-----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, F975vg6VNBTd7sUTaVZ9fofqcJEn73X741rIhWugNVHg8cPnzuTECCxBVThW+r5h y+IAdzSg86cE7D0RxtjccA== 0000931763-02-000722.txt : 20020415 0000931763-02-000722.hdr.sgml : 20020415 ACCESSION NUMBER: 0000931763-02-000722 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA NATIONAL BANCORPORATION CENTRAL INDEX KEY: 0000926966 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 631114426 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25160 FILM NUMBER: 02580151 BUSINESS ADDRESS: STREET 1: 1927 FIRST AVENUE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35209 BUSINESS PHONE: 2055833600 MAIL ADDRESS: STREET 1: 1927 FIRST AVENUE NORTH STREET 2: 1927 FIRST AVENUE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35209 10-K 1 d10k.txt FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO . Commission File Number: 0-25160 --------------- ALABAMA NATIONAL BANCORPORATION (Exact name of registrant as specified in its charter) Delaware 63-1114426 (State of incorporation (I.R.S. Employer or organization) Identification No.)
1927 First Avenue North, Birmingham, AL 35203-4009 (Address of principal executive offices) (Zip Code) (205) 583-3600 (Registrant's telephone number, including area code) --------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 par value --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of voting stock held by non-affiliates of the registrant at March 12, 2002 was $344,325,770. As of March 12, 2002 the registrant had outstanding 12,350,088 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K: The definitive Proxy Statement for the 2002 Annual Meeting of Alabama National BanCorporation's Stockholders is incorporated by reference into Part III of this report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Item No. Page No. -------- -------- SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS................... 2 PART I 1. Business.................................................. 3 Executive Officers........................................ 10 2. Properties................................................ 11 3. Legal Proceedings......................................... 11 4. Submission of Matters to a Vote of Security Holders....... 11 PART II 5. Market for Registrant's Common Equity and Related 12 Stockholder Matters...................................... 6. Selected Financial Data................................... 13 7. Management's Discussion and Analysis of Financial 14 Condition and Results of Operations...................... 7A. Quantitative and Qualitative Disclosures about Market 45 Risk..................................................... 8. Financial Statements and Supplementary Data............... 45 9. Changes in and Disagreements with Accountants on 46 Accounting and Financial Disclosure...................... PART III 10. Directors and Executive Officers of the Registrant........ 46* 11. Compensation of Executive Officers and Directors.......... 46* 12. Security Ownership of Certain Beneficial Owners and 46* Management............................................... 13. Certain Relationships and Related Transactions............ 46* PART IV 14. Exhibits, Financial Statement Schedules and Reports on 47 Form 8-K................................................. SIGNATURES.......................................................... 48
- ------- * Portions of the Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on May 2, 2002 are incorporated by reference in Part III of this Form 10-K. 1 SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K, other periodic reports filed by Alabama National BanCorporation (the "Company" or "Alabama National") under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of Alabama National may include "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect Alabama National's current views with respect to future events and financial performance. Such forward looking statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to: (1) Possible changes in economic and business conditions that may affect the prevailing interest rates, the prevailing rates of inflation, or the amount of growth, stagnation, or recession in the global, U.S., and southeastern U.S. economies, the value of investments, collectibility of loans and the profitability of business entities; (2) Possible changes in monetary and fiscal policies, laws and regulations, and other activities of governments, agencies and similar organizations; (3) The effects of easing of restrictions on participants in the financial services industry, such as banks, securities brokers and dealers, investment companies and finance companies, and changes evolving from the enactment of the Gramm-Leach-Bliley Act which became effective in 2000, and attendant changes in patterns and effects of competition in the financial services industry; (4) The cost and other effects of legal and administrative cases and proceedings, claims, settlements and judgments; and (5) The ability of Alabama National to achieve the expected operating results related to the acquired operations of recently-completed and future acquisitions (if any), which depends on a variety of factors, including (i) the ability of Alabama National to achieve the anticipated cost savings and revenue enhancements with respect to the acquired operations, (ii) the assimilation of the acquired operations to Alabama National's corporate culture, including the ability to instill Alabama National's credit practices and efficient approach to the acquired operations, (iii) the continued growth of the markets in which Alabama National operates consistent with recent historical experience, (iv) the absence of material contingencies related to the acquired operations, including asset quality and litigation contingencies, and (v) Alabama National's ability to expand into new markets and to maintain profit margins in the face of pricing pressures. The words "believe," "expect," "anticipate," "project" and similar expressions signify forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statements made by or on behalf of Alabama National. Any such statement speaks only as of the date the statement was made. Alabama National undertakes no obligation to update or revise any forward looking statements. 2 PART I ITEM 1. BUSINESS Alabama National BanCorporation ("Alabama National" or "ANB") is a Delaware bank holding company with its principal place of business in Birmingham, Alabama, and its main office located at 1927 First Avenue North, Birmingham, Alabama 35203 (Telephone Number: (205) 583-3600). Alabama National is currently the parent of three national banks, National Bank of Commerce of Birmingham ("NBC") (Birmingham, Alabama and the Birmingham metropolitan area), Citizens & Peoples Bank, National Association (Escambia County, Florida), and Community Bank of Naples, National Association (Naples, Florida); three state member banks, Alabama Exchange Bank (Tuskegee, Alabama), Bank of Dadeville (Dadeville, Alabama) and First Gulf Bank (Baldwin County, Alabama); and five state nonmember banks, First American Bank (Decatur/Huntsville and Auburn/Opelika, Alabama), Public Bank (St. Cloud, Florida), Georgia State Bank (Mableton, Georgia), First Citizens Bank, (Talladega, Alabama) and Peoples State Bank of Groveland (Lake County, Florida) (collectively the "Banks"). In addition, Alabama National is currently the ultimate parent of one securities brokerage firm, NBC Securities, Inc. (Birmingham, Alabama); one receivables factoring company, Corporate Billing, Inc. (Decatur, Alabama); and one insurance agency, ANB Insurance Services (Decatur, Alabama). Recent Developments Acquisition of Farmers National Bancshares, Inc. Effective December 14, 2001, Alabama National acquired Farmers National Bancshares, Inc., ("Farmers National"), a national bank holding company headquartered in Opelika, Alabama, with approximately $188.4 million in total assets as of December 14, 2001. The terms of the Farmers National acquisition are described in that certain Agreement and Plan of Merger dated as of September 6, 2001 (the "Farmers National Merger Agreement"). Pursuant to the Farmers National acquisition, (i) the stockholders of Farmers National received 0.53125 shares of Alabama National common stock for each share of Farmers National common stock, or, at the option of the Farmers National stockholders $17.27 in cash for each share of Farmers National common stock, (ii) Farmers National was merged with and into Alabama National, and (iii) Farmers National's wholly-owned national bank subsidiary, Farmers National Bank of Opelika, was merged with and into First American Bank. The Farmers National acquisition was accounted for as a purchase. Subsidiary Banks Alabama National operates through eleven subsidiary Banks which have a total of 60 banking offices and one insurance office (where no banking is conducted) in the states of Alabama, Georgia and Florida. The Banks focus on traditional consumer, residential mortgage, commercial and real estate construction lending, and equipment leasing to customers in their market areas. The Banks also offer a variety of deposit programs to individuals and small businesses and other organizations at interest rates generally consistent with local market conditions. NBC offers trust services, investment services and securities brokerage services. In addition, the Banks offer individual retirement and KEOGH accounts, safe deposit and night depository facilities and additional services such as the sale of traveler's checks, money orders and cashier's checks. Lending Activities General Through the Banks, Alabama National offers a range of lending services, including real estate, consumer and commercial loans, to individuals and small businesses and other organizations that are located in or conduct a substantial portion of their business in the Banks' market areas. Alabama National's total loans, net of unearned interest, at December 31, 2001, were approximately $1.96 billion, or approximately 75.2% of total earning assets. The interest rates charged on loans vary with the degree of risk, maturity and amount of the loan and are further subject to competitive pressures, money market rates, availability of funds and government regulations. Alabama National has no "foreign loans" or loans for "highly leveraged transactions," as such terms are defined by applicable banking regulations. 3 Loan Portfolio Real Estate Loans. Loans secured by real estate are the primary component of Alabama National's loan portfolio, constituting approximately $1.42 billion, or 72.3% of total loans, net of unearned interest, at December 31, 2001. The Banks often take real estate as an additional source of collateral to secure commercial and industrial loans. Such loans are classified as real estate loans rather than commercial and industrial loans if the real estate collateral is considered significant as a secondary source of repayment for the loan. The Banks' real estate loan portfolio is comprised of commercial and residential mortgages. Residential mortgages held in the Banks' loan portfolio, both fixed and variable, are made based upon amortization schedules of up to 30 years but generally have maturity dates of five years or less. The Banks' commercial mortgages accrue at either variable or fixed rates. The variable rates approximate current market rates. Construction loans are made on a variable rate basis. Origination fees are normally charged for most loans secured by real estate. The Banks' primary type of residential mortgage loan is the single-family first mortgage, typically structured with fixed or adjustable interest rates, based on market conditions. These loans usually have terms of five years, with payments through the date of maturity generally based on a 15 or 30 year amortization schedule. The Banks originate residential loans for sale into the secondary market. Such loans are made in accordance with underwriting standards set by the purchaser of the loan, normally as to loan-to-value ratio, interest rate and documentation. Such loans are generally made under a commitment to purchase from a loan purchaser. The Banks generally collect from the borrower or purchaser a combination of the origination fee, discount points and/or service release fee. During 2001, the Banks sold approximately $506.7 million in loans to such purchasers. The Banks' nonresidential mortgage loans include commercial, industrial and unimproved real estate loans. The Banks generally require nonresidential mortgage loans to have an 80% loan-to-value ratio and usually underwrite their commercial loans on the basis of the borrower's cash flow and ability to service the debt from earnings, rather than on the basis of the value of the collateral. Terms on construction loans are usually less than twelve months, and the Banks typically require real estate mortgages and personal guarantees supported by financial statements and a review of the guarantor's personal finances. Consumer Loans. Consumer lending includes installment lending to individuals in the Banks' market areas and generally consists of loans to purchase automobiles and other consumer durable goods. Consumer loans constituted $82.9 million, or 4.22% of Alabama National's loan portfolio at December 31, 2001. Consumer loans are underwritten based on the borrower's income, current debt level, past credit history and collateral. Consumer rates are both variable and fixed, with terms negotiable. Terms generally range from one to five years depending on the nature and condition of the collateral. Periodic amortization, generally monthly, is typically required. Commercial and Financial Loans. The Banks make loans for commercial purposes in various lines of business. These loans are typically made on terms up to five years at fixed or variable rates. The loans are secured by various types of collateral including accounts receivable, inventory or, in the case of equipment loans, the financed equipment. The Banks attempt to reduce their credit risk on commercial loans by underwriting the loan based on the borrower's cash flow and its ability to service the debt from earnings, and by limiting the loan to value ratio. Historically, the Banks have typically loaned up to 80% on loans secured by accounts receivable, up to 50% on loans secured by inventory, and up to 100% on loans secured by equipment. The Banks also make some unsecured commercial loans and offer equipment leasing. Commercial and financial loans constituted $247.6 million, or 12.6% of Alabama National's loan portfolio at December 31, 2001. Interest rates are negotiable based upon the borrower's financial condition, credit history, management stability and collateral. Credit Procedures and Review Loan Approval. Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that economic conditions will change and adversely affect collectibility. Alabama National attempts to minimize loan losses through various means and uses standardized underwriting criteria. Alabama National has established a standardized loan policy for all of the Banks that may be modified based on 4 local market conditions. In particular, on larger credits, Alabama National generally relies on the cash flow of a debtor as the source of repayment and secondarily on the value of the underlying collateral. In addition, Alabama National attempts to utilize shorter loan terms in order to reduce the risk of a decline in the value of such collateral. Alabama National addresses repayment risks by adhering to internal credit policies and procedures which all of the Banks have adopted. These policies and procedures include officer and customer lending limits, a multi-layered loan approval process for larger loans, documentation examination and follow- up procedures for any exceptions to credit policies. The point in each Bank's loan approval process at which a loan is approved depends on the size of the borrower's credit relationship with such Bank. Each of the lending officers at each of the Banks has the authority to approve loans up to an approved loan authority amount as approved by each Bank's Board of Directors. Loans in excess of the highest loan authority amount at each Bank must be approved by Alabama National's President and Chief Operating Officer. In addition, loans in excess of a particular loan officer's approval authority must be approved by a more senior officer at the particular Bank, the loan committee at such Bank, or both. Loan Review. Alabama National maintains a continuous loan review system for each of NBC and First American Bank and a scheduled review system for the other Banks. Under this system, each loan officer is directly responsible for monitoring the risk in his portfolio and is required to maintain risk ratings for each credit assigned. The risk rating system incorporates the basic regulatory rating system as set forth in the applicable regulatory asset quality examination procedures. Alabama National's Loan Review Department ("LRD"), which is wholly independent of the lending function, serves as a validation of each loan officer's risk monitoring and rating system. LRD's primary function is to provide the Board of Directors of each Bank with a thorough understanding of the credit quality of such Bank's loan portfolio. Other review requirements are in place to provide management with early warning systems for problem credits as well as compliance with stated lending policies. LRD's findings are reported, along with an asset quality review, to the Alabama National Board of Directors at each bi-monthly meeting. Deposits The principal sources of funds for the Banks are core deposits, consisting of demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits and certificates of deposit. Transaction accounts include checking and negotiable order of withdrawal (NOW) accounts which customers use for cash management and which provide the Banks with a source of fee income and cross-marketing opportunities, as well as a low-cost source of funds. Time and savings accounts also provide a relatively stable and low-cost source of funding. The largest source of funds for the Banks are certificates of deposit. Certificates of deposit in excess of $100,000 are held primarily by customers in the Banks' market areas. Deposit rates are reviewed weekly by senior management of each of the Banks. Management believes that the rates the Banks offer are competitive with those offered by other institutions in the Banks' market areas. Alabama National focuses on customer service to attract and retain deposits. Investment Services NBC operates an investment department devoted primarily to handling correspondent banks' investment needs. Services provided by the investment department include the sale of securities, asset/liability consulting, safekeeping and bond accounting. Securities Brokerage and Trust Division NBC's wholly owned subsidiary, NBC Securities, Inc. ("NBC Securities"), is licensed as a broker-dealer. Started in 1995, NBC Securities provides investment services to individuals and institutions. These services include the sale of stocks, bonds, mutual funds, annuities, margin loans, other insurance products and financial planning. NBC Securities has investment advisors in Birmingham, Decatur and Gulf Shores, Alabama; Naples and Pensacola, Florida; and Mableton, Georgia. NBC also operates a trust division that manages the assets of both corporate and individual customers located primarily in the Birmingham, Alabama market. The division's corporate trust services include managing and servicing retirement plan accounts such as pension, profit sharing and 401(k) plans. 5 Mortgage Lending Division Substantially all of the Banks operate mortgage lending divisions that make home loans to individuals located in the markets served by the Banks. The majority of these loans are sold to corporate investors, who also service the loans. Insurance Services Division Alabama National's First American Bank subsidiary purchased an existing insurance agency, Rankin Insurance, Inc., in 1999. Rankin Insurance, now operating under the name ANB Insurance Services, is a full service independent property and casualty insurance agency located in Decatur, Alabama. Competition The Banks encounter strong competition in making loans, acquiring deposits and attracting customers for investment and trust services. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. The Banks compete with other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries operating in Alabama and elsewhere. Many of these competitors, some of which are affiliated with large bank holding companies, have substantially greater resources and lending limits, and may offer certain services that the Banks do not currently provide. In addition, many of Alabama National's non-bank competitors are not subject to the same extensive federal regulations that govern bank or thrift holding companies and federally insured banks or thrifts. The Gramm-Leach-Bliley Act, effective March 11, 2000, permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. See "Supervision and Regulation." Under the Act, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act, which represents the most sweeping reform of financial services regulation in over sixty years, may significantly change the competitive environment in which Alabama National and the Banks conduct business. At this time, however, it is not possible to predict the full effect that the Act will have on Alabama National. One consequence may be increased competition from large financial services companies that will be permitted to provide many types of financial services, including bank products, to their customers. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA") authorized bank holding companies to acquire banks and other bank holding companies without geographic limitations beginning September 30, 1995. In addition, beginning on June 1, 1997, the IBBEA authorized interstate mergers and consolidations of existing banks, provided that neither bank's home state had opted out of interstate branching by May 31, 1997. The States of Alabama, Georgia and Florida have opted in to interstate branching. Interstate branching provides that once a bank has established branches in a state through an interstate merger, the bank may establish and acquire additional branches at any location in the state where any bank involved in the interstate merger could have established or acquired branches under applicable federal or state law. Size gives the larger banks certain advantages in competing for business from large corporations. These advantages include higher lending limits and the ability to offer services in other areas of Alabama and the southeast region. Some of Alabama National's competitors still maintain substantially greater resources and lending limits than Alabama National. As a result, Alabama National has not generally attempted to compete for the banking relationships of large corporations, and generally concentrates its efforts on small to medium-sized businesses and individuals to which Alabama National 6 believes it can compete effectively by offering quality, personal service. However, management believes it may be able to compete more effectively for the business of some large corporations, given its current growth pattern. Management believes that the Banks' commitment to their respective primary market areas, as well as their commitment to quality and personalized banking services, are factors that contribute to the Banks' competitiveness. Management believes that Alabama National's decentralized community banking strategy positions the Banks to compete successfully in their market areas. Market Areas and Growth Strategy Through NBC, Alabama National serves the metropolitan Birmingham market, which includes portions of Jefferson, Shelby and St. Clair Counties. Alabama National's First American Bank subsidiary serves Morgan, Limestone and Madison Counties in north Alabama and Lee County in east, central Alabama. First American's largest market presence is in Decatur, Alabama, which has demonstrated a growing economic base in recent years. First American also acquired two branches in Huntsville, Alabama from another bank holding company during 2000 and has experienced growth in this market. First American entered the Lee County market, which includes the communities of Auburn and Opelika, with the December 14, 2001 acquisition of Farmers National Bancshares, Inc. Lee County is also one of Alabama's higher growth counties. Through First Gulf Bank, Alabama National serves Baldwin County, Alabama. Located between Mobile, Alabama and Pensacola, Florida, Baldwin County has a broad base of economic activity in the retail and service, agriculture, seafood, tourism and manufacturing industries. Baldwin County includes the popular tourism and retirement resort communities of Gulf Shores and Fairhope. Shelby, Baldwin, Lee and St. Clair Counties have been named in statistical surveys as four of the fastest growing counties in Alabama. In 1997, Alabama National expanded outside of Alabama with the opening of Citizens & Peoples Bank, N.A. in Escambia County, Florida. In 1998, Alabama National further expanded its presence in markets outside of Alabama with two acquisitions in Florida and one in Georgia. Public Bank is located in the fast-growing greater Orlando area, with offices in Altamonte Springs, Kissimmee and St. Cloud, Florida. Public Bank also expanded to the Atlantic Coast in September 2001 with the opening of a new office in Vero Beach, Florida. Community Bank of Naples, N.A., located in Collier County, Florida, and Georgia State Bank, located in the greater-Atlanta counties of Cobb, Douglas and Paulding, are located in markets that are among the fastest growing in their respective states. Effective January 31, 2001, Alabama National expanded its presence in the greater-Orlando area with the acquisition of Peoples State Bank of Groveland ("Peoples State Bank"). Peoples State Bank serves customers in the communities of Groveland, Leesburg and Clermont, Florida. The other Banks, First Citizens, Alabama Exchange Bank and Bank of Dadeville, are located in non-metropolitan areas. Each of these three Banks, while experiencing minimal growth due to market growth that has not been significant, typically operates at a high level of profitability. As a result, these Banks tend to produce capital for growth in many of the high growth markets served by the other Banks. Alabama National's strategy is to focus on growth in profitability for these non- metropolitan banks, since market growth has not been as significant. Due to continuing consolidation within the banking industry, as well as in the Southeastern United States, Alabama National may in the future seek to combine with other banks or thrifts (or their holding companies) that may be of smaller, equal or greater size than Alabama National. Alabama National currently intends to concentrate on acquisitions of additional banks or thrifts (or their holding companies) which operate in attractive market areas in Alabama, Florida and Georgia. In addition to price and terms, the factors considered by Alabama National in determining the desirability of a business acquisition or combination are financial condition, asset quality, earnings potential, quality of management, market area and competitive environment. In addition to expansion through combinations with other banks or thrifts, Alabama National intends to continue to expand where possible through growth of its existing banks in their respective market areas. During 1998, NBC formed a commercial leasing division which currently focuses on machinery and equipment leases to business customers. Also, Alabama National is exploring expansion into lines of business closely related to banking and will pursue such expansion if it believes such lines could be profitable without causing undue risk to Alabama National. During 1999, First American Bank acquired Rankin Insurance, Inc., a full service independent property and casualty insurance agency located in Decatur, Alabama. While Alabama National plans to continue its growth as described above, there is no assurance that its efforts will be successful. 