFERRED SECURITIES. 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 upon the written request of the Holders 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 Holders of the Preferred Securities to vote on any matters as to which the Holders of the Preferred Securities are entitled to vote. Holders 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 such Securityholders. If a quorum is present at a meeting, an affirmative vote by the Holders 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 Holders of Preferred Securities of record present, either in person or by proxy, at such meeting shall constitute the action of the Holders of the Preferred Securities, unless this Trust Agreement requires a greater number of affirmative votes. 6.04 VOTING RIGHTS. Securityholders shall be entitled to one vote for each $8.00 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. 6.05 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 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. 27 33 6.06 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). 6.07 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 any 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. 6.08 ACTS OF SECURITYHOLDERS. 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 or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners 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 or Owners 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 8.01) conclusive in favor of the Trustees, if made in the manner provided in this Section. 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 or her the execution thereof. Where such execution is by a signer acting in a capacity other than such signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer's authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Preferred Securities shall be proved by the Securities Register. 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. 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 28 34 or any part of such Liquidation Amount. A Holder of Preferred Securities 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. 6.09 INSPECTION OF RECORDS. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.01 REPRESENTATIONS AND WARRANTIES OF THE TRUST COMPANY AND THE PROPERTY TRUSTEE. The Trust Company, in its separate corporate capacity and as Property Trustee, 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 "Trust Company" being used hereafter in this Article VII to refer to such successor Property Trustee in its separate corporate capacity and as Property Trustee), hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Trust Company is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Trust Company 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 Trust Company and constitutes the valid and legally binding agreement of the Trust Company 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 Trust Company of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Trust Company and does not require any approval of the stockholders of the Trust Company and such execution, delivery and performance will not (i) violate the Trust Company'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 Trust Company 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 Trust Company, or any order, judgment or decree applicable to the Trust Company; 29 35 (e) neither the authorization, execution or delivery by the Trust Company of this Trust Agreement nor the consummation of any of the transactions by the Trust Company 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 law of the United States or the State of Delaware governing the banking or trust powers of the Trust Company; and (f) there are no proceedings pending or, to the best of the Trust Company's knowledge, threatened against or affecting the Trust Company 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 Trust Company to enter into or perform its obligations as one of the Trustees under this Trust Agreement. 7.02 REPRESENTATIONS AND WARRANTIES OF THE TRUST COMPANY AND THE DELAWARE TRUSTEE. The Trust Company in its corporate capacity and as Delaware Trustee, as of the date hereof, and each successor Delaware Trustee at the time of the successor Delaware Trustee's acceptance of its appointment as Delaware Trustee hereunder (the term "Trust Company" being used hereafter in this Article VIII to refer to such successor Delaware Trustee in its separate corporate capacity and as Delaware Trustee), hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Trust Company is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Trust Company 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 Trust Company and constitutes the valid and legally binding agreement of the Trust Company 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 Trust Company of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Trust Company and does not require any approval of the stockholders of the Trust Company and such execution, delivery and performance will not (i) violate the Trust Company'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 Trust Company 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 Trust Company, or any order, judgment or decree applicable to the Trust Company; 30 36 (e) neither the authorization, execution or delivery by the Trust Company of this Trust Agreement nor the consummation of any of the transactions by the Trust Company 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 law of the State of Delaware governing the banking or trust powers of the Trust Company; and (f) there are no proceedings pending or, to the best of the Trust Company's knowledge, threatened against or affecting the Trust Company 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 Trust Company to enter into or perform its obligations as one of the Trustees under this Trust Agreement. 7.03 REPRESENTATION 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 will have been 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 will be, as of such date, 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 Trust Company, the Property Trustee, the Trust Company or the Delaware Trustee, as the case may be, of this Trust Agreement. ARTICLE VIII THE TRUSTEES 8.01 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 such Trustee's acts or omissions hereunder except as a result of such Trustee's 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. To the extent 31 37 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. (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 to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by such Securityholder's acceptance of a Trust Security, agrees that such Securityholder will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to such Securityholder as herein provided and that the Trustees are not personally liable to such Securityholder for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.01(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 Junior Subordinated 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 32 38 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 3.01 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. 