7 Employees As of December 31, 2001, Alabama National and the Banks together had approximately 1,137 full-time equivalent employees. None of these employees is a party to a collective bargaining agreement. Alabama National considers its relations with its employees to be good. Supervision and Regulation Alabama National and the Banks are subject to state and federal banking laws and regulations which impose specific requirements and restrictions on, and provide for general regulatory oversight with respect to, virtually all aspects of operations. These laws and regulations are generally intended to protect depositors, not stockholders. To the extent that the following summary describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of Alabama National. Beginning with the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and following in December 1991 with the Federal Deposit Insurance Corporation Act ("FDICIA"), numerous additional regulatory requirements have been placed on the banking industry in the past ten years, and additional changes have been proposed. The operations of Alabama National and the Banks may be affected by legislative changes and the policies of various regulatory authorities. Alabama National is unable to predict the nature or the extent of the effect on its business and earnings that fiscal or monetary policies, economic control, or new federal or state legislation may have in the future. As a bank holding company, Alabama National is subject to the regulation, examination and supervision of the Federal Reserve. The Banks are subject to supervision, examination and regulation by applicable state and federal banking agencies, including the Federal Reserve, the Office of the Comptroller of the Currency (the "OCC") and the Federal Deposit Insurance Corporation (the "FDIC"). The Banks are also subject to various requirements and restrictions under federal and state law, including requirements to maintain allowances against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Banks. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control the money supply and credit availability in order to influence the economy. Pursuant to the IBBEA, bank holding companies from any state may now acquire banks located in any other state, subject to certain conditions, including concentration limits. As of June 1, 1997, a bank may establish branches across state lines by merging with a bank in another state (unless applicable state law prohibits such interstate mergers), provided certain conditions are met. A bank may also establish a de novo branch in a state in which the bank does not maintain a branch if that state expressly permits such interstate de novo branching and certain other conditions are met. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance fund in the event the depository institution becomes in danger of default or is in default. For example, under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and commit resources to support such institutions in circumstances where it might not do so absent such policy. In addition, the "cross-guarantee" provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically 8 undercapitalized" as such terms are defined under regulations issued by each of the federal banking agencies. In general, the agencies measure capital adequacy within a framework that makes capital requirements sensitive to the risk profiles of individual banking companies. The guidelines define capital as either Tier 1 (primarily common shareholders' equity) or Tier 2 (certain debt instruments and a portion of the allowance for loan losses). Alabama National and the Banks are subject to a minimum Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) of 4%, a total capital ratio (Tier 1 plus Tier 2 to risk-weighted assets) of 8% and a Tier 1 leverage ratio (Tier 1 to average quarterly assets) of 3%. To be considered a "well capitalized" institution, the Tier 1 capital ratio, the total capital ratio, and the Tier 1 leverage ratio must equal or exceed 6%, 10% and 5%, respectively. The Federal Reserve has adopted rules to incorporate market and interest rate risk components into its risk-based capital standards. Amendments to the risk-based capital requirements, incorporating market risk, became effective January 1, 1998. Under these market risk requirements, capital will be allocated to support the amount of market risk related to a financial institution's ongoing trading activities. The Banks are subject to the provisions of Section 23A of the Federal Reserve Act, which place limits on the amount of loans or extensions of credit to, investments in or certain other transactions with affiliates, and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. In general, the Banks' "affiliates" are Alabama National and Alabama National's non-bank subsidiaries. The Banks are also subject to the provisions of Section 23B of the Federal Reserve Act that, among other things, prohibit a bank from engaging in certain transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies. The Banks are also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal stockholders and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. The Community Reinvestment Act ("CRA") requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve, the FDIC or the OCC shall 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 institutions. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. These factors are considered in evaluating mergers, acquisitions and applications to open a branch or facility. The CRA also requires all institutions to make public disclosure of their CRA ratings. Each of the Banks received outstanding or satisfactory ratings in its most recent evaluation. There are various legal and regulatory limits on the extent to which the Banks may pay dividends or otherwise supply funds to Alabama National. In addition, federal and state regulatory agencies also have the authority to prevent a bank or bank holding company from paying a dividend or engaging in any other activity that, in the opinion of the agency, would constitute an unsafe or unsound practice. FDIC regulations require that management report on its responsibility for preparing its institution's financial statements and for establishing and maintaining an internal control structure and procedures for financial reporting and compliance with designated laws and regulations concerning safety and soundness. The FDIC currently uses a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The FDIC recently has proposed changes to its assessment system that are designed to require premium payments by a greater number of banks and other FDIC-insured depository institutions and that also would provide rebates to some institutions. If any of these changes were to take effect, the assessment obligations of the Banks could change. 9 The Gramm-Leach-Bliley Act, which became effective in 2000, permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company by filing a declaration if each of its subsidiary banks is well capitalized under the FDICIA prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the CRA. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. At this time, Alabama National has not registered to become a financial holding company. The Gramm-Leach-Bliley Act broadly defines "financial in nature" to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking; and activities that the Federal Reserve has determined to be closely related to banking. The Act also permits the Federal Reserve, in consultation with the Department of Treasury, to determine that other activities are "financial in nature" and therefore permissible for financial holding companies. A national bank also may engage, subject to limitations on investment, in activities that are financial in nature (other than insurance underwriting, insurance company portfolio investment, merchant banking, real estate development and real estate investment) through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory CRA rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank at issue has a CRA rating of satisfactory or better. Bank holding companies that have not become financial holding companies are prohibited from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Act preserves the role of the Federal Reserve as the umbrella supervisor for holding companies while at the same time incorporating a system of functional regulation designed to take advantage of the strengths of the various federal and state regulators. In particular, the Act replaces the broad exemption from Securities and Exchange Commission regulation that banks previously enjoyed with more limited exemptions, and it reaffirms that states are the regulators for the insurance activities of all persons, including federally-chartered banks. The Gramm-Leach-Bliley Act also establishes a minimum federal standard of financial privacy. In general, the applicable regulations issued by the various federal regulatory agencies prohibit affected financial institutions (including banks, insurance agencies and broker/dealers) from sharing information about their customers with non-affiliated third parties unless (1) the financial institution has first provided a privacy notice to the customer; (2) the financial institution has given the customer an opportunity to opt out of the disclosure; and (3) the customer has not opted out after being given a reasonable opportunity to do so. NBC Securities is a broker-dealer registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. Executive Officers of the Registrant The Executive Officers of Alabama National serve at the pleasure of the Board of Directors. Set forth below are the current Executive Officers of Alabama National and a brief explanation of their principal employment during the last five (5) years. John H. Holcomb, III--Age 50--Chairman and Chief Executive Officer. Mr. Holcomb has served as Chairman and Chief Executive Officer of Alabama National since 1996. Mr. Holcomb has been Chief Executive Officer of NBC since 1990. 10 Victor E. Nichol, Jr.--Age 55--Vice Chairman. Mr. Nichol has served as Vice Chairman of Alabama National since 2000. Prior to such time, Mr. Nichol served as President and Chief Operating Officer of Alabama National beginning in 1996. Mr. Nichol has been Executive Vice President of NBC since 1994. Dan M. David--Age 56--Vice Chairman. Mr. David has served as Vice Chairman of Alabama National since November 30, 1997 when First American Bancorp merged with and into Alabama National. Mr. David serves as Chairman and Chief Executive Officer of First American Bank, positions he has held since 1995. Mr. David served as Chairman and Chief Executive Officer of First American Bancorp from 1995 through 1997. John R. Bragg--Age 40--Executive Vice President. Mr. Bragg has served as Executive Vice President of Alabama National since 1998 and Executive Vice President of NBC since 1997. Mr. Bragg served as Senior Vice President of NBC from 1992 until 1997. Richard Murray, IV--Age 39--President and Chief Operating Officer. Mr. Murray has served as President and Chief Operating Officer of Alabama National since 2000. Prior to such time, Mr. Murray served as Executive Vice President of Alabama National beginning 1998 and Executive Vice President of NBC beginning 1997. Mr. Murray served as Senior Vice President of NBC from 1990 until 1997. William E. Matthews, V--Age 37--Executive Vice President and Chief Financial Officer. Mr. Matthews has served as Executive Vice President and Chief Financial Officer of Alabama National and NBC since 1998. Prior to that date, Mr. Matthews served as Senior Vice President of NBC beginning in 1996. Shelly S. Williams--Age 39--Senior Vice President and Controller. Ms. Williams has served as Senior Vice President and Controller of Alabama National and NBC since 2000. Prior to such time, Ms. Williams served as Vice President and Controller of NBC from 1997 through 2000, and as Assistant Vice President and Assistant Controller of NBC from 1996 to 1997. ITEM 2. PROPERTIES Alabama National, through the Banks, currently operates 60 banking offices and one insurance office. Of these offices, Alabama National, through the Banks, owns 50 banking offices without encumbrance and leases an additional 10 banking offices and its one insurance office. Alabama National, through NBC, leases its principal administrative offices, which are located at 1927 First Avenue North, Birmingham, Alabama. See Notes 6 and 9 to the Consolidated Financial Statements of Alabama National and Subsidiaries included in this Annual Report on Form 10-K for additional information regarding Alabama National's premises and equipment. ITEM 3. LEGAL PROCEEDINGS Alabama National, in the normal course of business, is subject to various pending and threatened litigation. Although it is not possible to determine at this point in time, based on consultation with legal counsel, management does not anticipate that the ultimate liability, if any, resulting from such litigation will have a material effect on Alabama National's financial condition and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS At March 12, 2002 Alabama National had 1,435 stockholders of record (including shares held in "street" names by nominees who are record holders) and 12,350,088 shares of Alabama National Common Stock outstanding. Alabama National Common Stock is traded in the over-the-counter market and prices are quoted on the NASDAQ/NMS under the symbol "ALAB." The reported sales price range for Alabama National Common Stock and the dividends declared during each calendar quarter of 2000 and 2001 are shown below:
Dividends High Low Declared ------ ----- --------- 2000 First Quarter......................................... $21.75 14.13 .21 Second Quarter........................................ 20.50 17.13 .21 Third Quarter......................................... 24.75 17.13 .21 Fourth Quarter........................................ 23.63 18.75 .21 2001 First Quarter......................................... $32.00 22.50 .23 Second Quarter........................................ 32.45 27.50 .23 Third Quarter......................................... 34.99 25.51 .23 Fourth Quarter........................................ 35.68 30.04 .23
As a bank holding company, Alabama National, except under extraordinary circumstances, will not generate earnings of its own, but will rely solely on dividends paid to it by the Banks as the source of income to meet its expenses and pay dividends. Under normal circumstances, Alabama Nationals' ability to pay dividends will depend entirely on the ability of the Banks to pay dividends to Alabama National. The Banks are subject to state and federal banking regulations, and the payment of dividends by the Banks is governed by such regulations. The last reported sales price of Alabama National Common Stock as reported on the NASDAQ/NMS on March 12, 2002 was $35.10. The prices shown do not reflect retail mark-ups and mark-downs. The market makers for Alabama National Common Stock as of December 31, 2001, were Morgan, Stanley & Co., Inc., Raymond James & Associates, Inc., Legg Mason Wood Walker Inc., Speer, Leeds & Kellogg, Keefe, Bruyette & Woods, Inc., Trident Securities, Inc., Sherwood Securities Corp., Herzog, Heine, Geduld, Inc., Instinet Corporation, RediBook ECN LLC, Knight Securities L.P., Archipelago L.L.C., Island System Corporation, MARKETXT, Inc., Midwest Research-First Tennessee, Hoefer & Arnett, Incorporated, THE BRUT ECN, LLC and SunTrust Capital Markets, Inc. 12 ITEM 6.SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA (Amounts in thousands, except ratios and per share data)
Year Ended December 31, ---------------------------------------------------------- 2001(1) 2000(1) 1999(1) 1998(1) 1997(1) ---------- ---------- ---------- ---------- ---------- Income Statement Data: Interest income......... $ 179,537 $ 171,222 $ 133,106 $ 121,713 $ 110,050 Interest expense........ 90,393 90,987 62,307 59,064 50,848 ---------- ---------- ---------- ---------- ---------- Net interest income..... 89,144 80,235 70,799 62,649 59,202 Provision for loan losses................. 3,946 2,506 2,107 1,796 3,421 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses............ 85,198 77,729 68,692 60,853 55,781 Net securities gains (losses)............... 246 (119) 196 187 (4) Noninterest income...... 48,461 33,466 31,120 29,963 21,111 Noninterest expense..... 92,233 74,111 65,860 64,401 55,510 ---------- ---------- ---------- ---------- ---------- Income before income taxes.................. 41,672 36,965 34,148 26,602 21,378 Provision for income taxes.................. 13,232 11,421 10,817 8,504 6,495 ---------- ---------- ---------- ---------- ---------- Income before minority interest in earnings of consolidated subsidiary............. 28,440 25,544 23,331 18,098 14,883 Minority interest in earnings of consolidated subsidiary............. 25 26 25 23 12 ---------- ---------- ---------- ---------- ---------- Net income.............. $ 28,415 $ 25,518 $ 23,306 $ 18,075 $ 14,871 ========== ========== ========== ========== ========== Balance Sheet Data: Total assets............ $2,843,467 $2,358,285 $2,025,503 $1,751,724 $1,568,662 Earning assets.......... 2,612,806 2,140,562 1,811,312 1,563,967 1,380,908 Securities.............. 567,688 386,059 353,923 333,898 275,653 Loans held for sale .... 36,554 5,226 8,615 19,047 5,291 Loans, net of unearned income ................ 1,964,169 1,710,810 1,403,489 1,147,100 1,015,105 Allowance for loan losses................. 28,519 22,368 19,111 17,465 15,780 Deposits................ 2,066,759 1,807,095 1,529,251 1,345,017 1,190,940 Short-term debt......... 68,350 91,439 24,389 21,700 29,087 Long-term debt.......... 209,631 83,926 124,005 32,328 16,587 Stockholders' equity.... 207,886 171,604 146,280 138,515 123,972 Weighted Average Shares Outstanding-- Diluted(2)............. 12,141 11,973 12,008 11,908 11,734 Per Common Share Data: Net income--diluted .... $ 2.34 $ 2.13 $ 1.94 $ 1.52 $ 1.27 Book value (period end)................... 16.84 14.56 12.40 11.83 10.93 Tangible book value (period end) .......... 15.31 13.34 11.49 11.13 10.16 Dividends declared ..... 0.92 0.84 0.72 0.60 0.46 Performance Ratios: Return on average assets ....................... 1.12% 1.17% 1.26% 1.09% 1.05% Return on average equity ....................... 15.40 16.29 16.11 13.57 12.63 Net interest margin(3).. 3.83 4.03 4.23 4.28 4.63 Net interest margin (taxable equivalent)(3)......... 3.88 4.08 4.30 4.35 4.71 Asset Quality Ratios: Allowance for loan losses to period end loans(4)............... 1.45% 1.31% 1.36% 1.52% 1.55% Allowance for loan losses to period end nonperforming loans(5)............... 377.09 614.17 431.11 330.78 260.40 Net charge-offs to average loans(4) ...... 0.09 0.04 0.04 0.01 0.13 Nonperforming assets to period end loans and foreclosed property(4)(5)......... 0.47 0.30 0.38 0.57 0.77 Capital and Liquidity Ratios: Average equity to average assets......... 7.28% 7.16% 7.80% 8.03% 8.35% Leverage (4.00% required minimum)(6)............ 7.61 6.83 7.23 7.51 7.85 Risk-based capital Tier 1 (4.00% required minimum)(6).......... 9.92 8.86 9.46 10.18 10.11 Total (8.00% required minimum)(6).......... 11.17 10.11 10.70 11.43 11.36 Average loans to average deposits............... 97.74 94.04 89.00 83.00 85.26
13 - ------- (1) On January 31, 2001, Peoples State Bank of Groveland ("PSB") merged with a newly formed subsidiary of Alabama National, whereby PSB became a wholly owned subsidiary of Alabama National ("the PSB Merger"). Pursuant to the terms of the PSB Merger each share of PSB common stock was converted into 1.164 shares of Alabama National common stock. On December 31, 1998, Community Bank of Naples, N.A. ("Naples") merged with and into a subsidiary of Alabama National (the "Naples Merger"). Pursuant to the terms of the Naples Merger, each share of Naples common stock was converted into 0.53271 shares of Alabama National's common stock. On October 2, 1998, Community Financial Corporation ("CFC") merged with and into Alabama National (the "CFC Merger"). Pursuant to the terms of the CFC Merger, each share of CFC common stock was converted into 0.351807 shares of Alabama National's common stock. On May 29, 1998, Public Bank Corporation ("PBC") merged with and into Alabama National (the "PBC Merger"). Pursuant to the terms of the PBC Merger, each share of PBC common stock was converted into 0.2353134 shares of Alabama National's common stock. On November 30, 1997, First American Bancorp ("FAB") merged with and into Alabama National (the "FAB Merger"). Pursuant to the terms of the FAB Merger, each share of FAB common stock was converted into 0.7199 shares of Alabama National's common stock. Each of the aforementioned mergers was accounted for as a pooling of interests. The historical Five-Year Summary of Selected Financial Data for all periods have been restated to include the results of operations of PSB, Naples, CFC, PBC and FAB from the earliest period presented, except for dividends per common share. (See Note 2 to Alabama National's consolidated financial statements included in this Annual Report). (2) The weighted average common share and common equivalent shares outstanding are those of PSB, Naples, CFC, PBC and FAB converted into Alabama National common stock and common stock equivalents at the applicable exchange ratios. (3) Net interest income divided by average earning assets. (4) Does not include loans held for sale. (5) Nonperforming loans and nonperforming assets includes loans past due 90 days or more that are still accruing interest. It is Alabama National's policy to place all loans on nonaccrual status when over ninety days past due. (6) Based upon fully phased-in requirements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of Presentation The following is a discussion and analysis of the consolidated financial condition of Alabama National BanCorporation ("Alabama National") and results of operations as of the dates and for the periods indicated. On January 31, 2001, Peoples State Bank of Groveland, a bank headquartered in Groveland, Florida, was merged with and into a newly formed subsidiary of Alabama National, whereby Peoples State Bank of Groveland became a wholly owned subsidiary of Alabama National. Pursuant to the terms of the merger, each share of Peoples State Bank common stock was converted into 1.164 shares of Alabama National common stock for a total of 734,609 shares. The historical consolidated financial statements of Alabama National reflect adjustments for the Peoples State Bank merger, which was accounted for as a pooling of interests, and differ from consolidated financial statements of Alabama National as previously reported. All significant intercompany accounts and transactions have been eliminated. The accounting and reporting policies of Alabama National conform with accounting principles generally accepted in the United States of America and with general financial service industry practices. The historical consolidated financial statements of Alabama National and the "FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA" derived from the historical consolidated financial statements of Alabama National are set forth elsewhere herein. This discussion should be read in conjunction with those consolidated financial statements and selected consolidated financial data and the other financial information included in this Annual Report. 14 Selected Bank Financial Data Alabama National's success is dependent upon the financial performance of its subsidiary banks (the "Banks"). Alabama National, with input from the management of each Bank, establishes operating goals for each Bank. The following tables summarize selected financial information for 2001 and 2000 for each of the Banks. SELECTED BANK FINANCIAL DATA (Amounts in thousands, except ratios) (Unaudited)
December 31, 2001 ------------------------------------------------------------------------------------------------------ National Alabama Citizens & First First First Peoples Georgia Bank of Exchange Bank of Peoples American Citizens Gulf State Public State Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Bank ---------- -------- --------- ---------- -------- -------- -------- -------- -------- -------- Summary of Operations: Interest income... $ 66,266 $ 5,326 $ 5,254 $ 4,340 $ 37,547 $ 6,653 $ 12,897 $ 10,417 $ 7,222 $ 14,936 Interest expense........... 35,830 1,811 2,285 2,529 18,537 3,189 5,936 4,903 3,480 7,305 Net interest income............ 30,436 3,515 2,969 1,811 19,010 3,464 6,961 5,514 3,742 7,631 Provision for loan losses....... 1,100 160 87 242 510 20 537 225 340 350 Securities gains............. 140 -- -- -- 15 -- -- -- -- 11 Noninterest income............ 29,745 681 660 422 8,065 804 2,900 1,040 1,406 2,149 Noninterest expense........... 41,513 2,252 1,651 1,578 17,915 2,124 5,924 4,251 3,131 5,343 Net income........ 12,299 1,225 1,353 275 5,918 1,638 2,224 1,293 1,051 2,733 Balance Sheet Highlights: At Period-End: Total assets.... $1,080,094 $75,982 $69,833 $76,518 $691,692 $93,907 $189,176 $133,143 $111,825 $219,461 Securities...... 238,484 25,459 14,108 14,307 95,977 41,340 16,638 19,522 19,637 66,616 Loans, net of unearned income.......... 722,864 39,063 48,770 55,174 502,618 43,348 150,744 103,926 79,422 120,535 Allowance for loan losses..... 9,449 579 641 702 8,745 590 1,960 1,527 1,031 1,613 Deposits........ 579,350 64,033 58,120 58,117 584,337 79,924 150,256 116,690 94,579 168,724 Short-term debt............ 25,000 -- -- 4,000 -- -- 6,000 4,000 -- -- Long-term debt.. 106,077 5,000 5,000 2,000 28,020 6,000 16,000 -- 5,000 15,000 Stockholders' equity.......... 82,061 6,323 5,677 5,006 63,013 7,190 13,660 9,902 8,623 15,399 Performance Ratios: Return on average assets............ 1.22% 1.60% 1.90% 0.43% 1.23% 1.72% 1.24% 0.99% 1.05% 1.33% Return on average equity............ 15.52 18.68 22.92 6.35 13.36 22.08 17.75 13.51 13.98 18.83 Net interest margin............ 3.23 5.01 4.54 3.09 4.34 3.93 4.25 4.49 4.10 4.06 Capital and Liquidity Ratios: Average equity to average assets.... 7.83 8.55 8.30 6.75 9.24 7.80 7.01 7.32 7.53 7.07 Leverage (4.00% required minimum).......... 7.72 7.36 8.17 6.90 9.69 7.17 7.21 7.35 7.97 6.88 Risk-based capital .......... Tier 1 (4.00% required minimum)........ 10.60 13.42 11.69 8.85 9.73 13.67 10.12 10.25 9.88 11.12 Total (8.00% required minimum)........ 11.83 14.67 12.94 10.10 10.98 14.86 11.37 11.50 11.06 12.28 Average loans to average deposits.......... 118.73 63.58 83.20 74.35 97.39 55.12 99.65 89.02 81.22 75.73 Community Bank of Naples, N.A. ------------ Summary of Operations: Interest income... $ 10,144 Interest expense........... 4,607 Net interest income............ 5,537 Provision for loan losses....... 375 Securities gains............. 80 Noninterest income............ 1,038 Noninterest expense........... 3,152 Net income........ 2,000 Balance Sheet Highlights: At Period-End: Total assets.... $159,297 Securities...... 15,520 Loans, net of unearned income.......... 132,574 Allowance for loan losses..... 1,682 Deposits........ 117,892 Short-term debt............ 13,000 Long-term debt.. 6,000 Stockholders' equity.......... 10,942 Performance Ratios: Return on average assets............ 1.37% Return on average equity............ 20.14 Net interest margin............ 4.37 Capital and Liquidity Ratios: Average equity to average assets.... 6.82 Leverage (4.00% required minimum).......... 6.91 Risk-based capital .......... Tier 1 (4.00% required minimum)........ 8.85 Total (8.00% required minimum)........ 10.10 Average loans to average deposits.......... 104.72
15 SELECTED BANK FINANCIAL DATA (continued) (Amounts in thousands, except ratios) (Unaudited)
December 31, 2000 --------------------------------------------------------------------------------------------------- National Alabama Citizens & First First First Peoples Georgia Bank of Exchange Bank of Peoples American Citizens Gulf State Public State Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Bank -------- -------- --------- ---------- -------- -------- -------- -------- ------- -------- Summary of Operations: Interest income... $ 71,622 $ 5,593 $ 5,639 $ 3,400 $ 31,322 $ 6,907 $ 11,706 $ 9,818 $ 6,192 $ 13,252 Interest expense.......... 42,725 1,936 2,706 2,211 15,802 3,467 5,788 4,549 2,634 6,407 Net interest income........... 28,897 3,657 2,933 1,189 15,520 3,440 5,918 5,269 3,558 6,845 Provision for loan losses...... 425 160 35 110 618 -- 95 503 178 20 Securities losses........... -- -- -- -- -- -- -- (120) -- -- Noninterest income........... 19,159 680 597 355 6,142 760 1,711 787 1,127 1,715 Noninterest expense.......... 32,775 1,992 1,596 1,291 13,545 1,963 4,568 3,737 2,642 4,963 Net income........ 10,441 1,438 1,321 107 5,223 1,703 1,950 1,126 1,165 2,357 Balance Sheet Highlights: At Period-End: Total assets.... $952,623 $73,719 $71,472 $53,122 $443,982 $92,666 $165,784 $122,587 $89,664 $179,860 Securities...... 130,204 19,526 14,752 12,407 54,353 36,825 18,075 10,747 13,260 51,455 Loans, net of unearned income......... 710,094 40,223 47,637 33,563 338,270 44,934 130,516 101,345 62,659 110,624 Allowance for loan losses.... 9,010 593 556 467 4,799 588 1,519 1,501 719 1,313 Deposits........ 642,227 61,617 56,021 48,862 368,989 78,996 142,667 103,146 77,466 137,315 Short-term debt........... 16,900 5,000 5,000 -- 5,000 4,000 5,000 8,000 5,000 5,000 Long-term debt.. 45,176 -- 3,700 -- 18,050 2,000 5,000 -- -- 10,000 Stockholders' equity......... 74,343 6,303 5,590 4,062 41,184 6,885 11,362 9,140 6,546 13,020 Performance Ratios: Return on average assets........... 1.12% 1.92% 1.81% 0.23% 1.42% 1.83% 1.31% 0.97% 1.45% 1.38% Return on average equity........... 15.50 23.59 24.33 2.92 15.76 26.41 19.27 13.11 19.63 20.56 Net interest margin........... 3.35 5.36 4.38 2.83 4.67 4.02 4.37 4.94 4.88 4.47 Capital and Liquidity Ratios: Average equity to average assets... 7.25 8.13 7.45 7.72 9.02 6.92 6.78 7.41 7.41 6.73 Leverage (4.00% required minimum)......... 7.78 7.45 7.89 8.09 7.89 7.39 7.00 7.39 7.57 7.16 Risk-based capital ......... Tier 1 (4.00% required minimum)........ 9.79 13.08 11.73 11.42 9.52 13.56 8.88 9.75 9.68 10.93 Total (8.00% required minimum)........ 10.97 14.33 12.87 12.67 10.77 14.74 10.07 11.00 10.73 12.02 Average loans to average deposits......... 112.63 65.68 78.30 68.54 93.36 55.38 91.92 96.72 80.23 70.88 Community Bank of Naples, N.A. ------------ Summary of Operations: Interest income... $ 8,777 Interest expense.......... 4,180 Net interest income........... 4,597 Provision for loan losses...... 362 Securities losses........... -- Noninterest income........... 749 Noninterest expense.......... 2,367 Net income........ 1,690 Balance Sheet Highlights: At Period-End: Total assets.... $130,883 Securities...... 24,375 Loans, net of unearned income......... 94,174 Allowance for loan losses.... 1,303 Deposits........ 93,593 Short-term debt........... 6,000 Long-term debt.. -- Stockholders' equity......... 8,821 Performance Ratios: Return on average assets........... 1.42% Return on average equity........... 22.02 Net interest margin........... 4.49 Capital and Liquidity Ratios: Average equity to average assets... 6.46 Leverage (4.00% required minimum)......... 6.96 Risk-based capital ......... Tier 1 (4.00% required minimum)........ 10.16 Total (8.00% required minimum)........ 11.41 Average loans to average deposits......... 88.49
16 Critical Accounting Policies and Estimates Alabama National's accounting policies are critical to understanding the results of operations as reported in the consolidated financial statements. Significant accounting policies utilized by Alabama National are discussed in more detail in the notes to the consolidated financial statements set forth elsewhere herein. Some of the more complex technical accounting policies require management to make significant estimates and judgements that affect the valuation of reported assets and liabilities, including associated revenues, expenses, and disclosure. The following briefly describes the more complex policies involving a significant amount of judgements about valuation and the application of complex accounting standards and interpretations. Allowance for Loan Losses Alabama National records estimated probable incurred credit ,losses in the loan and lease portfolios as an allowance for loan losses. The methodologies and assumptions for determining the adequacy of the overall allowance for loan losses involve significant judgements to be made by management. Some of the more critical judgements supporting the amount Alabama National's allowance for loan losses methodology and estimates include judgements about: credit worthiness of borrowers, estimated value of underlying collateral, assumptions about cash flow, determination of loss factors for estimating credit losses, and the impact of current events, conditions, and other factors impacting the level of probable incurred losses. Under different conditions or using different assumptions, the actual amount of credit losses ultimately confirmed by Alabama National may be different than management's estimates provided in the consolidated financial statements. For a more complete discussion of the methodology employed to calculate the allowance for loan losses, see Note 1 to Alabama National's consolidated financial statements included in this Annual Report and "Provision and Allowance for Loan Losses." Other There are other complex accounting standards that require Alabama National to employ significant judgement in interpreting and applying certain of the principles proscribed by those standards. These judgments include, but are not limited to, determination of whether a financial instrument or other contract meets the definition of a derivative in accordance with SFAS No. 133, the accounting for a transfer of financial assets and extinguishments of liabilities in accordance with SFAS No. 140, and the determination of asset impairment, including when such impairment is other-than-temporary. For a more complete discussion of the accounting policies see Note 1 to Alabama National's consolidated financial statements included in this Annual Report. Results of Operations Year ended December 31, 2001, compared with year ended December 31, 2000 Alabama National's net income increased by $2.9 million, or 11.4%, to $28.4 million in the year ended December 31, 2001, from $25.5 million for the year ended December 31, 2000. Return on average assets during 2001 was 1.12%, compared with 1.17% during 2000, and return on average equity was 15.40% during 2001, compared with 16.29% during 2000. Net interest income increased $8.9 million, or 11.1%, to $89.1 million in 2001, from $80.2 million in 2000, as interest income increased by $8.3 million and interest expense decreased $0.6 million. The increase in net interest income is attributable to a $233.8 million increase in average loans to $1.81 billion during 2001, from $1.58 billion in 2000, as a result of continued management emphasis on loan growth. In general, loans are Alabama National's highest yielding earning asset. Alabama National also experienced a growth in its securities portfolio that also contributed to the increase in net interest income in 2001. Average securities totaled $449.9 million in 2001, compared to $365.3 in 2000. Despite an increase in average interest bearing liabilities of $285.8 million, to $2.04 billion in 2001, interest expense decreased slightly during 2001. This is a result of the interest rate cuts during 2001 by the Federal Reserve Bank and the effect 17 these cuts had on rates paid on Alabama National's deposits and other funding sources. Except for other short-term borrowings, all categories of average interest-bearing liabilities increased during 2001. Average time deposits increased $88.9 million, to $948.2 million in 2001, compared to $859.4 million in 2000. The interest rate paid on time deposits decreased 32 basis points to 5.68% in 2001. Also, average long-term and short-term debt increased a combined $49.5 million, to $211.7 million during 2001, from $162.2 million in 2000. The increases in the above liability categories are due to Alabama National's need to fund loan and asset growth. These funding sources generally bear higher interest rates than interest-bearing transaction accounts, resulting in higher interest expense. Alabama National's net interest spread and net interest margin were 3.33% and 3.83%, respectively, in 2001, compared to 3.47% and 4.03%, respectively, in 2000. These decreases resulted because the rate paid on interest-bearing liabilities did not reprice as rapidly as the yield earned on average loans. During 2001, as the Federal Reserve cut interest rates, Alabama National's loans repriced more rapidly than the deposits and other funding sources used to fund loans and other earning assets. Alabama National recorded a provision for loan losses of $3.9 million during 2001, compared to $2.5 million in 2000. Management believes that both loan loss experience and asset quality indicate that the allowance for loan losses is maintained at an adequate level, although there can be no assurance that economic or regulatory factors will not require further increases in the allowance. Alabama National's allowance for loan losses as a percentage of period-end loans (excluding loans held for sale) was 1.45% at December 31, 2001, compared with 1.31% at December 31, 2000. The allowance for loan losses as a percentage of period-end nonperforming assets was 308.55% at December 31, 2001, compared with 437.73% at December 31, 2000. Alabama National experienced net charge-offs of $1.7 million in 2001, equating to a ratio of net charge- offs to average loans of 0.09%, compared with net charge-offs of $0.6 million in 2000, equating to a ratio of net charge-offs to average loans of 0.04%. See "Provision and Allowance for Loan Losses." Noninterest income, including net securities gains and losses, increased $15.4 million, or 46.1%, to $48.7 million in 2001, compared with $33.3 million in 2000. Each component of noninterest income experienced increases during 2001. The most significant increases were recorded in the investment services division and mortgage division. Revenue from the investment services division increased $7.9 million, or 133.8%, to $13.7 in 2001, from $5.9 million in 2000. Total revenue earned from the mortgage division increased $3.9 million, or 110.5%, to $7.4 million in 2001, from $3.5 million in 2000. The securities brokerage and trust division experienced a revenue increase of $1.1 million, or 14.4%, to $8.8 million in 2001, from $7.7 million in 2000. The commissions generated by the insurance division totaled $2.1 million in each of 2001 and 2000. Service charges on deposit accounts increased by $1.2 million, or 14.4%, to $9.5 million in 2001, from $8.3 million in 2000. Earnings on bank owned life insurance totaled $2.4 million in 2001, compared with $2.1 million in 2000. The increase reflects earnings on a larger bank owned life insurance asset base due to reinvestment of policy earnings and additional investments in bank owned life insurance policies during 2001. Noninterest expense increased $18.1 million, or 24.5%, to $92.2 million in 2001, compared with $74.1 million during 2000. For a detailed discussion of these income and expense categories, see "Noninterest Income and Expense." Income before the provision for income taxes increased $4.7 million, or 12.8%, to $41.7 million in 2001, from $37.0 million in 2000. Net income totaled $28.4 million in 2001, an increase of $2.9 million, or 11.4%, compared to $25.5 million during 2000. Year ended December 31, 2000, compared with year ended December 31, 1999 Alabama National's net income increased by $2.2 million, or 9.5%, to $25.5 million in the year ended December 31, 2000, from $23.3 million for the year ended December 31, 1999. Return on average assets during 2000 was 1.17%, compared with 1.26% during 1999, and return on average equity was 16.29% during 2000, compared with 16.11% during 1999. Net interest income increased $9.4 million, or 13.3%, to $80.2 million in 2000 from $70.8 million in 1999, as interest income increased by $38.1 million and interest expense increased $28.7 million. The increase in net interest income is primarily attributable to a $303.3 million increase in average loans to $1.6 billion during 2000, from $1.3 billion in 1999, as a result of management emphasis on loan growth. In general, loans are Alabama National's highest yielding earning asset. The increased interest expense is primarily attributable to an increase in average time deposits of $206.3 million, to 18 $859.4 million in 2000, from $653.1 million in 1999 and an increase in the interest rate paid on time deposits of 76 basis points, to 6.00% in 2000, from 5.24% in 1999. Also, average long-term and short-term debt increased a combined $75.4 million to $162.2 million during 2000, from $86.8 million in 1999. The increases in the above liability categories are due to Alabama National's need to fund loan growth. These funding sources generally bear higher interest rates than interest-bearing transaction accounts, resulting in higher interest expense. Alabama National's net interest spread and net interest margin were 3.47% and 4.03%, respectively, in 2000, each decreasing by 20 basis points from 1999. These decreases resulted because the rate paid on interest-bearing liabilities increased more rapidly than the yield earned on average loans due to a shift in Alabama National's funding mix. During 2000, loans grew more rapidly than lower cost deposits, causing Alabama National to rely upon more costly funding sources such as Federal Home Loan Bank Advances and brokered certificate of deposits. Alabama National recorded a provision for loan losses of $2.5 million and $2.1 million during 2000 and 1999, respectively. Management believes that both loan loss experience and asset quality indicate that the allowance for loan losses is maintained at an adequate level, although there can be no assurance that economic or regulatory factors will not require further increases in the allowance. Alabama National's allowance for loan losses as a percentage of period-end loans (excluding loans held for sale) was 1.31% at December 31, 2000, compared with 1.36% at December 31, 1999. The allowance for loan losses as a percentage of period-end nonperforming assets was 437.73% at December 31, 2000, compared with 360.58% at December 31, 1999. Alabama National experienced net charge-offs of $649,000 in 2000, equating to a ratio of net charge-offs to average loans of 0.04% compared with net charge-offs of $461,000 in 1999, equating to a ratio of net charge-offs to average loans of 0.04%. See "Provision and Allowance for Loan Losses." Noninterest income, including net securities gains and losses, increased $2.0 million, or 6.5%, to $33.3 million in 2000, compared with $31.3 million in 1999. Alabama National experienced revenue decreases in its investment services and mortgage lending divisions of $1.2 million, or 11.5%, to $9.4 million in 2000 from $10.6 million in 1999. The securities brokerage and trust division experienced a revenue increase of $1.8 million, or 30.4%, to $7.7 million in 2000, from $5.9 million in 1999. The commissions generated by the insurance division totaled $2.1 million in 2000 compared to $1.1 million in 1999. The 1999 commission revenue only includes seven months of activity as the division was acquired in May 1999. Service charges on deposit accounts increased by $293,000, or 3.7%, to $8.3 million in 2000 from $8.0 million in 1999. Earnings on bank owned life insurance totaled $2.1 million in 2000, compared with $1.5 million in 1999. The increase reflects earnings on a larger bank owned life insurance asset base due to reinvestment of policy earnings and additional investments in bank owned life insurance policies during 2000. Noninterest income for 1999 includes a gain of $819,000 from the curtailment of Alabama National's defined benefit pension plan, a gain of $262,000 from non-recurring sales of assets and a securities gain of $196,000. Noninterest income for 2000 includes a securities loss of $119,000 and a loss of $19,000 from non-recurring sales of assets. Excluding these non-recurring items, Alabama National's noninterest income increased $2.6 million, or 8.5%, in 2000 versus 1999. Noninterest expense increased $8.3 million, or 12.5%, to $74.1 million in 2000, compared with $65.9 million during 1999. See "Noninterest Income and Expense." Income before the provision for income taxes increased $2.8 million, or 8.2%, to $37.0 million in 2000, from $34.1 million in 1999. Net income totaled $25.5 million in 2000, an increase of $2.2 million, or 9.5%, compared to $23.3 million during 1999. Net Interest Income The largest component of Alabama National's net income is its net interest income--the difference between the income earned on assets and interest paid on deposits and borrowed funds used to support its assets. Net interest income is determined by the yield earned on Alabama National's earning assets and rates paid on its interest-bearing liabilities, the relative amounts of earning assets and interest-bearing liabilities and the maturity and repricing characteristics of its earning assets and interest-bearing liabilities. Net interest income divided by average earning assets represents the Alabama National's net interest margin. Average Balances, Income, Expenses and Rates The following table depicts, on a taxable equivalent basis for the periods indicated, certain information related to Alabama National's average balance sheet and its average yields on assets and average costs of liabilities. Such yields or costs are derived by dividing income or expense by the average daily balances of the associated assets or liabilities. 19 AVERAGE BALANCES, INCOME AND EXPENSES AND RATES (Amounts in thousands, except yields and rates)
Year ended December 31, ----------------------------------------------------------------------------------- 2001 2000 1999 --------------------------- --------------------------- --------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ ASSETS: ------- Earning assets: Loans(1)(3)............ $1,812,715 $148,239 8.18% $1,578,940 $143,883 9.11% $1,275,619 $109,273 8.57% Securities: Taxable................ 420,582 27,593 6.56 332,717 22,876 6.88 305,548 19,300 6.32 Tax exempt............. 29,340 2,215 7.55 32,617 2,459 7.54 34,361 2,550 7.42 Cash balances in other banks................. 15,137 510 3.37 3,781 214 5.66 1,830 110 6.01 Funds sold............. 46,630 1,931 4.14 41,856 2,721 6.50 49,117 2,594 5.28 Trading account securities............ 2,021 119 5.89 1,795 124 6.91 6,669 356 5.34 ---------- -------- ---------- -------- ---------- -------- Total earning assets(2)........... 2,326,425 180,607 7.76 1,991,706 172,277 8.65 1,673,144 134,183 8.02 ---------- -------- ---------- -------- ---------- -------- Cash and due from banks.................. 81,705 74,276 69,985 Premises and equipment.. 53,716 49,156 44,458 Other assets............ 97,829 93,489 85,941 Allowance for loan losses................. (23,284) (20,747) (18,276) ---------- ---------- ---------- Total assets......... $2,536,391 $2,187,880 $1,855,252 ========== ========== ========== LIABILITIES: ------------ Interest-bearing liabilities: Interest-bearing transaction accounts.. $ 316,004 8,166 2.58 $ 255,534 8,383 3.28 $ 203,736 4,973 2.44 Savings and money market deposits....... 326,474 9,355 2.87 322,590 11,612 3.60 340,207 11,214 3.30 Time deposits.......... 948,242 53,891 5.68 859,366 51,575 6.00 653,097 34,204 5.24 Funds purchased........ 239,293 8,696 3.63 156,204 9,305 5.96 147,621 7,343 4.97 Other short-term borrowings............ 42,850 1,842 4.30 65,021 4,518 6.95 28,364 1,544 5.44 Long-term debt......... 168,857 8,443 5.00 97,162 5,594 5.76 58,445 3,029 5.18 ---------- -------- ---------- -------- ---------- -------- Total interest- bearing liabilities......... 2,041,720 90,393 4.43 1,755,877 90,987 5.18 1,431,470 62,307 4.35 ---------- -------- ---------- -------- ---------- -------- Demand deposits........ 263,876 241,527 233,914 Accrued interest and other liabilities..... 46,244 33,795 45,243 Stockholders' equity... 184,551 156,681 144,625 ---------- ---------- ---------- Total liabilities and stockholders' equity... $2,536,391 $2,187,880 $1,855,252 ========== ========== ========== Net interest spread..... 3.33% 3.47% 3.67% ==== ==== ==== Net interest income/margin on a taxable equivalent basis.................. 90,214 3.88% 81,290 4.08% 71,876 4.30% ==== ==== ==== Tax equivalent adjustment(2).......... 1,070 1,055 1,077 -------- -------- -------- Net interest income/margin.......... $ 89,144 3.83% $ 80,235 4.03% $ 70,799 4.23% ======== ==== ======== ==== ======== ====
- ------- (1) Average loans include nonaccrual loans. All loans and deposits are domestic. (2) Tax equivalent adjustments are based on the assumed rate of 34%, and do not give effect to the disallowance for Federal income tax purposes of interest expense related to certain tax-exempt assets. (3) Fees in the amount of $4,427,000, $3,574,000, and $3,587,000 are included in interest and fees on loans for 2001, 2000, and 1999, respectively. 20 During 2001, Alabama National experienced an increase in net interest income of $8.9 million, or 11.1%, to $89.1 million, compared with $80.2 million in 2000. Net interest income increased despite a decrease in the net interest spread of 14 basis points to 3.33% in 2001, from 3.47% in 2000, and a decrease in the net interest margin of 20 basis points to 3.83% in 2001, compared with 4.03% in 2000. The decline in net interest spread and net interest margin is largely due to the effects of the interest rate reductions by the Federal Reserve during 2001. Alabama National's interest earning assets have repriced more quickly than its interest-bearing liabilities as time deposits reprice only at maturity. Alabama National's net interest margin improved 21 basis points during the fourth quarter of 2001 as compared to the third quarter of 2001. Management anticipates the net interest margin to approximately stabilize at current levels, absent any additional rate reductions by the Federal Reserve or significant changes in the general interest rate environment. During 2001, net average earning assets increased by $334.7 million, or 16.8%, to $2.33 billion, from $1.99 billion in 2000. The major components of this increase included average loans, which increased $233.8 million, or 14.8%, to $1.81 billion in 2001, from $1.58 billion in 2000, and securities, which increased $84.6 million, or 23.2%, to $449.9 million in 2001, from $365.3 million in 2000. Analysis of Changes in Net Interest Income The following table sets forth, on a taxable equivalent basis, the effect which varying levels of earning assets and interest-bearing liabilities and the applicable rates had on changes in net interest income for 2001 and 2000. For purposes of this table, changes that are not solely attributable to volume or rate are allocated to volume and rate on a pro rata basis. ANALYSIS OF CHANGES IN NET INTEREST INCOME (Amounts in thousands)
December 31, -------------------------------------------------------- 2001 Compared to 2000 2000 Compared to 1999 Variance Due to Variance Due to --------------------------- --------------------------- Volume Yield/Rate Total Volume Yield/Rate Total ------- ---------- ------- ------- ---------- ------- Earning assets: Loans................... $19,961 $(15,605) $ 4,356 $27,360 $ 7,250 $34,610 Securities: Taxable............... 5,821 (1,104) 4,717 1,791 1,785 3,576 Tax exempt............ (247) 3 (244) (132) 41 (91) Cash balances in other banks.................. 413 (117) 296 111 (7) 104 Funds sold.............. 283 (1,073) (790) (418) 545 127 Trading account securities............. 15 (20) (5) (315) 83 (232) ------- -------- ------- ------- ------- ------- Total interest income.............. 26,246 (17,916) 8,330 28,397 9,697 38,094 Interest-bearing liabilities: Interest-bearing transaction accounts... 1,767 (1,984) (217) 1,449 1,961 3,410 Savings and money market deposits............... 137 (2,394) (2,257) (596) 994 398 Time deposits........... 5,157 (2,841) 2,316 11,904 5,467 17,371 Funds purchased......... 3,845 (4,454) (609) 443 1,519 1,962 Other short-term borrowings............. (1,263) (1,413) (2,676) 2,448 526 2,974 Long-term debt.......... 3,670 (821) 2,849 2,194 371 2,565 ------- -------- ------- ------- ------- ------- Total interest expense............. 13,313 (13,907) (594) 17,842 10,838 28,680 ------- -------- ------- ------- ------- ------- Net interest income on a taxable equivalent basis.... $12,933 $ (4,009) 8,924 $10,555 $(1,141) 9,414 ======= ======== ======= ======= Taxable equivalent adjustment............. (15) 22 ------- ------- Net interest income..... $ 8,909 $ 9,436 ======= =======
21 Interest Sensitivity and Market Risk Interest Sensitivity Alabama National monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on net interest income. The principal monitoring technique employed by Alabama National is simulation analysis, which technique is augmented by "gap" analysis. In simulation analysis, Alabama National reviews each individual asset and liability category and their projected behavior in various different interest rate environments. These projected behaviors are based upon management's past experiences and upon current competitive environments, including the various environments in the different markets in which Alabama National competes. Using this projected behavior and differing rate scenarios as inputs, the simulation analysis generates as output a projection of net interest income. Alabama National also periodically verifies the validity of this approach by comparing actual results with those that were projected in previous models. See "--Market Risk." Another technique used by Alabama National in interest rate management is the measurement of the interest sensitivity "gap," which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets and liabilities, selling securities available for sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability. Alabama National evaluates interest sensitivity risk and then formulates guidelines regarding asset generation and repricing, and sources and prices of off-balance sheet commitments in order to decrease interest sensitivity risk. Alabama National uses computer simulations to measure the net income effect of various interest rate scenarios. The modeling reflects interest rate changes and the related impact on net income over specified periods of time. 22 The following table illustrates Alabama National's interest rate sensitivity at December 31, 2001, assuming the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities. INTEREST SENSITIVITY ANALYSIS (Amounts in thousands, except ratios)