8.02 CERTAIN NOTICES. (a) Within five Business Days after the Property Trustee learns of occurrence of any Event of Default, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.08, 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 prior to the sending of such notice. For purposes of this Section 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 10.08, notice of the Depositor's election to begin or further extend an Extension Period on the Junior Subordinated Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Junior Subordinated Debentures pursuant to the Indenture as originally executed. (c) In the event the Depositor elects to accelerate the Maturity Date in accordance with Section 2.02 of the Indenture, the Property Trustee shall give notice to each Holder of Trust Securities of the acceleration of the Maturity Date and the Accelerated Maturity Date not later than five Business Days after the Property Trustee receives the notice provided in Section 2.02(c) of the Indenture. 8.03 CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the provisions of Section 8.01: (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, 33 39 except as to any matter as to which the Holders of the Preferred Securities 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 two 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 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 or any filing under tax or securities laws) or any re-recording, re-filing or re-registration thereof; (f) the Property Trustee may consult with counsel of its choice 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 such reasonable security or indemnity as the Property Trustee may request 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 34 40 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 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. 8.04 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 (as such) shall not be accountable for the use or application by the Depositor of the proceeds of the Junior Subordinated Debentures. 8.05 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 8.08 and 8.13 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. 8.06 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 35 41 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 the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Trustee and any predecessor Trustee, (ii) any Affiliate of any Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Trustee, and (iv) any employee or agent of the Trust (referred to as an "Indemnified Person") from and against, any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person arising out of or in connection with the creation, operation or dissolution of the Trust or any act or omission performed or omitted by such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Trust Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence, bad faith or willful misconduct with respect to such acts or omissions (or, in the case of the Property Trustee, by reason of negligence, bad faith or willful misconduct with respect to such acts or omissions). The provisions of this Section 8.06 shall survive the termination of this Trust Agreement and the resignation or removal of the Property Trustee or the Delaware Trustee, as the case may be. The Depositor and any Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of the Trust Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Depositor nor any Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Depositor or any Trustee shall have the right to take for its own account (individually or as a partner of fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Depositor or any Affiliate of the Depositor, or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Depositor or its Affiliates. No Trustee may claim any Lien on any Trust Property as a result of any amount due pursuant to this Section 8.06. 8.07 CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES. 36 42 (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 million. 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, 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, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (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. 8.08 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. 8.09 CO-TRUSTEES AND SEPARATE TRUSTEE. 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 and the Administrative Trustees shall have power to appoint, and upon the written request of the Property Trustee, the Depositor and the Administrative Trustees 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 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. If the Depositor and the Administrative Trustees do not join in such appointment within 15 days after the receipt by them 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 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. 37 43 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. 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: (a) 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. (b) 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. (c) 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, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have 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 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 8.09. (d) 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. (e) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. 8.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of 38 44 appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11. Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time by giving written notice thereof to the Securityholders. If the instrument of acceptance by the successor Trustee required by Section 8.11 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. Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Holder of the Common Securities. 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 such Relevant Trustee (in its individual capacity and on behalf of the Trust). An Administrative Trustee may be removed by the Holder of the Common Securities at any time. In no event will the Holders of the Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees. If the Relevant Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of such Relevant Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Holder of the Common Securities, by Act of the Holder of the Common Securities delivered to the retiring Relevant 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 8.11. 