December 31, 2001 ---------------------------------------------------------------------------------- After One After Three Within Through Through Greater One Three Twelve Within One One Through Than Month Months Months Year Three Years Three Years Total -------- --------- ----------- ---------- ----------- ----------- ---------- ASSETS: ------- Earning assets: Loans(1).............. $759,991 $147,077 $ 327,643 $1,234,711 $421,276 $337,173 $1,993,160 Securities(2)......... 14,739 25,041 96,383 136,163 189,828 225,297 551,288 Trading securities.... 1,341 -- -- 1,341 -- -- 1,341 Interest-bearing deposits in other banks................ 10,813 -- -- 10,813 -- -- 10,813 Funds sold............ 32,241 -- -- 32,241 -- -- 32,241 -------- -------- --------- ---------- -------- -------- ---------- Total interest-earning assets............... $819,125 $172,118 $ 424,026 $1,415,269 $611,104 $562,470 $2,588,843 LIABILITIES: ------------ Interest-bearing liabilities: Interest-bearing deposits: Demand deposits....... $140,110 $ -- $ -- $ 140,110 $ -- $244,245 $ 384,355 Savings and money market deposits...... 143,911 -- -- 143,911 -- 229,398 373,309 Time deposits(3)...... 143,963 160,842 532,737 837,542 129,242 35,992 1,002,776 Funds purchased....... 240,060 -- -- 240,060 -- -- 240,060 Short-term borrowings(4)........ 27,350 -- 41,000 68,350 -- -- 68,350 Long-term debt........ 62,491 80,003 10,547 153,041 55,036 5,044 213,121 -------- -------- --------- ---------- -------- -------- ---------- Total interest-bearing liabilities.......... $757,885 $240,845 $ 584,284 $1,583,014 $184,278 $514,679 $2,281,971 -------- -------- --------- ---------- -------- -------- ---------- Period gap.............. $ 61,240 $(68,727) $(160,258) $ (167,745) $426,826 $ 47,791 ======== ======== ========= ========== ======== ======== Cumulative gap.......... $ 61,240 $ (7,487) $(167,745) $ (167,745) $259,081 $306,872 $ 306,872 ======== ======== ========= ========== ======== ======== ========== Ratio of cumulative gap to total earning assets................. 2. 37% (0.29)% (6.48)% (6.48)% 10.01% 11.85%
- ------- (1) Excludes nonaccrual loans of $7,563,000 (2) Excludes investment equity securities with a market value of $16,400,000. (3) Excludes matured certificates which have not been redeemed by the customer and on which no interest is accruing. (4) Includes treasury, tax and loan account of $3,490,000. Alabama National generally benefits from increasing market rates of interest when it has an asset-sensitive gap and generally benefits from decreasing market interest rates when it is liability sensitive. Alabama National is liability sensitive throughout one year after one month. The analysis presents only a static view of the timing and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those are viewed by management as significantly less interest sensitive than market-based rates such as those paid on non-core deposits. For this and other reasons, management relies more upon the simulation analysis (as noted above) in managing interest rate risk. Accordingly, management believes that a liability-sensitive gap position is not as 23 indicative of Alabama National's true interest sensitivity as it would be for an organization which depends to a greater extent on purchased funds to support earning assets. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of earning assets and interest-bearing liabilities. Market Risk Alabama National's earnings are dependent on its net interest income which is the difference between interest income earned on all earning assets, primarily loans and securities, and interest paid on all interest bearing liabilities, primarily deposits. Market risk is the risk of loss from adverse changes in market prices and rates. Alabama National's market risk arises primarily from inherent interest rate risk in its lending, investing and deposit gathering activities. Alabama National seeks to reduce its exposure to market risk through actively monitoring and managing its interest rate risk. Management relies upon static "gap" analysis to determine the degree of mismatch in the maturity and repricing distribution of interest earning assets and interest bearing liabilities which quantifies, to a large extent, the degree of market risk inherent in Alabama National's balance sheet. Gap analysis is further augmented by simulation analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 200 basis points below to 200 basis points above the current prevailing rates. Management makes certain assumptions as to the effect varying levels of interest rates have on certain earning assets and interest bearing liabilities, which assumptions consider both historical experience and consensus estimates of outside sources. With respect to the primary earning assets, loans and securities, certain features of individual types of loans and specific securities introduce uncertainty as to their expected performance at varying levels of interest rates. In some cases, imbedded options exist whereby the borrower may elect to repay the obligation at any time. These imbedded prepayment options make anticipating the performance of those instruments difficult given changes in prevailing rates. At December 31, 2001, mortgage backed securities with a carrying value totaling $486.3 million, or 17.1% of total assets and essentially every underlying loan, net of unearned income, (totaling $1.96 billion, or 69.1% of total assets), carry such imbedded options. Management believes that assumptions used in its simulation analysis about the performance of financial instruments with such imbedded options are appropriate. However, the actual performance of these financial instruments may differ from management's estimates due to several factors, including the diversity and sophistication of the customer base, the general level of prevailing interest rates and the relationship to their historical levels, and general economic conditions. The difference between those assumptions and actual results, if significant, could cause the actual results to differ from those indicated by the simulation analysis. Deposits totaled $2.07 billion, or 72.7% of total assets, at December 31, 2001. Since deposits are the primary funding source for earning assets, the associated market risk is considered by management in its simulation analysis. Generally, it is anticipated that deposits will be sufficient to support funding requirements. However, the rates paid for deposits at varying levels of prevailing interest rates have a significant impact on net interest income and therefore, must be quantified by Alabama National in its simulation analysis. Specifically, Alabama National's spread, the difference between the rates earned on earning assets and rates paid on interest bearing liabilities, is generally higher when prevailing rates are higher. As prevailing rates reduce, the spread tends to compress, with severe compression at very low prevailing interest rates. This characteristic is called "spread compression" and adversely effects net interest income in the simulation analysis when anticipated prevailing rates are reduced from current rates. Management relies upon historical experience to estimate the degree of spread compression in its simulation analysis. Management believes that such estimates of possible spread compression are reasonable. However, if the degree of spread compression varies from that expected, the actual results could differ from those indicated by the simulation analysis. 24 The following table illustrates the results of simulation analysis used by Alabama National to determine the extent to which market risk would affect net interest margin for the next twelve months if prevailing interest rates increased or decreased the specified amounts from current rates. Due to the current interest rate environment, Alabama National's net interest income would decrease significantly if prevailing interest rates were to decrease 100 or 200 basis points. The current rates paid on interest-bearing accounts cannot decrease below zero, yet rates earned on loans can experience a decrease in the falling rate scenarios, and the interest rate spread would therefore compress. Because of the inherent use of estimates and assumptions in the simulation model used to derive this information, the actual results of the future impact of market risk on Alabama National's net interest margin, may differ from that found in the table. MARKET RISK (Amounts in thousands)
Year ended December 31, 2001 Year ended December 31, 2000 Change in --------------------------------- --------------------------------- Prevailing Net Interest Change from Net Interest Change from Interest Rates(1) Income Amount Income Amount Income Amount Income Amount ----------------- ------------- -------------- --------------- -------------- +200 basis points....... $ 117,465 5.47% $ 91,547 5.06% +100 basis points....... 115,562 3.76 89,413 2.61 0 basis points.......... 111,375 -- 87,136 -- - -100 basis points....... 101,536 (8.83) 84,039 (3.55) - -200 basis points....... 96,871 (13.02) 81,948 (5.95)
- ------- (1) Assumes an immediate rate change of this magnitude. Provision and Allowance for Loan Losses Alabama National has policies and procedures for evaluating the overall credit quality of its loan portfolio including timely identification of potential problem credits. On a monthly basis, management reviews the appropriate level for the allowance for loan losses. This review and analysis is based on the results of the internal monitoring and reporting system, analysis of economic conditions in its markets and a review of historical statistical data, current trends regarding the volume and severity of past due and problem loans and leases, the existence and effect of concentrations of credit, and changes in national and local economic conditions for both Alabama National and other financial institutions. Management also considers in its evaluation of the adequacy of the allowance for loan losses the results of regulatory examinations conducted for each Bank, including evaluation of Alabama National's policies and procedures and findings from Alabama National's independent loan review department. The provision for loan losses increased by $1.4 million, or 57.5%, to $3.9 million in 2001, from $2.5 million in 2000. The increased provision during 2001 is attributable to an increase in potential problem loans, an increase in nonperforming loans, a higher level of net charge-offs, and growth in the loan portfolio. Management's periodic evaluation of the adequacy of the allowance for loan losses is based on Alabama National's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral, and an analysis of current economic conditions. Management believes the allowance for loan losses, at its current level, adequately covers Alabama National's exposure to loan losses. While management believes that it has established the allowance in accordance with accounting principles generally accepted in the United States of America and has taken into account the views of its regulators and the current economic environment, there can be no assurance that in the future Alabama National's regulators or its economic environment will not require further increases in the allowance. Additions to the allowance for loan losses, which are expensed as the provision for loan losses on Alabama National's income statement, are made periodically to maintain the allowance for loan losses at an appropriate level as determined by management. Loan losses and recoveries are charged or credited directly to the allowance for loan losses. 25 The following table presents the information associated with Alabama National's allowance and provision for loan losses for the dates indicated. ALLOWANCE FOR LOAN LOSSES (Amounts in thousands, except percentages)
Year ended December 31, ---------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- Total loans outstanding at end of period, net of unearned income(1).. $1,964,169 $1,710,810 $1,403,489 $1,147,100 $1,015,105 ========== ========== ========== ========== ========== Average amount of loans outstanding, net of unearned income(1)..... $1,790,083 $1,571,760 $1,264,689 $1,058,770 $ 951,298 ========== ========== ========== ========== ========== Allowance for loan losses at beginning of period................. $ 22,368 $ 19,111 $ 17,465 $ 15,780 $ 13,552 Charge-offs: Commercial, financial and agricultural..... 1,875 397 215 424 517 Real estate-- mortgage............. 730 145 403 215 533 Consumer.............. 754 884 694 1,254 1,886 ---------- ---------- ---------- ---------- ---------- Total charge-offs... 3,359 1,426 1,312 1,893 2,936 ---------- ---------- ---------- ---------- ---------- Recoveries: Commercial, financial and agricultural..... 949 167 188 1,027 1,085 Real estate-- mortgage............. 226 228 348 298 200 Consumer.............. 517 382 315 457 458 ---------- ---------- ---------- ---------- ---------- Total recoveries.... 1,692 777 851 1,782 1,743 ---------- ---------- ---------- ---------- ---------- Net charge-offs....... 1,667 649 461 111 1,193 Provision for loan losses................. 3,946 2,506 2,107 1,796 3,421 Changes incidental to acquisitions........... 3,872 1,400 -- -- -- ---------- ---------- ---------- ---------- ---------- Allowance for loan losses at period-end... $ 28,519 $ 22,368 $ 19,111 $ 17,465 $ 15,780 ========== ========== ========== ========== ========== Allowance for loan losses to period-end loans(1)............... 1.45% 1.31% 1.36% 1.52% 1.55% Net charge-offs to average loans(1)....... 0.09 0.04 0.04 0.01 0.13
- ------- (1) Does not include loans held for sale. Allocation of Allowance There is no formal allocation of the allowance for loan losses by loan category. 26 Nonperforming Assets The following table presents Alabama National's nonperforming assets for the dates indicated. NONPERFORMING ASSETS (Amounts in thousands, except percentages)
At December 31, 2001 ------------------------------------------- 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Nonaccrual loans................. $ 7,563 $ 3,642 $ 4,428 $ 4,768 $ 4,994 Restructured loans............... -- -- 5 499 1,052 Loans past due 90 days or more and still accruing.............. -- -- -- 13 14 ------- ------- ------- ------- ------- Total nonperforming loans...... 7,563 3,642 4,433 5,280 6,060 Other real estate owned.......... 1,680 1,468 867 1,234 1,801 ------- ------- ------- ------- ------- Total nonperforming assets..... $ 9,243 $ 5,110 $ 5,300 $ 6,514 $ 7,861 ======= ======= ======= ======= ======= Allowance for loan losses to period-end loans(1)............. 1.45% 1.31% 1.36% 1.52% 1.55% Allowance for loan losses to period-end nonperforming loans.. 377.09 614.17 431.11 330.78 260.40 Allowance for loan losses to period-end nonperforming assets.......................... 308.55 437.73 360.58 268.11 200.74 Net charge-offs to average loans(1) ....................... 0.09 0.04 0.04 0.01 0.13 Nonperforming assets to period- end loans and foreclosed property(1)..................... 0.47 0.30 0.38 0.57 0.77 Nonperforming loans to period-end loans(1)........................ 0.39 0.21 0.32 0.46 0.60
- ------- (1) Does not include loans held for sale. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. In addition to consideration of these factors, Alabama National's policy is to place all loans on nonaccrual status if they become 90 days or more past due, regardless of the collateral or the borrower's financial condition. When a loan is placed on nonaccrual status, all interest which is accrued on the loan is reversed and deducted from earnings as a reduction of reported interest. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. When a problem loan is finally resolved, there may ultimately be an actual writedown or charge-off of the principal balance of the loan which would necessitate additional charges to the allowance for loan losses. During the years ending December 31, 2001, 2000 and 1999, approximately $406,000, $498,000, and $407,000, respectively, in additional interest income would have been recognized in earnings if Alabama National's nonaccrual loans had been current in accordance with their original terms. Total nonperforming assets increased $4.1 million, to $9.2 million at December 3l, 2001, from $5.1 million at December 31, 2000. The increase in nonperforming assets is attributable to the current slowdown in the national economy and $1.1 million in nonperforming assets acquired in the Farmers National Bancshares, Inc. acquisition. Although the level of nonperforming assets has increased since year-end 2000, the current levels are still below industry averages. The allowance for loan losses to period-end nonperforming assets was 308.55% at December 31, 2001, compared with 437.73% at December 31, 2000. This ratio will generally fluctuate from period to period depending upon nonperforming asset levels at period end. Total nonperforming loans increased $3.9 million during 2001, to $7.6 million and other real estate owned increased $212,000, to $1.7 million at December 31, 2001. Potential Problem Loans A potential problem loan is one that management has concerns as to the borrower's future performance under terms of the loan contract. These loans are current as to principal and interest, and accordingly, they are not included in the nonperforming asset categories. Management monitors these loans closely in order to ensure that Alabama National's interests are protected. At December 31, 2001, Alabama National had certain loans considered by management to be potential problem loans totaling $75.8 million as compared with $28.2 million at December 31, 2000. This increase in 27 potential problem loans is attributable to $11.6 million in potential problem loans acquired in the Farmers National Bancshares, Inc. acquisition and the current slowdown in the national economy. Alabama National believes early identification of potential problem loans is an important factor in its ability to successfully collect such loans. As such, it encourages early identification of potential problem loans both with its loan officers and loan review staff. The level of potential problem loans is factored into the determination of the adequacy of the allowance for loan losses. Noninterest Income and Expense Noninterest income Alabama National relies on five distinct product lines for the production of recurring noninterest income: traditional retail and commercial banking, mortgage banking, securities brokerage and trust services, investment services, and insurance services. During 2001, Alabama National changed its reportable segment disclosure to present the combined results of operations for the securities brokerage and trust divisions into a consolidated segment. This change is due to the similar customer base and products offered by these divisions and reflects management's view that these formerly separate segments should be combined for both internal and external monitoring and reporting. Combined fees associated with Alabama National's five product lines totaled $41.6 million in 2001, compared with $27.5 million in 2000, an increase of $14.1 million, or 51.2%. An analysis of this increase is provided below. The following table sets forth, for the periods indicated, the principal components of noninterest income. NONINTEREST INCOME (Amounts in thousands)
Year ended December 31, ------------------------ 2001 2000 1999 ------- ------- ------- Service charges on deposit accounts................... $ 9,497 $ 8,304 $ 8,011 Investment division income............................ 13,717 5,867 6,624 Securities brokerage and trust income................. 8,800 7,692 5,897 Origination and sale of mortgage loans................ 7,431 3,531 3,993 Gain (loss) on disposal of assets and deposits........ 84 (19) 262 Securities gains (losses)............................. 246 (119) 196 Bank owned life insurance............................. 2,412 2,080 1,543 Insurance commissions................................. 2,126 2,099 1,068 Gain on pension curtailment........................... -- -- 819 Other................................................. 4,394 3,912 2,903 ------- ------- ------- Total noninterest income............................ $48,707 $33,347 $31,316 ======= ======= =======
28 Noninterest Expense The following table sets forth, for the periods indicated, the principal components of noninterest expense. NONINTEREST EXPENSE (Amounts in thousands)
Year ended December 31, ----------------------- 2001 2000 1999 ------- ------- ------- Salaries and employee benefits......................... $45,329 $39,017 $34,970 Commission based compensation.......................... 12,868 5,566 4,376 Net occupancy expense.................................. 9,722 8,906 7,884 Amortization of goodwill............................... 524 501 387 Advertising............................................ 1,254 1,039 1,133 Banking assessments.................................... 771 660 512 Core deposit amortization.............................. 627 377 197 Data processing expenses............................... 1,562 1,453 1,478 Legal and professional fees............................ 3,331 2,337 2,996 Net non-credit losses.................................. 339 136 206 Postage and courier services........................... 1,776 1,776 1,336 Supplies and printing.................................. 1,926 1,740 1,376 Telephone.............................................. 1,224 1,167 1,059 Other.................................................. 10,980 9,436 7,950 ------- ------- ------- Total noninterest expense............................ $92,233 $74,111 $65,860 ======= ======= =======
Noninterest expense increased $18.1 million, or 24.5%, to $92.2 million in 2001, from $74.1 million in 2000. Salaries and employee benefits increased $6.3 million, or 16.2%, in 2001. This increase reflects Alabama National's general growth in employment concurrent with its expansion of offices and business lines, its asset and revenue growth as well as salary increases reflecting employee performance, job duties, and competitive employment market conditions. Commission based compensation increased $7.3 million, or 131.2%, in 2001. The increase in commission based compensation is due to increased revenue production in mortgage, securities brokerage and investment divisions. Net occupancy expense increased $816,000, or 9.2%, in 2001. This increase during 2001 is attributable to a full year of occupancy expenses associated with branch expansion and acquisitions during 2000. Alabama National's Banks also opened three additional branches during 2001. Investment Services The following table sets forth, for the periods indicated, the summary of operations for the investment services division of Alabama National: INVESTMENT SERVICES DIVISION (Amounts in thousands)
Year ended December 31, --------------------- 2001 2000 1999 ------- ------ ------ Investment services revenue.............................. $13,717 $5,867 $6,624 Expenses and allocated charges........................... 10,334 5,377 5,957 ------- ------ ------ Net investment services revenue........................ $ 3,383 $ 490 $ 667 ======= ====== ======
National Bank of Commerce of Birmingham operates an investment department devoted primarily to handling correspondent banks' investment needs. Investment services revenue consists primarily of commission income from the sale of fixed income securities to correspondent banks. A small portion of investment services revenue is generated from fee based services including asset/liability consulting, bond accounting and security safekeeping. Investment services 29 revenue increased dramatically during 2001, to $13.7 million, or 133.8%, from $5.9 million in 2000. The substantial increase in revenue was due to increased liquidity of community banks served by this division and the decline of interest rates during 2001, both of which lead to increased demand for fixed income securities by its customers. Investment services revenue decreased $757,000, or 11.4%, to $5.9 million in 2000 from $6.6 million in 1999. The rising interest rate environment in early 2000 combined with strong loan demand in the economy reduced investors' demand for fixed income securities during 2000. These results include certain income and expense items that are allocated by management to the investment services areas of Alabama National. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. Securities Brokerage and Trust Division The following table sets forth, for the periods indicated, the summary of operations for the securities brokerage and trust division of Alabama National: SECURITIES BROKERAGE AND TRUST DIVISION (Amounts in thousands)
Year ended December 31, -------------------- 2001 2000 1999 ------ ------ ------ Securities brokerage and trust revenue.................... $8,800 $7,692 $5,897 Interest income........................................... 1,858 3,700 2,053 ------ ------ ------ Total securities brokerage and trust revenue............ 10,658 11,392 7,950 Interest expense.......................................... 407 1,805 955 Expenses and allocated charges............................ 8,836 7,579 5,430 ------ ------ ------ Net securities brokerage and trust revenue.............. $1,415 $2,008 $1,565 ====== ====== ======
National Bank of Commerce of Birmingham has a wholly owned subsidiary, NBC Securities, Inc. (NBC Securities), that is a full service licensed broker- dealer. The trust department of NBC and NBC Securities manage the assets of both corporate and individual customers located primarily in the markets served by Alabama National. The revenue generated by this division consists primarily of commission income generated from the sale of equity securities to individual and corporate customers, from fees paid for assets under management or custody and from fees related to investment consulting work performed for clients. NBC Securities also recognizes interest income from margin loans. Revenue for this division increased $1.1 million, or 14.4%, to $8.8 million in 2001. Securities brokerage and trust revenue increased $1.8 million, or 30.4%, to $7.7 million in 2000, from $5.9 million in 1999. The increase during both 2001 and 2000 is due to additional investment advisors and customer assets in custody or under management, and general expansion of securities brokerage services to other subsidiaries of Alabama National. During 2001, interest income decreased $1.8 million, to $1.9 million, due to decreased margin loan activity during the year. Interest income increased to $3.7 million in 2000, from $2.1 million in 1999 due to increased volume of margin loans. These results include certain income and expense items allocated by management to the securities and trust division. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. 30 Mortgage Lending Division The following table sets forth, for the periods indicated, the summary of operations for the mortgage lending division of Alabama National: MORTGAGE LENDING DIVISION (Amounts in thousands)
Year ended December 31, -------------------- 2001 2000 1999 ------ ------ ------ Origination and sale of mortgage loans(1)................. $7,660 $3,866 $4,240 Interest income........................................... 1,117 424 527 ------ ------ ------ Total revenue........................................... 8,777 4,290 4,767 Expenses and allocated charges............................ 5,548 3,061 3,391 ------ ------ ------ Net mortgage lending division revenue................... $3,229 $1,229 $1,376 ====== ====== ======
- ------- (1) Includes intercompany income allocated to mortgage lending division totaling $229,000, $335,000, and $247,000 at December 31, 2001, 2000 and 1999, respectively. Fees earned in connection with the origination and resale of mortgages increased $3.8 million, or 98.1%, to $7.7 million, from $3.9 million in 2000. This increase is primarily a result of falling interest rates and the impact the interest rate environment has on new mortgage origination activity and refinancing. Expenses and allocated charges totaled $5.5 million during 2001, representing an increase of $2.5 million from 2000. The increase is due to higher commission compensation and other expenses associated with a greater volume of origination activity. Fees charged in connection with the origination and resale of mortgage loans decreased $374,000, or 8.8%, to $3.9 million in 2000 from $4.2 million in 1999, due primarily to changing market conditions. As interest rates remained high in early 2000, mortgage origination volume declined. The expenses and allocated charges decreased by $330,000 to $3.1 million in 2000 from $3.4 million in 1999. The decrease was due to less mortgage origination volume. These results include certain income and expense items that are allocated by management to the mortgage lending area of Alabama National. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. Insurance Services Division The following table sets forth, for the periods indicated, a summary of operations for the insurance services division of Alabama National: INSURANCE SERVICES DIVISION (Amounts in thousands)
Year ended December 31, --------------------- 2001 2000 1999(1) ------ ------ ------- Commission income......................................... $2,126 $2,099 $1,068 Other income.............................................. 5 23 16 ------ ------ ------ Total revenue........................................... 2,131 2,122 1,084 Expenses and allocated charges............................ 2,113 1,851 884 ------ ------ ------ Net insurance division revenue.......................... $ 18 $ 271 $ 200 ====== ====== ======
- ------- (1) The insurance division was acquired in May 1999. Commission income earned from the sale of insurance products was approximately $2.1 million for each of 2001 and 2000. Alabama National purchased an existing insurance company in May of 1999 and since that time has been 31 establishing a network of salesmen in many of the markets served by Alabama National. This expansion has resulted in increased expenses as new employees are hired. Alabama National's plan is for these new hires to begin producing revenue exceeding their compensation and other expenses such that this expansion will eventually result in increased profitability from the insurance services division. These results include certain income and expense items that are allocated by management to the insurance services division of Alabama National. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. Earning Assets Loans Loans are the largest category of earning assets and typically provide higher yields than the other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks which management attempts to control and counterbalance. Total loans averaged $1.81 billion in 2001, compared to $1.58 billion in 2000, an increase of $233.8 million, or 14.8%. At December 31, 2001, total loans, net of unearned income, were $1.96 billion, compared to $1.71 billion at the end of 2000, an increase of $253.4 million, or 14.8%. The growth in Alabama National's loan portfolio is attributable to Alabama National's ability to attract new customers while maintaining consistent underwriting standards. Loan growth is also impacted by general economic conditions that may result in increased loan demand from existing customers. Also contributing to the loan growth during 2001 was the acquisition of Farmers National Bancshares, Inc., which had loans of approximately $103.1 million at the time of acquisition. The following table details the composition of the loan portfolio by category at the dates indicated. COMPOSITION OF LOAN PORTFOLIO (Amounts in thousands, except percentages)
December 31, ---------------------------------------------------------------------------------- 2001 2000 1999 1998 ------------------- ------------------- ------------------- ------------------- Percent Percent Percent Percent of of of of Amount Total Amount Total Amount Total Amount Total ---------- ------- ---------- ------- ---------- ------- ---------- ------- Commercial and financial.. $ 247,613 12.59% $ 275,107 16.07% $ 268,829 19.14% $ 263,102 22.91% Real estate: Construction........... 231,369 11.76 185,814 10.85 154,023 10.96 78,558 6.84 Mortgage--residential.. 546,730 27.80 490,152 28.63 392,986 27.98 318,745 27.76 Mortgage--commercial... 637,575 32.42 498,858 29.14 396,312 28.21 310,610 27.04 Mortgage--other........ 5,645 .29 4,238 .25 4,284 .30 3,824 .33 Consumer................ 82,909 4.22 79,458 4.64 76,150 5.42 79,106 6.89 Lease financing receivable.. 73,924 3.76 58,668 3.43 22,046 1.57 9,109 .79 Securities brokerage margin loans.................. 16,302 .83 29,901 1.75 22,551 1.61 30,025 2.61 Other................... 124,564 6.33 89,700 5.24 67,517 4.81 55,528 4.83 ---------- ------ ---------- ------ ---------- ------ ---------- ------ Total gross loans...... 1,966,631 100.00% 1,711,896 100.00% 1,404,698 100.00% 1,148,607 100.00% ====== ====== ====== ====== Unearned income......... (2,462) (1,086) (1,209) (1,507) ---------- ---------- ---------- ---------- Total loans, net of unearned income(1).... 1,964,169 1,710,810 1,403,489 1,147,100 Allowance for loan losses................. (28,519) (22,368) (19,111) (17,465) ---------- ---------- ---------- ---------- Total net loans(1)..... $1,935,650 $1,688,442 $1,384,378 $1,129,635 ========== ========== ========== ========== 1997 ------------------- Percent of Amount Total ---------- -------- Commercial and financial.. $ 212,678 20.91% Real estate: Construction........... 75,214 7.39 Mortgage--residential.. 317,275 31.19 Mortgage--commercial... 268,395 26.38 Mortgage--other........ 4,380 .43 Consumer................ 91,756 9.02 Lease financing receivable.. -- -- Securities brokerage margin loans.................. -- -- Other................... 47,609 4.68 ---------- -------- Total gross loans...... 1,017,307 100.00% ======== Unearned income......... (2,202) ---------- Total loans, net of unearned income(1).... 1,015,105 Allowance for loan losses................. (15,780) ---------- Total net loans(1)..... $ 999,325 ==========
- ------- (1) Does not include loans held for sale. In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. It is common practice for financial 32 institutions in Alabama National's market areas, and for Alabama National in particular, to obtain a security interest or lien in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. The principal component of Alabama National's loan portfolio is real estate mortgage loans. At year-end 2001, this category totaled $1.2 billion and represented 60.5% of the total loan portfolio, compared to $993.2 million, or 58.0%, of the total loan portfolio, at year-end 2000. Residential mortgage loans increased $56.6 million, or 11.5%, to $546.7 million at December 31, 2001, compared with $490.2 million at December 31, 2000. Commercial mortgage loans increased $138.7 million, or 27.8%, to $637.6 million at December 31, 2001. Increases in both of these categories of loans are primarily the result of Alabama National's expertise in and appetite for these commercial and residential real estate loans. In addition, the general economic conditions in Alabama National's markets, which generate such lending opportunities, are partially responsible for this growth. Real estate construction loans increased $45.6 million, or 24.5%, to $231.4 million at December 31, 2001, compared with $185.8 million at December 31, 2000. Alabama National's focus on the home construction market and strong construction activity in markets it serves caused this increase. Commercial and financial loans decreased $27.5 million, or 10.0% to $247.6 million at December 31, 2001. Alabama National's general preference for real estate collateral or liquid collateral over accounts receivable and inventory collateral is a factor in this decrease. Consumer loans increased $3.5 million, or 4.3%, during 2001 to $82.9 million, from $79.5 million in 2000. Lease financing receivables increased $15.3 million, or 26.0%, during 2001 to $73.9 million, from $58.7 million as a result of a successful marketing efforts and business development efforts of individuals in this area. Alabama National engages in no foreign lending operations. The repayment of loans is a source of additional liquidity for Alabama National. The following table sets forth Alabama National's loans maturing within specific intervals at December 31, 2001. LOAN MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES (Amounts in thousands)
December 31, 2001 ----------------------------------------- Over one year One year through five Over five or less years years Total -------- ------------- --------- -------- Commercial, financial and agricultural....................... $140,767 $ 99,725 $ 7,121 $247,613 Real estate--construction........... 161,757 52,612 17,000 231,369 Real estate--residential............ 130,153 163,234 253,343 546,730 Real estate--commercial............. 98,097 378,264 161,214 637,575 Consumer............................ 26,292 54,648 1,969 82,909
Predetermined Floating Rates Rates ------------- -------- Maturing after one year but within five years....... $577,961 $170,520 Maturing after five years........................... 112,804 327,845 -------- -------- $690,765 $498,365 ======== ========
The information presented in the above table is based upon the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review 33 and credit approval, as well as modification of terms upon their maturity. Consequently, management believes this treatment presents fairly the maturity and repricing structure of the loan portfolio. Securities Securities, including securities classified as held to maturity (or investment securities) and available for sale, represent a significant portion of Alabama National's earning assets. Securities averaged $449.9 million during 2001, compared with $365.3 million during 2000, an increase of $84.6 million, or 23.2%. Growth in the securities portfolio is generally a function of growth in funding sources net of lending opportunities and during 2001 as loan demand decreased Alabama National had excess liquidity to purchase securities. Management attempts to maintain earning asset growth commensurate with its funding growth and with its overall growth plans. During 2001, Alabama National experienced increasing liquidity and a reduction in its rate of loan growth (excluding loans acquired in the Farmers National Bancshares, Inc. acquisition) and increased the size of the securities portfolio through purchases. At December 31, 2001, the securities portfolio totaled $567.7 million, including securities held to maturity with an amortized cost of $234.8 million and securities available for sale with a market value of $332.9 million. The following tables set forth the carrying value of securities held by Alabama National at the dates indicated. INVESTMENT SECURITIES (Amounts in thousands)
December 31, --------------------------------- 2001 2000 ----------------- --------------- Cost Market Cost Market -------- -------- ------- ------- U.S. Treasury securities..................... $ -- $ -- $ -- $ -- U.S. Government Agencies..................... 2,252 2,327 3,263 3,263 State and political subdivisions............. 6,460 6,604 7,652 7,791 Mortgage backed securities................... 226,054 225,877 49,847 50,431 -------- -------- ------- ------- Total ................................... $234,766 $234,808 $60,762 $61,485 ======== ======== ======= =======
AVAILABLE FOR SALE SECURITIES (Amounts in thousands)
December 31, ----------------------------------- 2001 2000 ----------------- ----------------- Cost Market Cost Market -------- -------- -------- -------- U.S. Treasury securities................... $ 599 $ 618 $ 4,578 $ 4,586 U.S. Government Agencies................... 25,852 26,687 110,534 110,489 State and political subdivisions........... 28,606 29,003 25,291 25,632 Mortgage backed securities................. 259,761 260,214 175,317 173,862 Other...................................... 16,477 16,400 10,804 10,728 -------- -------- -------- -------- Total ................................. $331,295 $332,922 $326,524 $325,297 ======== ======== ======== ========
34 The following tables show the scheduled maturity and average yields of securities owned by Alabama National at December 31, 2001. INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS (Amounts in thousands, except yields)
December 31, 2001 -------------------------------------------------------------------------------- After one but After five but Within one Within Within ten After ten year five years years years Other securities -------------- -------------- -------------- -------------- ---------------- Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) ------ ------- ------ ------- ------ ------- ------ ------- -------- ------- U.S. Treasury securities............. $ -- $ -- $ -- $-- $ -- U.S. Government Agencies............... 2,252 6.33% State and political subdivisions........... 1,500 4.98% 3,855 5.34% 1,105 5.07 Mortgage backed securities............. -- -- -- -- $226,054 6.50% ------ ------ ------ ---- --- -------- ---- Total ............... $1,500 4.98% $6,107 5.71% $1,105 5.07% $-- $226,054 6.50% ====== ==== ====== ==== ====== ==== ==== === ======== ====
- ------- (1) Computed on a tax-equivalent basis utilizing a 34% tax rate, without giving effect to the disallowance for Federal income tax purposes of interest related to certain tax-exempt assets. SECURITIES AVAILABLE FOR SALE MATURITY DISTRIBUTION AND YIELDS (Amounts in thousands, except yields)
December 31, 2001 ---------------------------------------------------------------------------------- After one but After five but Within one Within Within ten After ten year five years years years Other securities -------------- --------------- --------------- -------------- ---------------- Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) ------ ------- ------- ------- ------- ------- ------ ------- -------- ------- U.S. Treasury securities............. $ 253 6.55% $ 365 5.89% $ -- $ -- $ -- U.S. Government Agencies............... 1,019 6.04 20,406 6.77 5,262 6.48% State and political subdivisions........... 1,462 4.33 10,435 5.09 10,492 4.89 6,614 5.06% Mortgage backed securities............. 260,214 6.54% Equity securities....... -- -- -- -- 16,400 6.36 ------ ------- ------- ------ -------- ---- Total ............... $2,734 5.17% $31,206 6.20% $15,754 5.42% $6,614 5.06% $276,614 6.53% ====== ==== ======= ==== ======= ==== ====== ==== ======== ====
- ------- (1) Computed on a tax-equivalent basis utilizing a 34% tax rate, without giving effect to the disallowance for Federal income tax purposes of interest related to certain tax-exempt assets. At December 31, 2001, mortgage-backed securities consisting of collateralized mortgage obligations and pass-through mortgage obligations had a carrying value totaling $486.3 million. These mortgage-backed securities include $226.1 million classified as investment securities and $260.2 million classified as securities available for sale. Management expects the annual repayment of the underlying mortgages to vary as a result of monthly repayment of principal and/or interest required under terms of the underlying promissory notes. Further, the actual rate of repayment is subject to changes depending upon both the terms of the underlying mortgages and the relative level of mortgage interest rates. When relative interest rates decline to levels below that of the underlying mortgages, acceleration of principal repayment is expected as some borrowers on the underlying mortgages refinance to lower rates. When the underlying rates on mortgage loans are comparable to, or in excess of, market rates, repayment more closely conforms to scheduled amortization in accordance with terms of the promissory note. Accordingly, management generally expects repayment of the collateralized mortgage obligations over a three to five year period, and repayment of the pass- through mortgage obligations over a five to seven year period. 35 Other attributes of securities are discussed in "Interest Sensitivity and Market Risk." Short-Term Investments Alabama National utilizes overnight investment of funds in Federal funds sold and securities purchased under agreements to resell to ensure that adequate liquidity will be maintained, while at the same time minimizing the level of uninvested cash reserves. Short-term investments are also utilized by Alabama National when the level of funds committed to lending and investment portfolio programs changes or the level of deposit generation changes. During 2001, Federal funds sold and securities purchased under agreements to resell averaged $46.6 million, compared to $41.9 million during 2000, representing a $4.8 million, or 11.4% increase, as Alabama National experienced increased liquidity due to paydowns on mortgage backed securities, deposit and other funding growth. Trading Account Securities An important aspect of investment department operations, but less so to Alabama National in total, are trading account securities, which represent securities owned by Alabama National prior to sale and delivery to Alabama National's customers. Trading account securities averaged $2.0 million in 2001, and totaled $1.3 million at December 31, 2001, compared with an average of $1.8 million in 2000, and $0.6 million at December 31, 2000. This small dollar amount reflects management's policy of limiting positions in such securities to reduce its exposure to market and interest rate changes. Deposits and Other Interest-Bearing Liabilities Average interest-bearing liabilities increased $285.8 million, or 16.3%, to $2.04 billion in 2001, from $1.76 billion in 2000. Average interest-bearing deposits increased $153.2 million, or 10.7%, to $1.59 billion in 2001, from $1.44 billion in 2000. This increase is attributable to competitive rate and product offerings by Alabama National and successful marketing efforts. Average Federal funds purchased and securities sold under agreements to repurchase increased $83.1 million, or 53.2%, to $239.3 million in 2001, from $156.2 million in 2000, due in part, to additional liquidity provided by downstream correspondent banks. Average short-term borrowings decreased by $22.2 million, or 34.1%, to $42.9 million in 2001, compared to $65.0 million in 2000. Average long-term borrowings increased $71.7 million, to $168.9 million in 2001, from $97.2 million in 2000. The increase in the combined short and long-term average debt outstanding is due to utilizing more borrowing programs offered to Alabama National's Federal Home Loan Bank member subsidiaries. Deposits Average total deposits increased $175.6 million, or 10.5%, to $1.85 billion during 2001, from $1.68 billion during 2000. At December 31, 2001, total deposits were $2.07 billion, compared with $1.81 billion at December 31, 2000. Of this $259.7 million increase in deposits, approximately $175.5 million were added as a result of the acquisition of Farmers National Bank of Opelika. The following table sets forth the deposits of Alabama National by category at the dates indicated. DEPOSITS (Amounts in thousands, except percentages)
December 31, -------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ------------------ ------------------ ------------------ ------------------ ------------------ Percent Percent Percent Percent Percent of of of of of Amount Total Amount Total Amount Total Amount Total Amount Total ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- Demand.................. $ 306,319 14.82% $ 244,400 13.52% $ 227,442 14.87% $ 245,955 18.29% $ 189,973 15.95% NOW .................... 384,355 18.60 290,471 16.07 224,037 14.65% 193,196 14.36 160,686 13.49 Savings and money market................. 373,309 18.06 312,886 17.31 315,291 20.62% 317,188 23.58 308,238 25.88 Time less than $100,000............... 668,819 32.36 659,370 36.50 525,788 34.38% 429,174 31.91 400,071 33.60 Time greater than $100,000............... 333,957 16.16 299,968 16.60 236,693 15.48% 159,504 11.86 131,972 11.08 ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ Total deposits.......... $2,066,759 100.00% $1,807,095 100.00% $1,529,251 100.00% $1,345,017 100.00% $1,190,940 100.00% ========== ====== ========== ====== ========== ====== ========== ====== ========== ======
36 Core deposits, which exclude time deposits of $100,000 or more, provide for a relatively stable funding source that supports earning assets. Alabama National's core deposits totaled $1.73 billion, or 83.8%, of total deposits at December 31, 2001, and totaled $1.51 billion, or 83.4%, of total deposits at December 31, 2000. Deposits, in particular core deposits, have historically been Alabama National's primary source of funding and have enabled Alabama National to meet successfully both short-term and long-term liquidity needs. Management anticipates that such deposits will continue to be Alabama National's primary source of funding in the future, although economic factors could effect this funding source. Alabama National's loan-to-deposit ratio was 95.0% at December 31, 2001, and 94.7% at the end of 2000, and the ratio averaged 97.7% during 2001 and 94.0% during 2000. These increases in Alabama National's loan-to- deposit ratio are due to loan growth exceeding deposit growth in 2001. The maturity distribution of Alabama National's time deposits in excess of $100,000 at December 31, 2001, is shown in the following table. MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS OF $100,000 OR MORE (Amounts in thousands)
December 31, 2001 --------------------------------------------------------------- After After One Six One Greater Within Through After Three Through Through Than One Three Through Six Twelve Three Three Month Months Months Months Years Years Total ------- --------- ----------- -------- ------- ------- -------- Certificates of deposit of $100,000 or more.... $36,165 $43,433 $58,066 $ 92,505 $23,117 $9,206 $262,492 Other time deposits of $100,000 or more....... 5,690 23,995 5,000 19,212 17,568 -- 71,465 ------- ------- ------- -------- ------- ------ -------- Total ............... $41,855 $67,428 $63,066 $111,717 $40,685 $9,206 $333,957 ======= ======= ======= ======== ======= ====== ========
Approximately 32.8% of Alabama National's time deposits over $100,000 had scheduled maturities within three months. Large certificate of deposit customers tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits. Alabama National had $39.0 million in large certificates of deposit obtained through brokers outstanding at December 31, 2001, compared to $87.1 million at December 31, 2000. Alabama National's use of brokered time deposits fluctuates depending upon funding needs and the pricing and maturity structure of brokered deposits versus other funding sources, including in- market time deposits. Borrowed Funds Borrowed funds include five broad categories; (i) Federal funds purchased and securities sold under agreements to repurchase, (ii) treasury, tax and loan balances, (iii) Federal Home Loan Bank ("FHLB") borrowings, (iv) borrowings from a third party bank, and (v) proceeds of trust preferred securities. Because of a relatively high loan-to-deposit ratio, the existence and stability of these funding sources are critical to Alabama National's maintenance of short-term and long-term liquidity. Federal funds purchased and securities sold under agreements to repurchase represent both an input of excess funds from correspondent bank customers of Alabama National as well as a cash management tool offered to corporate customers. At December 31, 2001, these funds totaled $240.1 million, compared with $166.6 million at December 31, 2000. This balance will vary greatly depending on the liquidity of the downstream correspondent banks of Alabama National and the excess cash of its corporate customers. At December 31, 2001, treasury, tax and loan balances totaled $3.5 million, compared to $0.9 million at December 31, 2000. Alabama National collects tax deposits from customers and is permitted to retain these balances until established collateral limits are exceeded or until the U.S. Treasury withdraws its balances. Alabama National's average borrowing from a third party bank under a $35 million credit facility ("the Credit Facility") was $28.1 million during 2001, compared with $20.8 million during 2000. As of December 31, 2001, the outstanding balance under the Credit Facility was $16.4 million, leaving a remaining availability under the Credit Facility 37 of $18.7 million. The increased average borrowings under this facility are primarily attributable to the acquisition of two banks during 2001 and the associated merger related expenses. Also, the Farmers National Bancshares, Inc. acquisition allowed Farmers National shareholders the option to receive a portion of their acquisition consideration in cash instead of Alabama National common stock. Alabama National issued approximately $1.1 million to Farmers National shareholders making such election. The Credit Facility bears interest at a rate that varies with LIBOR and is secured by a pledge of stock in the Banks. The Credit Facility is typically renewed on an annual basis and has a current maturity date of May 31, 2002. Alabama National has historically renewed the Credit Facility prior to its due date and anticipates doing so again in 2002. All of the Banks are members of the FHLB. At December 31, 2001, these Banks had available FHLB lines of $308.7 million, under which $246.0 million was outstanding, including advances classified as short-term of $52.0 million and advances classified as long-term of $194.0 million. This compares to borrowings of $147.7 million at December 31, 2000, of which $64.0 million was short-term and $83.7 million was long-term. The increase borrowings from the FHLB is attributable to the continued increase in interest bearing assets of Alabama National, as other funding sources such as deposit liabilities were unable to support such growth. On December 18, 2001, Alabama National, through its wholly owned subsidiary, Alabama National Statutory Trust I, issued Floating Rate Capital Securities, commonly known as trust preferred securities, in the principal amount of $15.0 million. The securities pay distributions at a rate that varies with LIBOR. They are classified as long-term debt for the financial statements but are included as capital for regulatory purposes. The net proceeds of the trust preferred securities issued were used to reduce the Company's balance under the Credit Facility. 38 The following table sets forth, for the periods indicated, the principal components of borrowed funds. BORROWED FUNDS (Amounts in thousands, except percentages)