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 Holders of the Preferred Securities by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of Section 8.11. 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 Holder of the Common Securities, by Act of the Holder of the Common Securities delivered to an Administrative Trustee, shall promptly appoint a successor Administrative Trustee or Administrative Trustees, and such successor Administrative Trustee or Administrative Trustees shall comply with the applicable requirements of Section 8.11. If no successor Trustee with respect to the Trust Securities shall have been so appointed by the Holder of the Common Securities or the Holders of the Preferred Securities, as the case may be, and accepted appointment in the manner required by Section 8.11, any Securityholder who has been a Securityholder for at least six months may, on behalf of such Securityholder and all others similarly situated, petition a court of competent jurisdiction for the appointment of a successor Trustee. The Property Trustee shall give notice of each resignation and each removal of a Relevant Trustee and each appointment of a successor Trustee to all Securityholders in the 39 45 manner provided in Section 10.08 and shall give notice to the Depositor. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust office if it is the Property Trustee. Subject to 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 the 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 or the Delaware Trustee, as the case may be, set forth in Section 8.07). 8.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the appointment hereunder of a successor Trustee, the retiring Relevant Trustee and each successor Trustee shall execute and deliver an instrument wherein each successor 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 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 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 Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. Upon request of any such successor Trustee, the Trust 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 the immediately preceding paragraph, as the case may be. 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. 8.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any Person into which a 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 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, without the execution or filing of any paper or any further act on the part of any of the parties hereto. 8.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST. If and when the Property Trustee shall be or become a creditor of the Depositor or the Trust (or any other obligor upon the Junior Subordinated Debentures or the Trust Securities), the Property Trustee 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). 8.14 REPORTS BY PROPERTY TRUSTEE. 40 46 (a) Not later than July 31 of each year commencing with July 31, 2001, the Property Trustee shall transmit to all Securityholders in accordance with Section 10.08, and to the Depositor, a brief report dated as of the preceding December 31 with respect to: (i) its eligibility under Section 8.07 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; and (ii) any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities. (b) In addition the Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each national securities exchange or other organization upon which the Trust Securities may be listed, with the Commission and with the Depositor. 8.15 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. 8.16 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 the 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. 8.17 NUMBER OF TRUSTEES. (a) The number of Trustees shall be four, provided that the Holder 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 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10. 41 47 (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 8.10, 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. 8.18 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 2.07(a)(i); 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 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. 8.19 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. 8.20 MAINTENANCE OF LISTING. The Administrative Trustees shall use their best efforts to maintain the listing of the Preferred Securities on The American Stock Exchange LLC or another national exchange or the National Market System of The Nasdaq Stock Market for so long as the Preferred Securities are issued and outstanding; provided, however, that any redemption of the Trust Securities, in whole or in part, effected in accordance with the provisions of this Trust Agreement shall not cause or result in a violation of this Section 8.20. ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER 9.01 DISSOLUTION UPON EXPIRATION DATE. Unless earlier dissolved, the Trust shall automatically dissolve on _______________, 2035 (the "Expiration Date"), and thereafter the Trust Property shall be distributed in accordance with Section 9.04. 9.02 EARLY DISSOLUTION. The first to occur of any of the following events is an "Early Termination Event," upon the occurrence of which the Trust shall dissolve: (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor; 42 48 (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 Junior Subordinated Debentures to Securityholders in exchange for the Preferred Securities in accordance with Section 9.04; (c) the redemption of all of the Preferred Securities in connection with the redemption of all of the Junior Subordinated Debentures; and (d) an order for dissolution of the Trust shall have been entered by a court of competent jurisdiction. 