December 31, ---------------------------- 2001 2000 1999 -------- -------- -------- Federal funds purchased and securities sold under agreements to repurchase: Balance at end of period.................. $240,060 $166,580 $133,733 Average balance outstanding............... 239,293 156,204 147,621 Maximum outstanding at any month's end.... 319,333 183,749 178,485 Weighted average interest rate at period- end...................................... 1.56% 5.85% 5.05% Weighted average interest rate during the period................................... 3.63 5.96 4.97 Treasury, tax and loan: Balance at end of period.................. $ 3,490 $ 900 $ 6,199 Average balance outstanding............... 1,263 1,882 2,414 Maximum outstanding at any month's end.... 3,490 4,932 6,199 Weighted average interest rate at period- end...................................... 1.29% 5.63% 5.00% Weighted average interest rate during the period................................... 3.25 6.16 4.18 Notes Payable: Balance at end of period.................. $ 16,350 $ 27,439 $ 16,389 Average balance outstanding............... 28,081 20,842 13,410 Maximum outstanding at any month's end.... 30,100 27,439 16,389 Weighted average interest rate at period- end...................................... 2.68% 7.41% 7.21% Weighted average interest rate during the period................................... 4.82 7.33 6.09 Short-term advances from the Federal Home Loan Bank: Balance at end of period.................. $ 52,000 $ 64,000 $ 8,000 Average balance outstanding............... 13,506 42,297 12,540 Maximum outstanding at any month's end.... 67,000 77,000 38,000 Weighted average interest rate at period- end...................................... 2.16% 5.84% 5.80% Weighted average interest rate during the period................................... 3.31 6.80 4.99 Long-term advances from the Federal Home Loan Bank: Balance at end of period.................. $194,000 $ 83,700 $123,700 Average balance outstanding............... 168,116 96,898 58,150 Maximum outstanding at any month's end.... 194,000 123,700 123,700 Weighted average interest rate at period- end...................................... 3.83% 5.99% 5.30% Weighted average interest rate during the period................................... 4.99 5.75 5.18 Trust preferred securities: Balance at end of period.................. $ 15,000 $ -- $ -- Average balance outstanding............... 575,342 Maximum outstanding at any month's end.... 15,000 Weighted average interest rate at period- end...................................... 5.60% Weighted average interest rate during the period................................... 5.60 Capital leases: Balance at end of period.................. $ 77 $ 197 $ 266 Average balance outstanding............... 165 264 295 Maximum outstanding at any month's end.... 191 266 324 Weighted average interest rate at period- end...................................... 9.55% 9.34% 9.20% Weighted average interest rate during the period................................... 9.09 9.34 9.15
39 Capital Resources and Liquidity Management Capital Resources Alabama National's stockholder's equity increased by $36.3 million from December 31, 2000, to $207.9 million at December 31, 2001. This increase was attributable to the following (in thousands): Net income........................................................ $28,415 Dividends......................................................... (11,003) Purchase of treasury stock........................................ (663) Issuance of stock from treasury................................... 372 Changes incidental to merger ..................................... (10) Issuance of stock in purchase business combinations............... 16,232 Change in unrealized loss on securities available for sale, net of deferred taxes................................................... 1,872 Additional paid in capital related to stock based compensation.... 1,067 ------- Net increase...................................................... $36,282 =======
During the third quarter of 2001, the Board of Directors of Alabama National authorized the repurchase of up to 300,000 shares of Alabama National's common stock. As of December 31, 2001, 21,000 shares had been repurchased under this plan. Under the capital guidelines of their regulators, Alabama National and the Banks are currently required to maintain a minimum risk-based total capital ratio of 8%, with at least 4% being Tier I capital. Tier I capital consists of common stockholders' equity, qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill. In addition, under the guidelines, Alabama National and the Banks must maintain a minimum Tier I leverage ratio of Tier I capital to total assets of at least 3%, but this minimum ratio is typically increased by 100 to 200 basis points for other than the highest rated institutions. Alabama National exceeded its fully phased-in regulatory capital ratios at December 31, 2001, 2000 and 1999, as set forth in the following table. ANALYSIS OF CAPITAL (Amounts in thousands, except percentages)
December 31, ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- Tier 1 Capital............................ $ 203,527 $ 158,781 $ 143,191 Tier 2 Capital............................ 25,654 22,368 18,929 ---------- ---------- ---------- Total qualifying capital(1)(2).......... $ 229,181 $ 181,149 $ 162,003 ========== ========== ========== Risk-adjusted total assets (including off- balance sheet exposures)................. $2,049,456 $1,791,433 $1,514,074 Tier 1 risk-based capital ratio (4.00% required minimum)........................ 9.92% 8.86% 9.46% Total risk-based capital ratio (8.00% required minimum)........................ 11.17 10.11 10.70 Tier 1 leverage ratio (4.00% required minimum)................................. 7.61 6.83 7.23
- ------- (1) Does not include $2,865,000 and $182,000 of the Company's allowance for loan losses at December 31, 2001 and 1999, respectively, in excess of 1.25% of risk-adjusted total assets. (2) Does not include capital of an unconsolidated subsidiary at December 31, 1999. 40 Each of the Banks is required to maintain risk-based and leverage ratios similar to those required for Alabama National. Each of the Banks exceeded these regulatory capital ratios at December 31, 2001, as set forth in the following table: BANK CAPITAL RATIOS
Tier 1 Risk Total Risk Tier 1 Based Based Leverage ----------- ---------- -------- Alabama National BanCorporation................ 9.92% 11.17% 7.61% National Bank of Commerce of Birmingham........ 10.60 11.83 7.72 Alabama Exchange Bank.......................... 13.42 14.67 7.36 Bank of Dadeville.............................. 11.69 12.94 8.17 Citizens & Peoples Bank, N.A................... 8.85 10.10 6.90 Community Bank of Naples, N.A.................. 8.85 10.10 6.91 First American Bank............................ 9.73 10.98 9.69 First Citizens Bank............................ 13.67 14.86 7.17 First Gulf Bank................................ 10.12 11.37 7.21 Georgia State Bank............................. 11.12 12.28 6.88 Public Bank.................................... 9.88 11.06 7.97 Peoples State Bank of Groveland................ 10.25 11.50 7.35 Required minimums.............................. 4.00 8.00 4.00
Liquidity Management Liquidity management involves monitoring Alabama National's sources and uses of funds in order to meet its day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of an entity to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Without proper liquidity management, Alabama National will not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. Increased liquidity in typical interest rate environments often involves decreasing profits by investing in earning assets with shorter maturities. Liquidity management is made more complex because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of certain securities within the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control. Assets included in Alabama National's Consolidated Statements of Condition contribute to liquidity management. Federal funds sold and securities purchased under agreements to resell, Alabama National's primary source of liquidity, averaged $46.6 million during 2001 and was $32.2 million at December 31, 2001, and averaged $41.9 million during 2000 and was $30.3 million at December 31, 2000. If required in short-term liquidity management, these assets could be converted to cash immediately. Cash received from the repayment of investment securities and loans provides a repetitive source of cash that contributes to liquidity management. Unpledged securities, with a carrying value of approximately $157.8 million at December 31, 2001, provide Alabama National an opportunity to generate cash by, 1) providing additional collateral by selling securities under agreements to repurchase, 2) providing collateral to obtain public funds or 3) providing collateral to borrow directly from the Federal Reserve Bank or the Federal Home Loan Bank. See "Earning Assets --Loans" and "Earning Assets--Securities." Liquidity can also be managed using liabilities included in Alabama National's Consolidated Statement of Condition, such as Federal funds purchased and securities sold under agreements to repurchase and short-term borrowing. Combined Federal funds purchased and securities sold under agreements to repurchase, treasury, tax and loan, and short-term borrowings averaged $282.1 million during 2001 and were $311.9 million at December 31, 2001, and averaged 41 $221.2 million during 2000 and were $258.9 million at December 31, 2000. Overnight borrowing lines with upstream correspondent banks, $125.7 million at December 31, 2001, of which $85.7 million was unused, provide additional sources of liquidity to Alabama National on an unsecured basis. The Federal Home Loan Bank provides secured and unsecured credit lines to all of Alabama National's Banks totaling approximately $308.7 million. At December 31, 2001, advances under these lines totaled $246.0 million, including $52.0 million classified as short-term and $194.0 million classified as long-term. Long-term liquidity needs are met through Alabama National's deposit base (approximately 83.8% of Alabama National's deposits at December 31, 2001, are considered core deposits), and the repayment of loans and other investments as they mature. Alabama National is able to manage its long-term liquidity needs by adjusting the rates it pays on longer-term deposits and the amount and mix of longer- term investments in its portfolio. One of the Banks, NBC, has pledged approximately $205.1 million in loans to the Federal Reserve Bank of Atlanta as collateral for a discount window credit facility, which management views as a backup liquidity facility. At December 31, 2001, NBC had access to approximately $145.4 million under this facility, with no outstanding borrowings. Alabama National, as a stand-alone corporation, has more limited access to liquidity sources than its Banks and depends on dividends from its subsidiaries as its primary source of liquidity. Alabama National's liquidity is diminished by required payments on its outstanding short-term debt and trust preferred securities. The ability of its subsidiaries to pay dividends is subject to general regulatory restrictions, which may, but are not expected to, have a material negative impact on the liquidity available to Alabama National. (See Note 16 to the Alabama National's Consolidated Financial Statements included in this Annual Report.) If circumstances warrant, Alabama National's short-term liquidity needs can also be met by additional borrowings of approximately $18.7 million representing the unused portion of Alabama National's credit facility with an unrelated bank. See "Deposits and Other Interest-Bearing Liabilities--Borrowed Funds." Contractual Obligations Alabama National has contractual obligations to make future payments on debt and lease agreements. Long-term debt, capital leases and trust preferred securities are reflected on the consolidated statements of financial condition, whereas, operating lease obligations for office space and equipment are not recorded on the consolidated statements of financial condition. These types of obligations are more fully discussed in Notes 8 and 9 of the consolidated financial statements. Total contractual obligations of Alabama National as of December 31, 2001, are as follows. CONTRACTUAL OBLIGATIONS (Amounts in thousands)
As of December 31, 2001 -------------------------------------------- Due in Due after Due after 1 year 1 year 3 years Due or through 3 through 5 after 5 less years years years Total ------ --------- --------- -------- -------- Long-term debt and capital leases.......................... $ 204 $35,419 $10,008 $149,000 $194,631 Trust preferred securities....... -- -- -- 15,000 15,000 Operating lease obligations...... 1,823 3,642 3,454 18,110 27,029 ------ ------- ------- -------- -------- Total contractual obligations.. $2,027 $39,061 $13,462 $182,110 $236,660 ====== ======= ======= ======== ========
42 Credit Extension Commitments Many of Alabama National's lending relationships, including those with commercial and consumer customers, contain both funded and unfunded elements. The unfunded component of these commitments is not recorded on Alabama National's consolidated statements of financial condition. These commitments are more fully discussed in Note 10 of the consolidated financial statements. The table below summarizes the total unfunded credit extension, or off-balance sheet, commitment amounts by expiration date. CREDIT EXTENSION COMMITMENTS (Amounts in thousands)
As of December 31, 2001 ----------------------------------------------- Due after Due after Due in 1 year 3 years 1 year through 3 through 5 Due after or less years years 5 years Total -------- --------- --------- --------- -------- Unfunded lines................. $309,655 $83,744 $28,721 $80,139 $502,259 Letters of credit.............. 8,763 7,615 -- -- 16,378 -------- ------- ------- ------- -------- Total credit extension commitments................. $318,418 $91,359 $28,721 $80,139 $518,637 ======== ======= ======= ======= ========
Accounting Rule Changes Business Combinations and Goodwill and Other Intangibles In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations ("Statement 141"), and No. 142, Goodwill and Other Intangible Assets ("Statement 142"). Statement 141 supercedes Accounting Principles Board Opinion (APB) No. 16, Business Combinations. The provisions of Statement 141 (1) require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill, and (3) require that unamortized negative goodwill be written off immediately as an extraordinary gain instead of being deferred and amortized. Statement 141 also requires that upon adoption of Statement 142 the Company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria. Statement 142 supercedes APB 17, Intangible Assets, and is effective for fiscal years beginning after December 15, 2001. Statement 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. The provisions of Statement 142 (1) prohibit the amortization of goodwill and indefinite-lived intangible assets, (2) require that goodwill and indefinite-lived intangible assets be tested annually for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill and/or indefinite- lived intangible assets may be impaired), (3) require that reporting units be identified for the purpose of assessing potential future impairments of goodwill, and (4) remove the forty-year limitation on the amortization period of intangible assets that have finite lives. The provisions of the Standards also apply to equity-method investments made before and after June 30, 2001. Statement 141 requires that the unamortized deferred credit related to an excess over cost arising from an investment that was accounted for using the equity method (equity-method negative goodwill), and that was acquired before July 1, 2001, must be written-off immediately and recognized as the cumulative effect of a change in accounting principle. Equity-method negative goodwill arising from equity investments made after June 30, 2001 must be written-off immediately and recorded as on extraordinary gain, instead of being deferred and amortized. Statement 142 prohibits amortization of the excess of cost over the underlying equity in the assets of an equity-method investee that is recognized as goodwill. Alabama National will adopt the provisions of Statement 142 in its first quarter ended March 31, 2002. Alabama National is in the process of preparing for its adoption of Statement 142 and is making the determinations as to what its reporting units are and what amounts of goodwill, intangible assets, other assets, and liabilities should be allocated to 43 those reporting units. In connection with the adoption of Statement 142, Alabama National does not expect to reclassify any balances between goodwill and other intangible assets. Alabama National expects that it will no longer record approximately $506,000 of amortization expense relating to existing goodwill and indefinite-lived intangibles. Alabama National will also evaluate the useful lives assigned to its intangible assets and does not anticipate any changes to the useful lives currently assigned. Statement 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. However, Statement 142 allows a company six months from the date of adoption to complete the first step. Alabama National expects to complete the first step of the goodwill impairment test during the first quarter of 2002. The second step of the goodwill impairment test measures the amount of impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by December 31, 2002. Intangible assets deemed to have an indefinite life will be tested for impairment using a one-step process, which compares the fair value to the carrying amount of the assets as of the beginning of the fiscal year, and pursuant to the requirements of Statement 142 will be completed during the first quarter of 2002. Any impairment loss resulting from the transitional impairment tests will be reflected as the cumulative effect of a change in accounting principle in the first quarter of 2002. Alabama National has not yet determined what effect these impairment tests will have on earnings and financial position. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--A Replacement of FASB Statement No. 125 Effective January 1, 2001, Alabama National adopted Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--A Replacement of FASB Statement No. 125 ("Statement 140"). Statement 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of Statement 140 did not have a material impact on Alabama National's financial statements since the Company has not entered into any securitization or asset transfer transactions. Derivative Investments and Hedging Activities Effective January 1, 2001, Alabama National adopted Statement of Financial Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, ("Statement 133"). Statement 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative instrument as a hedging instrument. Statement 133 generally provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of (a) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. Statement 133, as amended by Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, and by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities-- An Amendment of SFAS No. 133, is effective for fiscal years beginning after June 15, 2000, and is effective for interim periods in the initial year of adoption. Alabama National's derivative activities at December 31, 2001 relate solely to the interest rate lock commitments (IRLCs), which Alabama National has entered into with certain customers for specific short-term periods of time. These IRLCs relate to prospective mortgage loans, which Alabama National originates and then immediately transfers to secondary mortgage servicers. The transfer of these IRLCs allows Alabama National to pass financial risk associated with potential changes in interest rates on to secondary mortgage servicers. Alabama National also reduces its financial risk associated with mortgage lending by utilizing "best efforts" agreements with secondary mortgage servicers. These arrangements relieve Alabama National of its obligation to deliver if a mortgage loan fails to close. The adoption of Statement 133 did not have a material impact on the financial position or results of operations of Alabama National, as of and for the period ended December 31, 2001. Impact of Inflation Unlike most industrial companies, the assets and liabilities of financial institutions such as Alabama National and its subsidiaries are primarily monetary in nature. Therefore, interest rates have a more significant effect on Alabama 44 National's performance than do the effects of changes in the general rate of inflation and change in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Management seeks to manage the relationships between interest- sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation. See "Interest Sensitivity and Market Risk." Industry Developments Certain recently enacted and proposed legislation could have an effect on both the costs of doing business and the competitive factors facing the financial institutions industry. Alabama National is unable at this time to assess the impact of this legislation on its financial condition or results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is contained in Item 7 herein under the heading "Interest Sensitivity and Market Risk". ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements and Financial Statement Schedules of Alabama National BanCorporation and subsidiaries listed in ITEM 14(a) have been included in this Annual Report beginning at page F-1 and should be referred to in their entirety. The Supplementary Financial Information required by Item 302 of Regulation S-K is set forth below. SELECTED QUARTERLY FINANCIAL DATA (Amounts in thousands, except per share data) (Unaudited)
2001 Quarters 2000 Quarters ------------------------------------------- ------------------------------------------- First Second Third Fourth First Second Third Fourth ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Summary of Operations: Interest income........ $ 45,825 $ 45,207 $ 44,885 $ 43,620 $ 38,259 $ 41,396 $ 44,669 $ 46,898 Interest expense....... 25,486 24,054 22,344 18,509 19,111 21,393 24,220 26,263 Net interest income.... 20,339 21,153 22,541 25,111 19,148 20,003 20,449 20,635 Provision for loan losses................ 593 701 919 1,733 566 697 490 753 Securities gains (losses).............. -- -- 91 155 -- -- 1 (120) Noninterest income..... 11,807 11,408 11,644 13,602 7,794 7,825 8,358 9,489 Noninterest expense.... 22,959 21,689 22,349 25,261 17,761 18,095 18,796 19,485 Net income............. 5,843 6,976 7,508 8,088 5,956 6,218 6,556 6,788 Dividends on common stock................. 2,712 2,722 2,729 2,840 2,324 2,324 2,320 2,321 Per Common Share Data: Book Value............. $ 15.07 $ 15.44 $ 15.97 $ 16.84 $ 12.66 $ 12.91 $ 13.75 $ 14.56 Tangible book value.... 13.93 14.33 14.88 15.31 11.77 12.02 12.51 13.34 Net income (diluted)... 0.49 0.58 0.62 0.66 0.50 0.52 0.55 0.57 Dividends declared..... 0.23 0.23 0.23 0.23 0.21 0.21 0.21 0.21 Balance Sheet Highlights At Period-End: Total assets........... $2,516,285 $2,593,867 $2,653,918 $2,843,467 $2,094,382 $2,179,112 $2,308,946 $2,358,285 Securities(1).......... 410,509 428,430 470,919 567,688 368,114 358,338 352,243 386,059 Loans held for sale.... 27,438 21,197 17,582 36,554 7,478 7,126 8,761 5,226 Loans, net of unearned income................ 1,725,746 1,787,168 1,829,925 1,964,169 1,465,540 1,568,132 1,684,777 1,710,810 Allowance for loan losses................ 22,798 23,277 23,371 28,519 19,639 20,271 22,051 22,368 Deposits............... 1,879,309 1,868,452 1,868,934 2,066,759 1,626,819 1,642,669 1,806,765 1,807,095 Short-term debt........ 33,000 30,000 34,600 68,350 24,389 92,389 80,589 91,439 Long-term debt......... 147,906 159,185 189,104 209,631 123,986 80,968 78,948 83,926 Stockholders' equity... 177,766 182,729 189,480 207,886 149,448 151,973 162,055 171,604
- ------- (1) Does not include trading securities. 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item regarding Executive Officers is included in Part I of this Form 10-K under the caption "Executive Officers of the Registrant" in accordance with Instruction 3 of the Instructions to Paragraph (b) of Item 401 of Regulation S-K. The information required by this Item regarding directors is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Alabama National's definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Alabama National's definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Alabama National's definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Alabama National's definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A. 46 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1)and (2) and (d)--Financial Statements and Financial Statement Schedules. Financial Statements: The Consolidated Financial Statements of Alabama National and its subsidiaries, included herein (beginning on page F-1), are as follows: Report of Independent Auditors--PricewaterhouseCoopers LLP Consolidated Statements of Condition--December 31, 2001 and 2000 Consolidated Statements of Income--Years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Changes in Stockholders' Equity--Years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows--Years ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements Financial Statement Schedules: All schedules to the consolidated financial statements required by Article 9 of Regulation S-X are inapplicable and therefore have been omitted. (b) Reports on Form 8-K. None. (c) Exhibits. The exhibits listed on the exhibit index on page 50 of this Form 10-K are filed herewith or are incorporated herein by reference. 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this the 13th day of March, 2002. ALABAMA NATIONAL BANCORPORATION /s/ John H. Holcomb, III By: ____________________________________ John H. Holcomb, III, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ John H. Holcomb, III Chairman and Chief Executive March 13, 2002 ____________________________________ Officer (principal John H. Holcomb, III executive officer) /s/ Victor E. Nichol, Jr. Vice Chairman and Director March 13, 2002 ____________________________________ Victor E. Nichol, Jr. /s/ Richard Murray, IV President and Chief March 13, 2002 ____________________________________ Operating Officer Richard Murray, IV /s/ William E. Matthews, V Executive Vice President and March 13, 2002 ____________________________________ Chief Financial Officer William E. Matthews, V /s/ Shelly S. Williams Senior Vice President and March 13, 2002 ____________________________________ Controller (principal Shelly S. Williams accounting officer) /s/ W. Ray Barnes Director March 14, 2002 ____________________________________ W. Ray Barnes /s/ T. Morris Hackney Director March 13, 2002 ____________________________________ T. Morris Hackney /s/ John D. Johns Director March 15, 2002 ____________________________________ John D. Johns /s/ John J. McMahon, Jr. Director March 13, 2002 ____________________________________ John J. McMahon, Jr. /s/ C. Phillip McWane Director March 14, 2002 ____________________________________ C. Phillip McWane /s/ Drayton Nabers, Jr. Director March 15, 2002 ____________________________________ Drayton Nabers, Jr.
48
Name Title Date ---- ----- ---- /s/ G. Ruffner Page, Jr. Director March 14, 2002 ____________________________________ G. Ruffner Page, Jr. /s/ W. Stancil Starnes Director March 15, 2002 ____________________________________ W. Stancil Starnes /s/ William D. Montgomery Director March 15, 2002 ____________________________________ William D. Montgomery /s/ Dan M. David Vice Chairman and Director March 12, 2002 ____________________________________ Dan M. David /s/ C. Lloyd Nix Director March 15, 2002 ____________________________________ C. Lloyd Nix /s/ William E. Sexton Director March 13, 2002 ____________________________________ William E. Sexton /s/ John V. Denson Director March 12, 2002 ____________________________________ John V. Denson
49 EXHIBIT INDEX
Exhibit Number Description Reference ------- ----------- --------- 3.1 Certificate of Incorporation.............................. (1) 3.1A Certificate of Amendment of Certificate of Incorporation.. (2) 3.1B Certificate of Merger filed with the Secretary of State of the State of Delaware on December 29, 1995............... (4) 3.1C Certificate of Amendment of Certificate of Incorporation.. (8) 3.2 Bylaws.................................................... (1) 4.1 Provisions of the Certificate of Incorporation and the Bylaws of Alabama National BanCorporation which Define the Rights of Security holders........................... (1) 10.1 Alabama National BanCorporation 1994 Stock Option Plan.... (1) 10.2 Form of Stock Option Agreement utilized in connection with the 1994 Stock Option Plan............................... (2) 10.3 Commerce Bankshares, Inc. Long Term Incentive Compensation Plan..................................................... (3) 10.3A Form of Incentive Stock Option Agreement.................. (3) 10.3B Form of Restricted Stock Agreement........................ (3) 10.4 Lease Agreement dated June 1, 2000 between Woodward Properties, LLP and NBC.................................. (15) 10.5 NBC Pension Plan (amended and restated effective January 1, 1997)................................................. (12) 10.6 Credit Agreement between Alabama National BanCorporation and AmSouth Bank of Alabama dated as of December 29, 1995 relating to a $23,000,000 Revolving Loan................. (4) 10.6A Promissory Note between Alabama National BanCorporation and AmSouth Bank of Alabama dated as of December 29, 1995 relating to a $23,000,000 Revolving Loan................. (4) 10.6B Pledge Agreement between Alabama National BanCorporation and AmSouth Bank of Alabama dated as of December 29, 1995 relating to a $23,000,000 Revolving Loan................. (4) 10.6C First Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated February 10, 1997................................................. (6) 10.6D Second Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated January 19, 1998................................................. (7) 10.6E Third Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated June 23, 1999..................................................... (11) 10.6F Fourth Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated June 20, 2000..................................................... (14) 10.6G Fifth Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated May 31, 2001..................................................... (18) 10.7 Second Amendment and Restatement of the Alabama National BanCorporation Performance Share Plan.................... (13) 10.8 Alabama National BanCorporation Deferred Compensation Plan for Directors Who Are Not Employees of the Company....... (5) 10.9 First American Bancorp Stock Option Plan dated October 20, 1992..................................................... (7)
50
Exhibit Number Description Reference ------- ----------- --------- 10.10 First American Bancorp 1994 Stock Option Plan.............. (7) 10.11 First American Bancorp Non-Qualified Stock Option Agreement with Dan M. David dated March 7, 1997..................... (7) 10.12 Alabama National BanCorporation 1999 Long-Term Incentive Plan...................................................... (12) 10.13 Agreement and Plan of Merger dated as of October 10, 2000 between Alabama National BanCorporation and Peoples State Bank of Groveland......................................... (9) 10.14 Agreement and Plan of Merger dated as of September 6, 2001 between Alabama National BanCorporation and Farmers National Bancshares, Inc.................................. (19) 10.15 Promissory Note dated April 15, 1999 executed by John R. Bragg in favor of Alabama National BanCorporation in the principal amount of $107,871.00........................... (10) 10.16 Promissory Note dated April 15, 2000 executed by John R. Bragg in favor of Alabama National BanCorporation in the principal amount of $19,800.00............................ (16) 10.17 Pledge Agreement dated April 15, 1999 between John R. Bragg and Alabama National BanCorporation....................... (10) 10.18 Promissory Note dated April 15, 1999 executed by John H. Holcomb, III in favor of Alabama National BanCorporation in the principal amount of $93,747.00..................... (10) 10.19 Promissory Note dated April 15, 2000 executed by John H. Holcomb, III in favor of Alabama National BanCorporation in the principal amount of $83,400.00..................... (16) 10.20 Pledge Agreement dated April 15, 1999 between John H. Holcomb, III and Alabama National BanCorporation.......... (10) 10.21 Promissory Note dated April 15, 1999 executed by William E. Matthews, V in favor of Alabama National BanCorporation in the principal amount of $109,570.00....................... (10) 10.22 Promissory Note dated April 15, 2000 executed by William E. Matthews, V in favor of Alabama National BanCorporation in the principal amount of $28,000.00........................ (16) 10.23 Pledge Agreement dated April 15, 1999 between William E. Matthews, V and Alabama National BanCorporation........... (10) 10.24 Promissory Note dated April 15, 1999 executed by Richard Murray, IV in favor of Alabama National BanCorporation in the principal amount of $111,739.00....................... (10) 10.25 Promissory Note dated April 15, 2000 executed by Richard Murray, IV in favor of Alabama National BanCorporation in the principal amount of $29,400.00........................ (16) 10.26 Pledge Agreement dated April 15, 1999 between Richard Murray, IV and Alabama National BanCorporation............ (10) 10.27 Promissory Note dated April 15, 1999 executed by Victor E. Nichol, Jr. in favor of Alabama National BanCorporation in the principal amount of $99,558.00........................ (10) 10.28 Promissory Note dated April 15, 2000 executed by Victor E. Nichol, Jr. in favor of Alabama National BanCorporation in the principal amount of $23,360.00........................ (16)
51
Exhibit Number Description Reference ------- ----------- --------- 10.29 Pledge Agreement dated April 15, 1999 between Victor E. Nichol, Jr. and Alabama National BanCorporation.......... (10) 10.30 Alabama National BanCorporation Employee Capital Accumulation Plan (amended and restated effective January 1, 2000)................................................. (12) 10.31 Non-Qualified Option Agreement dated as of January 1, 2000 between John R. Bragg and Alabama National BanCorporation........................................... (16) 10.32 Non-Qualified Option Agreement dated as of January 1, 2000 between John H. Holcomb, III and Alabama National BanCorporation........................................... (16) 10.33 Non-Qualified Option Agreement dated as of January 1, 2000 between William E. Matthews, V and Alabama National BanCorporation........................................... (16) 10.34 Non-Qualified Option Agreement dated as of January 1, 2000 between Richard Murray, IV and Alabama National BanCorporation........................................... (16) 10.35 Non-Qualified Option Agreement dated as of January 1, 2000 between Dan M. David and Alabama National BanCorporation.......................................... (16) 10.36 Non-Qualified Option Agreement dated as of January 1, 2000 between Victor E. Nichol, Jr. and Alabama National BanCorporation........................................... (16) 10.37 Non-Qualified Option Agreement dated as of January 1, 2000 between Shelly S. Williams and Alabama National BanCorporation........................................... (16) 10.38 Employment Continuation Agreement dated as of September 21, 2000 between John R. Bragg and Alabama National BanCorporation........................................... (16) 10.39 Employment Continuation Agreement dated as of September 21, 2000 between John H. Holcomb, III and Alabama National BanCorporation.................................. (16) 10.40 Employment Continuation Agreement dated as of September 21, 2000 between William E. Matthews, V and Alabama National BanCorporation.................................. (16) 10.41 Employment Continuation Agreement dated as of September 21, 2000 between Richard Murray, IV and Alabama National BanCorporation........................................... (16) 10.42 Employment Continuation Agreement dated as of September 21, 2000 between Victor E. Nichol, Jr. and Alabama National BanCorporation.................................. (16) 10.43 Employment Continuation Agreement dated as of September 21, 2000 between Dan M. David and Alabama National BanCorporation........................................... (16) 10.44 Alabama National BanCorporation Plan for the Deferral of Compensation by Key Employees............................ (17) 10.45 The Farmers National Bank of Opelika Key Personnel Stock Option Plan, effective date--October 28, 1992............ (20) 10.46 Second Amendment and Restatement of the Alabama National BanCorporation Annual Incentive Plan..................... (20)
52
Exhibit Number Description Reference ------- ----------- --------- 10.47 Amended and Restated Deed of Trust among State Street Bank and Trust Company of Connecticut, N.A., Alabama National BanCorporation, and others dated December 18, 2001........ (20) 10.48 Indenture dated December 18, 2001 between Alabama National BanCorporation and State Street Bank and Trust Company of Connecticut, N.A.......................................... (20) 10.49 Guaranty Agreement dated December 18, 2001 between Alabama National BanCorporation and State Street Bank and Trust Company of Connecticut, N.A............................... (20) 11.1 Statement regarding Computation of Per Share Earnings...... (20) 21.1 Subsidiaries of Alabama National BanCorporation............ (20) 23.1 Consent of PricewaterhouseCoopers L.L.P.................... (20)
- ------- (1) Filed as an Exhibit to Alabama National's Annual Report on Registration Statement on Form S-1 (Registration No. 33-83800) and incorporated herein by reference. (2) Filed as an Exhibit to Alabama National's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. (3) Filed as an Exhibit to Alabama National's Registration Statement on Form S-4 (Registration No. 33-97152) and incorporated herein by reference. (4) Filed as an Exhibit to Alabama National's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference. (5) Filed as an Exhibit to Alabama National's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference. (6) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. (7) Filed as an Exhibit to Alabama National's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. (8) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference. (9) Filed as Appendix A to Alabama National's Registration Statement on Form S-4 (Registration No. 333-51448) and incorporated herein by reference. (10) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference. (11) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference. (12) Filed as an Exhibit to Alabama National's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference. (13) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference. (14) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference. (15) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference. (16) Filed as an Exhibit to Alabama National's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference. 53 (17) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein by reference. (18) Filed as an Exhibit to Alabama National's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference. (19) Filed as Appendix A to Alabama National's Registration Statement on Form S-4 (Registration No. 333-71256) and incorporated herein by reference. (20) Filed as an Exhibit to Alabama National's Annual Report on Form 10-K for the year ended 2001. 54 Alabama National BanCorporation and Subsidiaries Consolidated Financial Statements December 31, 2001 and 2000 and the Three Years Ended December 31, 2001 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors Alabama National BanCorporation In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Alabama National BanCorporation and its subsidiaries (the Company) at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP January 17, 2002 F-1 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2001 and 2000 (in thousands, except share data)
2001 2000 ---------- ---------- ASSETS ------ Cash and due from banks................................ $ 78,262 $ 80,476 Interest-bearing deposits in other banks............... 10,813 7,630 Investment securities (market value $234,808 and $61,485 for 2001 and 2000, respectively).............. 234,766 60,762 Securities available for sale.......................... 332,922 325,297 Trading securities..................................... 1,341 577 Federal funds sold and securities purchased under agreements to resell.................................. 32,241 30,260 Loans held for sale.................................... 36,554 5,226 Loans.................................................. 1,966,631 1,711,896 Unearned income........................................ (2,462) (1,086) ---------- ---------- Loans, net of unearned income.......................... 1,964,169 1,710,810 Allowance for loan losses.............................. (28,519) (22,368) ---------- ---------- Net loans........................................... 1,935,650 1,688,442 Property, equipment and leasehold improvements, net.... 60,821 52,047 Intangible assets, net................................. 18,875 14,347 Cash surrender value of life insurance................. 53,171 44,473 Receivables from investment division customers......... 16,551 7,745 Other assets........................................... 31,500 41,003 ---------- ---------- $2,843,467 $2,358,285 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits: Noninterest bearing.................................. $ 306,319 $ 244,400 Interest bearing..................................... 1,760,440 1,562,695 ---------- ---------- Total deposits...................................... 2,066,759 1,807,095 Federal funds purchased and securities sold under agreements to repurchase............................. 240,060 166,580 Treasury, tax and loan accounts....................... 3,490 900 Accrued expenses and other liabilities................ 30,863 31,173 Payable for securities purchased for investment division customers................................... 16,428 5,568 Short-term borrowings................................. 68,350 91,439 Long-term debt........................................ 209,631 83,926 ---------- ---------- Total liabilities................................... 2,635,581 2,186,681 Commitments and contingencies (see Notes 9 and 10) Stockholders' equity: Common stock, $1 par; 17,500,000 shares authorized; 12,424,544 and 11,921,628 shares issued at December 31, 2001 and 2000, respectively..................... 12,425 11,922 Additional paid-in capital........................... 103,624 86,115 Retained earnings.................................... 92,866 77,812 Treasury stock at cost, 77,476 and 136,099 shares at December 31, 2001 and 2000, respectively............ (2,087) (3,431) Accumulated other comprehensive income (loss), net of tax................................................. 1,058 (814) ---------- ---------- Total stockholders' equity.......................... 207,886 171,604 ---------- ---------- $2,843,467 $2,358,285 ========== ==========
The accompanying notes are an integral part of these financial statements. F-2 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000 and 1999 (in thousands, except share data)
2001 2000 1999 -------- -------- -------- Interest income: Interest and fees on loans....................... $147,922 $143,664 $109,063 Interest on securities........................... 29,055 24,499 20,983 Interest on deposits in other banks.............. 510 214 110 Interest on trading securities................... 119 124 356 Interest on federal funds sold................... 1,931 2,721 2,594 -------- -------- -------- Total interest income........................... 179,537 171,222 133,106 -------- -------- -------- Interest expense: Interest on deposits............................. 71,412 71,570 50,391 Interest on federal funds purchased.............. 8,696 9,305 7,343 Interest on short and long-term borrowings....... 10,285 10,112 4,573 -------- -------- -------- Total interest expense.......................... 90,393 90,987 62,307 -------- -------- -------- Net interest income............................. 89,144 80,235 70,799 Provision for loan losses.......................... 3,946 2,506 2,107 -------- -------- -------- Net interest income after provision for loan losses......................................... 85,198 77,729 68,692 -------- -------- -------- Noninterest income: Securities gains (losses)........................ 246 (119) 196 Gain (loss) on disposition of assets............. 84 (19) 262 Service charges on deposit accounts.............. 9,497 8,304 8,011 Investment services income....................... 13,717 5,867 6,624 Securities brokerage and trust income............ 8,800 7,692 5,897 Gain on origination and sale of mortgages........ 7,431 3,531 3,993 Insurance commissions............................ 2,126 2,099 1,068 Bank owned life insurance........................ 2,412 2,080 1,543 Gain on pension curtailment...................... -- -- 819 Other............................................ 4,394 3,912 2,903 -------- -------- -------- Total noninterest income........................ 48,707 33,347 31,316 -------- -------- -------- Noninterest expense: Salaries and employee benefits................... 45,329 39,017 34,970 Commission based compensation.................... 12,868 5,566 4,376 Occupancy and equipment expense.................. 9,722 8,906 7,884 Other............................................ 24,314 20,622 18,630 -------- -------- -------- Total noninterest expense....................... 92,233 74,111 65,860 -------- -------- -------- Income before provision for income taxes and minority interest in earnings of consolidated subsidiaries...................................... 41,672 36,965 34,148 Provision for income taxes......................... 13,232 11,421 10,817 -------- -------- -------- Income before minority interest in earnings of consolidated subsidiaries......................... 28,440 25,544 23,331 Minority interest in earnings of consolidated subsidiaries...................................... 25 26 25 -------- -------- -------- Net income available for common shares.......... $ 28,415 $ 25,518 $ 23,306 ======== ======== ======== Net income per common share (basic)................ $ 2.40 $ 2.16 $ 1.97 ======== ======== ======== Weighted average common shares outstanding (basic)........................................... 11,853 11,792 11,814 ======== ======== ======== Net income per common share (diluted).............. $ 2.34 $ 2.13 $ 1.94 ======== ======== ======== Weighted average common and common equivalent shares outstanding (diluted)...................... 12,141 11,973 12,008 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-3 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2001, 2000 and 1999 (in thousands, except share data)
2001 2000 1999 ------- ------- ------- Net income........................................... $28,415 $25,518 $23,306 Other comprehensive income (loss): Unrealized gains (losses) on securities available for sale arising during the period................. 3,100 8,897 (11,531) Less: Reclassification adjustment for net gains included in net income.............................. 246 (119) 196 ------- ------- ------- Other comprehensive income (loss), before taxes...... 2,854 9,016 (11,727) Provision for (benefit from) income taxes related to items of other comprehensive income (loss).......... 982 3,048 (3,999) ------- ------- ------- Other comprehensive income (loss).................... 1,872 5,968 (7,728) ------- ------- ------- Comprehensive income................................. $30,287 $31,486 $15,578 ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-4 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 2001, 2000 and 1999 (in thousands, except share data)
Accumulated Other Additional Comprehensive Common Paid-In Retained Unearned Treasury Income (Loss) Total Shares Stock Capital Earnings ESOP Stock Net of Taxes Equity ---------- ------- ---------- -------- -------- -------- ------------- -------- Balance, December 31, 1998.................... 11,706,295 $11,707 $ 78,687 $47,250 $(75) $ 946 $138,515 Net income.............. 23,303 23,303 Common stock dividends declared ($0.72 per share).................. (8,243) (8,243) Exercise of stock options................. 94,204 94 643 737 Shares released by ESOP.................... 75 75 Issuance of stock in purchase business combination............. 121,129 121 2,726 2,847 Purchase of treasury stock at cost........... $(3,226) (3,226) Change in other comprehensive loss, net of taxes................ (7,728) (7,728) ---------- ------- -------- ------- ---- ------- ------ -------- Balance, December 31, 1999.................... 11,921,628 11,922 82,056 62,310 (3,226) (6,782) 146,280 Net income.............. 25,518 25,518 Common stock dividends declared ($0.84 per share).................. (9,664) (9,664) Exercise of stock options................. (348) 383 35 Stock based compensation............ 4,059 (4) 4,055 Purchase of treasury stock at cost........... (588) (588) Change in other comprehensive income, net of taxes............ 5,968 5,968 ---------- ------- -------- ------- ---- ------- ------ -------- Balance, December 31, 2000.................... 11,921,628 11,922 86,115 77,812 (3,431) (814) 171,604 Net income.............. 28,415 28,415 Common stock dividends declared ($0.92 per share).................. (11,003) (11,003) Issuance of stock in purchase business combinations............ 502,916 503 15,729 16,232 Cash in lieu of fractional shares and other .................. (10) (10) Exercise of stock options and issuance of shares related to deferred compensation plans .................. 667 (2,302) 2,007 372 Stock based compensation............ 1,123 (56) 1,067 Purchase of treasury stock at cost........... (663) (663) Change in other comprehensive income, net of taxes............ 1,872 1,872 ---------- ------- -------- ------- ---- ------- ------ -------- Balance, December 31, 2001.................... 12,424,544 $12,425 $103,624 $92,866 $-- $(2,087) $1,058 $207,886 ========== ======= ======== ======= ==== ======= ====== ========
The accompanying notes are an integral part of these financial statements. F-5 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000 and 1999 (in thousands, except share data)
2001 2000 1999 -------- -------- -------- Cash flows from operating activities: Net income...................................... $ 28,415 $ 25,518 $ 23,306 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses..................... 3,946 2,506 2,107 Deferred tax (benefit) provision.............. 2,540 2,407 (1,659) Depreciation and amortization................. 5,396 4,757 4,157 Loss on disposal of property and equipment.... 5 3 9 Securities (gain) loss........................ (246) 119 (196) (Gain) loss on disposal of other real estate.. (12) 7 (81) Write-down of other real estate owned......... 249 14 Income earned on bank owned life insurance.... (2,412) (2,080) (1,543) Stock based compensation...................... 1,103 1,425 Net amortization of securities................ (323) (75) 326 Net (increase) decrease in trading securities................................... (764) 2,124 2,833 Minority interest in earnings of consolidated subsidiaries................................. 25 26 25 Decrease (increase) in other assets........... (1,142) 11,988 (12,703) Increase (decrease) in other liabilities...... 9,310 (22,638) 14,556 Other......................................... (19) (31) 75 -------- -------- -------- Net cash provided by operating activities... 46,071 26,070 31,212 -------- -------- -------- Cash flows from investing activities: Purchases of investment securities.............. (242,211) (50,028) Proceeds from calls and maturities of investment securities.......................... 70,348 8,887 14,998 Purchases of securities available for sale...... (382,780) (118,734) (254,825) Proceeds from sales of securities available for sale........................................... 25,001 4,870 6,162 Proceeds from calls and maturities of securities available for sale.................. 397,444 131,855 201,763 Net increase in interest-bearing deposits in other banks.................................... (3,183) (615) (5,800) Net decrease in federal funds sold and securities purchased under agreements to resell......................................... 22,743 5,556 22,347 Net increase in loans........................... (185,686) (236,904) (247,766) Purchases of property, equipment and leasehold improvements................................... (8,898) (9,087) (8,062) Proceeds from sale of property, equipment and leasehold improvements......................... 57 5 117 Proceeds from sale of other real estate owned... 3,205 741 1,885 Costs capitalized on other real estate owned.... (180) (48) (115) Cash paid for bank owned life insurance......... (1,986) (9,258) (60) Purchase acquisitions, net of cash acquired..... 7,062 (19,042) (114) -------- -------- -------- Net cash used in investing activities....... (299,064) (291,802) (269,470) -------- -------- --------
The accompanying notes are an integral part of these financial statements. F-6 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 (in thousands)
2001 2000 1999 -------- ------- ------- Cash flows from financing activities: Net increase in deposits.......................... 84,177 223,828 184,235 Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase......................... 73,480 34,846 (24,728) Net increase in short and long-term borrowings and capital leases............................... 105,206 19,672 92,773 Exercise of stock options......................... (408) 63 737 Treasury stock acquired for purchase business combination...................................... (3,226) Dividends on common stock......................... (11,003) (9,668) (8,243) Purchase of treasury stock........................ (663) (588) Other ............................................ (10) -------- ------- ------- Net cash provided by financing activities..... 250,779 268,153 241,548 -------- ------- ------- Decrease (increase) in cash and cash equivalents.................................. (2,214) 2,421 3,290 Cash and cash equivalents, beginning of year....... 80,476 78,055 74,765 -------- ------- ------- Cash and cash equivalents, end of year............. $ 78,262 $80,476 $78,055 ======== ======= ======= Supplemental disclosures of cash flow information: Cash paid for interest........................... $ 94,105 $89,586 $61,159 ======== ======= ======= Cash paid for income taxes....................... $ 9,796 $11,495 $13,588 ======== ======= ======= Supplemental schedule of noncash investing activities: Foreclosure of other real estate owned........... $ 2,465 $ 1,267 $ 1,349 ======== ======= ======= Transfer of property to other real estate owned.. $ 465 ======== (Increase) decrease in unrealized holding (gain) loss on securities available for sale........... $ (1,872) $(5,968) $ 7,728 ======== ======= ======= Assets acquired and liabilities assumed in merger transactions (Note 2): Assets acquired in business combinations....... $188,451 $73,659 $ 3,704 ======== ======= ======= Liabilities assumed in business combinations... $177,368 $54,361 $ 721 ======== ======= =======
The accompanying notes are an integral part of these financial statements. F-7 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the Years Ended December 31, 2001, 2000 and 1999 1. Nature of Business and Summary of Significant Accounting Policies Alabama National Bancorporation and Subsidiaries (the Company) provides a full range of banking and bank-related services to individual and corporate customers through its eleven subsidiary banks located in Alabama, Georgia, and Florida. Basis of Presentation and Principles of Consolidation--The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America and with general financial services industry practices. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates--In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the statement of condition dates and revenues and expenses for the periods shown. Actual results could differ from those estimates. Cash and Cash Equivalents--For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due from banks. Securities--Investment securities are stated at amortized cost as a result of management's ability and intent to hold the securities until maturity. Related premiums are amortized and discounts are accreted on these investments using the effective interest method. Securities available for sale are those securities intended to be held for an indefinite period of time. The Company may sell these securities as part of its asset/liability strategy in response to changes in interest rates, changes in prepayment risk, or similar factors. Securities available for sale are recorded at market value. Unrealized holding gains and losses on securities classified as available for sale are carried as a separate component of stockholders' equity. Trading securities, principally obligations of U.S. government agencies, are securities held for sale and are stated at market. Bond purchases and sales are recorded on the trade date. Accounts receivable from and accounts payable to bond customers and dealers are included in other assets and liabilities and represent security transactions entered into for which the securities have not been delivered as of the statement of condition dates. Unrealized holding gains and losses on securities classified as trading are reported in earnings of the period in which they occur. Gains and losses on the sale of securities are computed using the specific identification method. Loans and Allowance for Loan Losses--Interest income with respect to loans is accrued on the principal amount outstanding, except for interest on certain consumer loans which is recognized over the term of the loan using a method which approximates level yields. Certain impaired loans are reported at the present value of expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes the collection of principal is unlikely. The allowance is the amount that management believes will be adequate to absorb possible losses on existing loans which may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. The F-8 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific loan problems, and current economic conditions which may affect the borrower's ability to pay. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that the collection of interest is doubtful. Payments received on such loans are applied first to principal until the recoverability of the obligation is assured. Any remaining payments are then allocated as additional reductions of principal and interest income. Property, Equipment, and Leasehold Improvements--Property, equipment, and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is principally computed using the straight-line method over the estimated useful life of each type of asset. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of the improvements or the terms of the related leases. Maintenance and repairs are expensed as incurred; improvements and betterments are capitalized. When items are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gains or losses are credited or charged to income. Estimated useful lives generally are as follows: Buildings..................................................... 5-45 years Leasehold improvements........................................ 10-30 years Furniture, equipment, and vault............................... 3-30 years