9.03 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 9.04, or upon the redemption of all of the Trust Securities pursuant to Section 4.02, 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 of the Certificate of Trust by the Administrative Trustee under the Delaware Business Trust Act. 9.04 LIQUIDATION. (a) If an Early Termination Event specified in clause (a), (b), or (d) of Section 9.02 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 Section 3808(e) of the Delaware Business Trust Act and any other applicable law, to each Securityholder a Like Amount of Junior Subordinated Debentures, subject to Section 9.04(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 will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Junior Subordinated Debentures; and 43 49 (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities certificates for Junior Subordinated Debentures, or if Section 9.04(d) applies receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 9.02(c) or 9.04(d) applies, in order to effect the liquidation of the Trust and distribution of the Junior Subordinated 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 Junior Subordinated Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 9.02(c) or 9.04(d) applies, after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates (or, at the election of the Depositor a Global Subordinated Debenture, subject to the provisions of the Indenture) representing a Like Amount of Junior Subordinated Debentures will 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 Junior Subordinated Debentures listed on the American Stock Exchange or on such other securities exchange or other organization as the Preferred Securities may then be listed or traded, (iv) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Junior Subordinated Debentures, accruing interest at the rate provided for in the Junior Subordinated 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 will be made to Holders of Trust Securities Certificates with respect to such Junior Subordinated Debentures) and (v) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Junior Subordinated Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 9.04, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Junior Subordinated Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust shall be dissolved and the Trust Property shall be liquidated 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 will 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 Section 3808(e) of the Delaware Business Trust Act and any other 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 will be entitled to receive Liquidation Distributions upon any such dissolution, pro 44 50 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 with respect to any distributions. 9.05 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 9.05. 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 Junior Subordinated Debentures, (iii) 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, (iv) such successor entity has a purpose identical to that of the Trust, (v) the Successor Securities will be listed or traded on any national securities exchange or other organization on which the Preferred Securities may then be listed, (vi) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel experienced in such matters 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 merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an "investment company" under the Investment Company Act and (vii) 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. 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. 45 51 ARTICLE X MISCELLANEOUS PROVISIONS 10.01 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, 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. 10.02 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 8.11 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 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 the Trust 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 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 6.01(c) or Section 10.02(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor (i) with the consent of 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 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 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 6.03 or 6.06 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 6.03 or 6.06 hereof), this paragraph (c) of this Section 10.02 may not be amended. 46 52 (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. 10.03 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. 10.04 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 CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). 10.05 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 (except as otherwise provided in Sections 4.01(a) and 4.02(d)), 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. 10.06 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 Twelve 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. 10.07 HEADINGS. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. 47 53 10.08 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 Holder of Preferred Securities, to such Securityholder as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Holder of the Common Securities or the Depositor, to Blue Valley Ban Corp., 11935 Riley, Overland Park, KS 66225-6128, Attention: Chief Executive Officer; Facsimile No.: (913) 338-2801. Any notice to the Holders of the Preferred Securities 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 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration; (b) with respect to the Delaware Trustee, to 1100 North Market Street, Wilmington, Delaware 19890, 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 BVBC Capital Trust I." 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. 10.09 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 one 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) (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 10.09, 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 10.09 shall survive the termination of this Trust Agreement. 48 54 10.10 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. 10.11 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. 10.12 COUNTERPARTS. This Trust Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, and all of which counterparts together shall constitute one and the same agreement. 10.13 EXCHANGE ACT OBLIGATIONS. For so long as the Trust Securities shall remain Outstanding, Depositor shall fulfill all reporting and filing obligations under the Securities Exchange Act of 1934, as amended, as applicable to companies having a class of securities registered under Section 12(b) or 12(g) thereunder. 49 55 BLUE VALLEY BAN CORP., as Depositor By: -------------------------------------- Robert D. Regnier Chief Executive Officer WILMINGTON TRUST COMPANY, as Property Trustee By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- WILMINGTON TRUST COMPANY, as Delaware Trustee By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ------------------------------------------ Robert D. Regnier, as Administrative Trustee ------------------------------------------ Mark A. Fortino, as Administrative Trustee 50 56 EXHIBIT A CERTIFICATE OF TRUST OF BVBC CAPITAL TRUST I THIS CERTIFICATE OF TRUST OF BVBC CAPITAL TRUST I (the "Trust"), dated as of March 30, 2000, is being duly executed and filed by WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Delaware trustee, and Robert D. Regnier and Mark A. Fortino, each an individual, as administrative trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. ss.ss. 3801 et seq.) 1. NAME. The name of the business trust formed hereby is BVBC Capital Trust I. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware are Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, New Castle County, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon the date and timing of filing. 4. COUNTERPARTS. This Certificate of Trust may be executed in one or more counterparts. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have executed this Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, as Delaware trustee ------------------------------------------- Name: Kathleen A. Pedelini Title: Administrative Account Manager ------------------------------------------- Robert D. Regnier, Administrative Trustee ------------------------------------------- Mark A. Fortino, Administrative Trustee 51 57 EXHIBIT B FORM OF CERTIFICATE DEPOSITORY AGREEMENT 52 58 EXHIBIT C CERTIFICATE NUMBER C-1 NUMBER OF COMMON SECURITIES 38,660 CERTIFICATE EVIDENCING COMMON SECURITIES OF BVBC CAPITAL TRUST I % COMMON SECURITIES (LIQUIDATION AMOUNT $8.00 PER COMMON SECURITY) BVBC CAPITAL TRUST I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that Blue Valley Ban Corp. (the "Holder") is the registered owner of Thirty-Eight Thousand Six Hundred Sixty (38,660) securities of the Trust representing undivided beneficial interests in the assets of the Trust and designated the % Common Securities (liquidation amount $8.00 per Common Security) (the "Common Securities"). In accordance with Section 5.10 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 , 2000, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of Common Securities as set forth therein. The Trust will 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 , 2000. BVBC CAPITAL TRUST I By: ---------------------------------------- , Administrative Trustee ----------------- 53 59 EXHIBIT D AGREEMENT AS TO EXPENSES AND LIABILITIES AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of , 2000, between BLUE VALLEY BAN CORP., a Kansas corporation (the "Company"), and BVBC CAPITAL TRUST I, 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 1,437,500 % 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 , 2000, 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 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 54 60 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 Wilmington Trust Company, 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 liquidation, dissolution, 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. 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. 55 61 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): Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Facsimile No.: (302) 651-1576 Attention: Corporate Trust Administration Blue Valley Ban Corp. 11935 Riley Overland Park, Kansas 66225-6128 Facsimile No.: (913) 338-2801 Attention: Robert D. Regnier, Chief Executive Officer Section 2.4. Governing Law. This agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Kansas (without regard to conflict of laws principles). THIS AGREEMENT is executed as of the day and year first above written. BLUE VALLEY BAN CORP. By: ----------------------------------------- Robert D. Regnier, Chief Executive Officer BVBC CAPITAL TRUST I By: ----------------------------------------- , Administrative Trustee ----------------- 56 62 EXHIBIT E This Preferred Security is a Book-Entry Preferred Securities Certificate within the meaning of the Trust Agreement hereinafter referred to and is registered in the name of The Depository Trust Company, a New York corporation (the "Depositary") or a nominee of the Depositary. This Preferred Security is exchangeable for Preferred Securities registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Trust Agreement (as defined below) and no transfer of this Preferred Security (other than a transfer of this Preferred Security as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in limited circumstances. Unless this Preferred Security is presented by an authorized representative of the Depositary to BVBC Capital Trust I or its agent for registration of transfer, exchange or payment, and any Preferred Security issued is registered in the name of Cede & Co., or such other name as requested by an authorized representative of the Depositary (and any payment hereon is made to Cede & Co. or to such other entity as is requested by an authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co. has an interest herein. 57 63 EX-4.7 % Cumulative Preferred Security Certificate Certificate Number Number of Preferred Securities **P-1** 1,250,000 CUSIP NO. 124296 20 3 Certificate Evidencing Preferred Securities of BVBC Capital Trust I % Cumulative Preferred Securities (liquidation amount $8.00 per Preferred Security) BVBC Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the "Holder") is the registered owner of One Million Two Hundred Fifty Thousand (1,250,000) preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust and designated the % Cumulative Preferred Securities (liquidation amount $8.00 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 5.04 of the Trust Agreement (as defined below). 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 , 2000, 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 Blue Valley Ban Corp., a Kansas corporation, and Wilmington Trust Company, as guarantee trustee, dated as of , 2000 (the "Guarantee"), to the extent provided therein. The Trust will 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, the Administrative Trustees of the Trust have executed this certificate this day of , 2000. BVBC CAPITAL TRUST I By: ---------------------------------------- Robert D. Regnier, Administrative Trustee By: ---------------------------------------- Mark A. Fortino, Administrative Trustee 58 EX-15.1 5 ex15-1.txt LETTER FROM BAIRD, KURTZ & DOBSON 1 EXHIBIT 15.1 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Blue Valley Ban Corp. Registration on Form S-1 We are aware that our report dated May 24, 2000 on our review of interim financial information of Blue Valley Ban Corp. for the period ended March 31, 2000 is included in this Amendment 3 to the registration statement. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ Baird, Kurtz & Dobson Kansas City, Missouri June 29, 2000 EX-23.3 6 ex23-3.txt CONSENT OF BAIRD, KURTZ & DOBSON 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Amendment 3 to the registration statement on Form S-1 of our report dated March 1, 2000, on our audits of the consolidated financial statements of BLUE VALLEY BAN CORP. We also consent to the reference to our firm under the caption "Experts." /s/ Baird, Kurtz & Dobson Kansas City, Missouri June 29, 2000 -----END PRIVACY-ENHANCED MESSAGE-----