Other Real Estate--Other real estate, primarily property acquired by foreclosure, is capitalized at the lower of fair value less estimated selling costs or cost of the property or loan immediately prior to its classification as other real estate. Other real estate is not depreciated. Losses, representing the difference between the sales price and the carrying value of the property, are recorded immediately, while gains on sales financed by the Company are deferred until the initial and continuing investment by the borrower equals or exceeds specified equity percentages. Gains on all other sales are recorded immediately. Intangible Assets--Intangible assets consist of the excess of cost over the fair value of net assets of acquired businesses and core deposit assets. The excess of cost over the fair value of net assets of acquired businesses, which totaled approximately $17,919,000 and $13,430,000, and had related accumulated amortization of approximately $3,106,000 and $2,588,000 at December 31, 2001 and 2000, respectively, is being amortized over periods ranging from 15 to 25 years, using either the straight-line or double-declining balance methods of amortization. Core deposit intangibles, which totaled approximately $6,970,000 and $5,786,000 at December 31, 2001 and 2000, respectively, and had related accumulated amortization of approximately $2,908,000 and $2,281,000 at December 31, 2001 and 2000, respectively, are being amortized over seven to ten year periods using either the straight-line or double-declining balance methods of amortization. The carrying value of the excess of cost over net assets of subsidiaries acquired is reviewed if facts and circumstances suggest that it may be impaired. If warranted, analysis, including undiscounted income projections, are made to determine if adjustments to the carrying value or amortization periods are necessary. No such adjustments were required or made during the years ended December 31, 2001, 2000 or 1999. Software costs--Software costs with a recorded cost of approximately $3,491,000 and $3,487,000 and related accumulated amortization of approximately $2,566,000 and $2,445,000 are included in other assets at December 31, 2001 and 2000, respectively. Amortization expense related to these costs of approximately $338,000, $291,000, and $290,000 was recorded in 2001, 2000, and 1999, respectively. Income Taxes--Deferred income taxes are provided on all temporary differences between the financial reporting basis and the income tax basis of assets and liabilities. F-9 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 Stock-Based Employee Compensation--The Company uses a value-based method of accounting for compensation costs. Compensation cost for stock-based employee compensation arrangements is measured at the grant date based on the value of the award and is recognized over the service period. The Company has fully adopted and implemented Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, and has recorded compensation costs in accordance with these provisions. As such, no additional pro forma expenses or disclosure requirements exist for the years ended December 31, 2001, 2000 and 1999. Advertising Costs--The Company expenses the costs of advertising when those costs are incurred. Collateral Requirements--The Company requires collateral for certain transactions with retail and commercial customers. Specifically, margin loans made for the purpose of borrowing against marketable investment securities generally do not exceed 50% of the total market value of a customer's marginable securities portfolio at the time of the transaction and no more than 70% at anytime thereafter. Repurchase agreements, limited to commercial customers, generally do not exceed the market value of securities used to secure such transactions at the time of the transaction or thereafter. Federal funds sold are made to correspondent banks on an unsecured basis and generally do not exceed limits established for each bank resulting from evaluation of the bank's financial position. Reclassifications--Certain reclassifications have been made to the prior year financial statements to conform with the 2001 presentation. Recently Issued Accounting Standards--Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--A Replacement of FASB Statement No. 125 (Statement 140). Statement 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of Statement 140 did not have a material impact on the Company's financial statements since the Company has not entered into any securitization or asset transfer transactions. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, (Statement 133), as amended by Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133, and by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--An Amendment of SFAS No. 133. Statement 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative instrument as a hedging instrument. Statement 133 generally provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of (a) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. The Company's derivative activities at December 31, 2001, relate solely to the interest rate lock commitments (IRLCs), which the Company has entered into with certain customers for specific short-term periods of time. These IRLCs relate to prospective mortgage loans, which the Company originates and immediately transfers to secondary mortgage servicers. The transfer of these IRLCs allows the Company to pass financial risk associated with potential changes in interest rates on to secondary mortgage servicers. The Company also reduces its financial risk associated with mortgage lending by utilizing "best efforts" agreements with secondary mortgage servicers. These agreements relieve the Company of its liability to deliver if a mortgage loan fails to close. The adoption of Statement 133 as of January 1, 2001, did not have a material impact on the financial position or results of operations of the Company, as of and for the period ended December 31, 2001. F-10 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), and No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement 141 supercedes Accounting Principles Board Opinion (APB) No. 16, Business Combinations. The provisions of Statement 141 (1) require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill, and (3) require that unamortized negative goodwill be written off immediately as an extraordinary gain instead of being deferred and amortized. Statement 141 also requires that upon adoption of Statement 142 the Company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria. Statement 142 supercedes APB 17, Intangible Assets, and is effective for fiscal years beginning after December 15, 2001. Statement 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. The provisions of Statement 142 (1) prohibit the amortization of goodwill and indefinite-lived intangible assets, (2) require that goodwill and indefinite-lived intangible assets be tested annually for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill and/or indefinite-lived intangible assets may be impaired), (3) require that reporting units be identified for the purpose of assessing potential future impairments of goodwill, and (4) remove the forty-year limitation on the amortization period of intangible assets that have finite lives. The Company will adopt the provisions of Statement 142 effective January 1, 2002. The Company is in the process of preparing for its adoption of Statement 142 and is making the determinations as to what its reporting units are and what amounts of goodwill, intangible assets, other assets, and liabilities should be allocated to those reporting units. In connection with the adoption of Statement 142, the Company does not expect to reclassify any balances between goodwill and other intangible assets. The Company expects that it will no longer record approximately $506,000 of annual amortization expense relating to its existing goodwill and indefinite-lived intangibles. The Company will also evaluate the useful lives assigned to its intangible assets and does not anticipate any changes to the useful lives currently assigned. Statement 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. However, a company has six months from the date of adoption to complete the first step. The Company expects to complete that first step of the goodwill impairment test during the first quarter of 2002. The second step of the goodwill impairment test measures the amount of the impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by the end of the Company's fiscal year. Intangible assets deemed to have an indefinite life will be tested for impairment using a one-step process which compares the fair value to the carrying amount of the assets as of the beginning of the fiscal year, and pursuant to the requirements of Statement 142 will be completed during the first quarter of 2002. Any impairment loss resulting from the transitional impairment tests will be reflected as the cumulative effect of a change in accounting principle in the first quarter of 2002. The Company has not yet determined what effect these impairment tests will have on the Company's earnings and financial position. 2. Business Combinations On December 14, 2001, the Company acquired Farmers National BancShares, Inc. (Farmers) in a business combination accounted for under the purchase method. The Company issued approximately 550,000 shares of common stock and common stock equivalents to existing Farmers shareholders at an exchange ratio of 0.53125 shares of the Company's common stock for each share of Farmers stock. Subsequent to the completion of the acquisition, the operations of Farmers, which had total assets of approximately $188 million at the date of acquisition, were merged into First American Bank, a subsidiary of the Company. F-11 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition: Cash.............................................................. $ 8,153 Securities........................................................ 46,058 Federal funds sold and securities purchased under agreements to resell........................................................... 24,724 Net loans......................................................... 99,203 Other assets...................................................... 10,305 Goodwill.......................................................... 5,063 Core deposit intangible........................................... 1,184 -------- Total assets acquired........................................... 194,690 ======== Deposits.......................................................... 175,486 Other liabilities................................................. 1,881 -------- Total liabilities assumed....................................... 177,367 -------- Net assets acquired............................................. $ 17,323 ========
The acquisition of Farmers created $6,247,000 of intangible assets. The Company allocated $1,184,000 of the total intangible created to core deposits. This allocation was based upon the Company's valuation of the core deposits of Farmers. Factors considered in the valuation included: (1) the rate and maturity structure of Farmers interest-bearing liabilities (2) estimated retention rates for each deposit liability category and (3) the current interest rate environment. The core deposit intangible created will be amortized on a straight-line basis over seven years. The remaining intangible created was allocated to goodwill and will be tested at least annually for impairment. On January 31, 2001, the Company completed the acquisition of Peoples State Bank of Groveland, Florida (Peoples) in a transaction accounted for as a pooling of interests. The Company issued approximately 735,000 shares of its common stock to existing Peoples shareholders at an exchange ratio of 1.164 shares of the Company's common stock for each share of Peoples stock. Peoples had assets of approximately $123 million at the date of acquisition. Pursuant to pooling of interests accounting treatment, the financial statements for all periods presented have been restated to reflect the results of operations of the companies on a combined basis from the earliest period presented, except for dividends per share. On August 4, 2000, First American Bank, a subsidiary of the Company, completed the acquisition of two banking branches in Madison and Huntsville, Alabama. The acquisition increased loans and deposits by approximately $68.9 million and $54.0 million, respectively. The acquisition was accounted for as a purchase transaction. In the third quarter of 1999, the Board of Directors of the Company authorized the repurchase of 121,129 shares of common stock. This repurchase, which was completed during the third quarter at a cost of approximately $3,226,000, was specifically related to the Company's issuance of an identical number of shares to acquire Rankin Insurance Agency during May 1999 in a purchase business combination. F-12 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 3. Securities The amortized costs and estimated market values of investment securities (carried at amortized cost) and securities available for sale (carried at market value) are as follows (in thousands):
December 31, 2001 ---------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- -------- Investment securities: U.S. treasury securities and obligations of U.S. government corporations and agencies.......... $ 2,252 $ 81 $ 6 $ 2,327 Obligations of states and political subdivisions....................... 6,460 144 6,604 Mortgage-backed securities issued or guaranteed by U.S. government agencies........................... 226,054 270 447 225,877 -------- ------ ---- -------- Totals............................ $234,766 $ 495 $453 $234,808 ======== ====== ==== ======== Securities available for sale: U.S. treasury securities and obligations of U.S. government corporations and agencies.......... $ 26,451 $ 866 $ 12 $ 27,305 Obligations of states and political subdivisions....................... 28,606 409 12 29,003 Mortgage-backed securities issued or guaranteed by U.S. government agencies........................... 259,761 818 365 260,214 Equity securities................... 16,477 77 16,400 -------- ------ ---- -------- Totals............................ $331,295 $2,093 $466 $332,922 ======== ====== ==== ========
December 31, 2000 ---------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- -------- Investment securities: U.S. treasury securities and obligations of U.S. government corporations and agencies....... $ 3,263 $-- $ -- $ 3,263 Obligations of states and political subdivisions.......... 7,652 139 7,791 Mortgage-backed securities issued or guaranteed by U.S. government agencies........................ 49,847 585 1 50,431 -------- ---- ------ -------- Totals......................... $ 60,762 $724 $ 1 $ 61,485 ======== ==== ====== ======== Securities available for sale: U.S. treasury securities and obligations of U.S. government corporations and agencies....... $115,112 $291 $ 328 115,075 Obligations of states and political subdivisions.......... 25,291 377 36 25,632 Mortgage-backed securities issued or guaranteed by U.S. government agencies........................ 175,317 59 1,514 173,862 Equity securities................ 10,804 76 10,728 -------- ---- ------ -------- Totals......................... $326,524 $727 $1,954 $325,297 ======== ==== ====== ========
F-13 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 Maturities of securities at December 31, 2001 are summarized as follows (in thousands):
Investment Securities Available for Sale ------------------ ------------------ Amortized Market Amortized Market Cost Value Cost Value --------- -------- --------- -------- Due in one year or less................ $ 1,500 $ 1,514 $ 2,695 $ 2,734 Due after one year through five years.. 6,107 6,291 30,248 31,206 Due after five years through ten years................................. 1,105 1,124 15,493 15,754 Due after ten years.................... 6,619 6,614 Mortgage-backed securities............. 226,054 225,879 259,763 260,214 Equity securities...................... 16,477 16,400 -------- -------- -------- -------- Totals............................... $234,766 $234,808 $331,295 $332,922 ======== ======== ======== ========
Gross gains of $246,000, $1,000 and $196,000 were realized on the sale of securities during 2001, 2000 and 1999, respectively, and there were gross realized losses of $120,000 during 2000. Equity securities are comprised primarily of Federal Home Loan Bank and Federal Reserve Bank stock. These holdings are required under regulatory guidelines. 4. Loans and Other Real Estate Major classification of loans at December 31, 2001 and 2000 are summarized as follows (in thousands):
2001 2000 ---------- ---------- Commercial, financial, and agricultural.............. $ 247,613 $ 275,107 Real estate.......................................... 1,421,319 1,179,062 Consumer............................................. 82,909 79,458 Lease financing receivables.......................... 73,924 58,668 Securities brokerage margin loans.................... 16,302 29,901 Other................................................ 124,564 89,700 ---------- ---------- Gross loans.......................................... 1,966,631 1,711,896 Less unearned income................................. (2,462) (1,086) ---------- ---------- Loans, net of unearned income........................ 1,964,169 1,710,810 Less allowance for loan losses....................... (28,519) (22,368) ---------- ---------- Net loans............................................ $1,935,650 $1,688,442 ========== ==========
In the normal course of business, loans are made to directors, officers, and their affiliates. Such loans are made on substantially the same terms as to other customers of the banks. The aggregate of such loans was $45,685,000 and $57,266,000 at December 31, 2001 and 2000, respectively. During 2001 and 2000, new loans of $25,120,000 and $42,844,000 were funded and repayments totaled $36,701,000 and $38,010,000, respectively. Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $7,563,000 and $3,642,000 at December 31, 2001 and 2000, respectively. If these loans had been current throughout their terms, gross interest income for the years ended December 31, 2001 and 2000, respectively, would have increased by approximately $406,000 and $498,000. Other real estate at December 31, 2001 and 2000 totaled $1,680,000 and $1,468,000, respectively. F-14 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 At December 31, 2001 and 2000, the recorded investment in loans for which impairment has been recognized totaled $7,563,000 and $3,642,000, respectively, and these loans had a corresponding valuation allowance of $0 and $57,000. Management of the Company believes that the value of these impaired loans on the Company's books is less than the recoverable value of the loans. The Company recognized no interest on impaired loans during the portion of the year that they were impaired. The impaired loans at December 31, 2001 and 2000 were measured for impairment primarily using the fair value of the collateral. The Company grants real estate, commercial, and consumer loans to customers primarily in Alabama, Georgia, and Florida. Although the Company has a diversified loan portfolio, significant concentrations include loans collateralized by improved and undeveloped commercial and residential real estate. 5. Allowance for Loan Losses A summary of the allowance for loan losses for the years ended December 31, 2001, 2000 and 1999 is as follows (in thousands):
2001 2000 1999 ------- ------- ------- Balance, beginning of year........................ $22,368 $19,111 $17,465 Provision charged to operations................... 3,946 2,506 2,107 Additions to allowance through acquisition........ 3,872 1,400 ------- ------- ------- 30,186 23,017 19,572 ------- ------- ------- Loans charged off................................. (3,359) (1,426) (1,312) Recoveries........................................ 1,692 777 851 ------- ------- ------- Net charge-offs................................... (1,667) (649) (461) ------- ------- ------- Balance, end of year.............................. $28,519 $22,368 $19,111 ======= ======= =======
6. Property, Equipment, and Leasehold Improvements Major classifications of property, equipment, and leasehold improvements at December 31, 2001 and 2000 are summarized as follows (in thousands):
2001 2000 ------- ------- Land........................................................ $16,951 $14,043 Buildings and improvements.................................. 38,663 31,166 Leasehold improvements...................................... 6,606 6,371 Furniture, equipment, and vault............................. 33,163 26,928 Construction in progress.................................... 2,939 3,199 ------- ------- 98,322 81,707 Less accumulated depreciation and amortization.............. 37,501 29,660 ------- ------- Property, equipment, and leasehold improvements, net........ $60,821 $52,047 ======= =======
F-15 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 7. Deposits Deposits at December 31, 2001 and 2000 are summarized as follows (in thousands):
2001 2000 ---------- ---------- Demand deposit accounts............................... $ 306,319 $ 244,400 NOW accounts.......................................... 384,355 290,471 Savings and money market accounts..................... 373,309 312,886 Time deposits less than $100,000...................... 668,819 659,370 Time deposits of $100,000 or more..................... 333,957 299,968 ---------- ---------- Total deposits........................................ $2,066,759 $1,807,095 ========== ==========
Certain directors of the Company, including their families and affiliated companies, are deposit customers. Total deposits of these persons at December 31, 2001 and 2000 were approximately $31,033,000 and $28,641,000, respectively. 8.Short and Long-Term Borrowings Short-term debt is summarized as follows (in thousands):
2001 2000 -------- ------- Note payable to third-party bank under secured master note agreement; rate varies with LIBOR and was 2.68125% and 7.4318% at December 31, 2001 and 2000, respectively; collateralized by the Company's stock in subsidiary banks.................................................... $ 16,350 $27,439 FHLB open ended notes payable; rate varies daily based on the FHLB Daily Rate Credit interest price and was 1.83% and 6.35% at December 31, 2001 and 2000, respectively; collateralized by FHLB stock and certain first mortgages................................................ 5,000 6,000 FHLB debt due at various maturities ranging from May 31, 2002 through December 31, 2002 at December 31, 2001; at December 31, 2000, maturities ranged from January 29, 2001 to October 12, 2001; bearing interest at fixed rates ranging from 2.17% to 2.53% at December 31, 2001 and bearing interest at fixed and variable rates ranging from 6.40% to 6.7575% at December 31, 2000; collateralized by FHLB stock and certain first mortgage loans.............. 47,000 58,000 -------- ------- Total short-term borrowings............................... $ 68,350 $91,439 ======== ======= Long-term debt is summarized as follows (in thousands): 2001 2000 -------- ------- FHLB debt due April 23, 2004; rate varies with LIBOR and was 6.48% at December 31, 2000; rate changes to 5.02% from April 23, 2001 to April 23, 2004; convertible at the option of the FHLB on April 23, 2001 to the three month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans. This note was called by the FHLB during the year ended December 31, 2001.................. $13,700 FHLB debt due at various maturities ranging from November 5, 2003 through November 7, 2011; bearing interest at fixed rates ranging from 3.31% to 6.00% and 4.74% to 6.00% at December 31, 2001 and 2000, respectively; convertible at the option of the FHLB at dates ranging from January 7, 2002 to November 7, 2006; collateralized by FHLB stock and certain first mortgage loans. Various of these notes were called by the FHLB during the year ended December 31, 2001.................................. $169,000 45,000
F-16 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 -------- ------- FHLB debt due February 11, 2003; rate varies with LIBOR and was 5.3275% and 6.5275% at December 31, 2001 and 2000, respectively. Collateralized by FHLB stock and certain first mortgage loans............................. 25,000 25,000 Trust preferred securities due December 18, 2031; rate varies with LIBOR and was 5.60% at December 31, 2001..... 15,000 -- Various notes payable..................................... 554 29 Capital leases payable.................................... 77 197 -------- ------- Total long-term debt...................................... $209,631 $83,926 ======== =======
Certain of these amounts are callable at the option of the FHLB at dates earlier than the stated maturities. Aggregate maturities of long-term debt are as follows for fiscal years (in thousands): 2002.............................................................. $ 204 2003.............................................................. 30,204 2004.............................................................. 5,215 2005.............................................................. 10,008 2006.............................................................. 0 Thereafter........................................................ 164,000 -------- $209,631 ========
The note payable to a third-party bank at December 31, 2001 is payable in full on May 31, 2002. Maximum borrowing under the secured master note agreement is $35,000,000 and interest is payable quarterly. Total interest expense paid on the note was approximately $1,354,000 in 2001, $1,527,000 in 2000 and $817,000 in 1999. At December 31, 2001, the Company has approximately $62,670,000 of available credit with the FHLB in addition to the approximately $246,000,000 above, approximately $18,650,000 of available credit with a regional financial institution, and federal funds lines of approximately $125,700,000 with various correspondent banks, of which approximately $85,700,000 remains available. The Company has also pledged approximately $205,147,000 in loans to the Federal Reserve Bank of Atlanta as collateral for a discount window credit facility. At December 31, 2001, the Company had access to approximately $145,351,000 under this facility, and had no outstanding borrowings. The FHLB has a blanket lien on the Company's 1-4 family mortgage loans in the amount of the outstanding debt. In addition to the blanket lien on the Company's 1-4 family mortgage loans, the Company has pledged available for sale securities as collateral for the outstanding debt. These securities had a carrying value of $71,511,000 at December 31, 2001. Additional details regarding short-term debt are shown below (in thousands):
2001 2000 1999 ------- ------- ------- Average amount outstanding during the year........ $41,587 $63,139 $25,950 Maximum amount outstanding at any month end....... $97,100 $94,389 $64,922 Weighted average interest rate: During year..................................... 4.33% 6.97% 5.56% End of year..................................... 2.28% 6.32% 6.75%
F-17 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 9. Leases One of the Company's subsidiary banks leases its main office building from a partnership, which includes a director and a stockholder of the Company, under a noncancelable operating lease expiring in 2020. Leases classified as capital leases include branch offices with a net book value of approximately $47,000 at December 31, 2001. Additionally, several subsidiary banks lease branch offices and equipment under operating leases. Minimum future rental payments for the capital and operating leases are as follows (in thousands):
Capital Operating Leases Leases ------- --------- 2002..................................................... $27 $ 1,823 2003..................................................... 27 1,840 2004..................................................... 27 1,802 2005..................................................... 9 1,780 2006..................................................... 1,674 Thereafter............................................... 18,110 --- ------- Total minimum payments................................... 90 $27,029 ======= Less amount representing interest........................ 13 --- Net capital lease obligation............................. $77 ===
Rent expense charged to operations under operating lease agreements for the years ended December 31, 2001, 2000, and 1999 was approximately $1,768,000, $1,522,000 and $1,268,000, respectively, of which approximately $1,004,000, $999,000 and $958,000, respectively, during 2001, 2000, and 1999 relate to leases with related parties. 10. Commitments and Contingencies In the normal course of business, the Company makes commitments to meet the financing needs of its customers. These commitments include commitments to extend credit and standby letters of credit. These instruments include, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The Company's exposure to credit risk is the extent of nonperformance by the counter party to the financial instrument for commitments to extend credit and standby letters of credit and is represented by the contractual amount of those instruments. The Company uses the same credit policies and procedures in making commitments and conditional obligations as it does for loans. At December 31, 2001 and 2000, unused commitments under lines of credit aggregated approximately $502,299,000 and $448,709,000, of which approximately $15,100,000 and $19,174,000 pertained to related parties, respectively. The Company evaluates each customer's credit worthiness on an individual basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment, residential real estate and income- producing commercial properties. The Company had approximately $16,378,000 and $18,815,000 in irrevocable standby letters of credit outstanding at December 31, 2001 and 2000, of which approximately $87,000 and $319,000 at December 31, 2001 and 2000, respectively, pertained to related parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral varies but may include accounts receivable, inventory, property, plant, and equipment, and residential real estate for those commitments for which collateral is deemed necessary. F-18 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 The Company, in the normal course of business, is subject to various pending and threatened litigation. Based on legal counsel's opinion, management does not anticipate that the ultimate liability, if any, resulting from such litigation will have a material adverse effect on the Company's financial condition or results of operations. 11. Employee Benefit Plans The Company, through two of its subsidiary Banks, sponsors two defined benefit pension plans. Each of these plans has been frozen with regard to future benefit accruals and participation by new employees. The components of net pension expense (income) for the years ended December 31, 2001, 2000, and 1999 are as follows (in thousands):
2001 2000 1999 ----- ---- ----- Service cost............................................... $ 659 Interest cost.............................................. $ 253 $255 334 Expected return on assets.................................. (370) (331) (360) Amortization of transition asset........................... (2) (2) (2) Amortization of prior service cost......................... 2 Recognized net actuarial loss.............................. 54 ----- ---- ----- Net periodic pension cost.................................. (119) (78) 687 ----- ---- ----- Gain on curtailment........................................ (819) ----- ---- ----- Pension (income) expense................................... $(119) $(78) $(132) ===== ==== =====
F-19 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 The reconciliation of the beginning and ending balances of the projected benefit obligation and plan assets, as well as disclosure of the plans' funded status for the years ended December 31, 2001 and 2000, is as follows (in thousands):
2001 2000 ------ ------ Change in benefit obligation Projected benefit obligation at end of prior year............... $3,826 $3,517 Service cost.................................................. Interest cost................................................. 253 255 Actuarial loss................................................ 172 232 Acquisition................................................... 1,404 Benefits paid................................................. (178) (178) ------ ------ Projected benefit obligation at end of year................... $5,477 $3,826 ====== ====== Change in plan assets Fair value of plan assets at end of prior year.................. $4,154 $3,705 Actual return on plan assets.................................. 367 627 Acquisition................................................... 1,001 Benefits paid................................................. (178) (178) ------ ------ Fair value of plan assets at end of year........................ $5,344 $4,154 ====== ====== Funded status Plan assets in excess of projected benefit obligation........... $ (132) $ 327 Unrecognized net gain........................................... 433 260 Unrecognized net asset at date of initial application........... (4) (7) ------ ------ Accrued pension asset........................................... $ 297 $ 580 ====== ======
Primary assumptions used to actuarially determine net pension expense are as follows:
2001 2000 1999 ---- ---- ---- Discount rate................................................. 6.50% 7.00% 7.50% Expected long-term rate of return on plan assets.............. 9.00% 9.00% 9.00% Salary increase rate.......................................... N/A 4.25% 4.25%
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plan with accumulated benefits in excess of plan assets were $1,404,000, $1,404,000 and $1,001,000, respectively, as of December 31, 2001. The Company has a qualified employee benefit plan under Section 401(k) of the Internal Revenue Code covering substantially all employees. Employees can contribute up to 15% of their salary to the plan on a pre-tax basis and the Company matches participants' contributions up to the first 5% of each participant's salary. The Company's matching contribution charged to operations related to this plan, as well as other plans of merged banks, was approximately $1,282,000, $971,000 and $537,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The Company and certain subsidiary banks have deferred compensation plans for the benefit of the Company's former chief executive officer. Payments under the plans commence March 15, 1997 and March 15, 2002, or at his death, if earlier, and continue for a period of 15 years. In connection with the plans, the banks purchased single premium life insurance policies on the life of the officer. At December 31, 2001 and 2000, the cash surrender value of the policies was $2,512,000 and $2,403,000, respectively. Additionally, the Company and several of its subsidiary banks own life insurance policies to provide for the payment of death benefits related to existing deferred compensation and supplemental income plans maintained for the benefit of F-20 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 certain presidents, employees and directors of such banks. The total cash surrender value of such policies at December 31, 2001 and 2000 was $11,416,000 and $10,170,000, respectively. The Company recorded expense of $93,000 and $39,000 for the years ended December 31, 2001 and 2000, respectively for these plans. The Company sponsors a Performance Share Plan (the PSP) to offer long-term incentives in addition to current compensation to key executives. The criteria for payment of performance share awards is based upon a comparison of the Company's average return on average equity for an award period to that of a comparison group of bank holding companies. If the Company's results are below the median of the comparison group, no portion of the award is earned. If the Company's results are at or above the 90th percentile, the maximum award is earned. The vesting period for awards is four years. Under the plan, 400,000 shares have been reserved for issuances. In accordance with the terms of the PSP, a base grant of 23,000, 22,500 and 14,150 shares was made in each of the years ended December 31, 2001, 2000 and 1999, respectively. The market value per share was $22.00, $18.88 and $26.75 at each grant date for the years ended December 31, 2001, 2000 and 1999, respectively. During the years ended December 31, 2001 and 2000, 22,186, and 21,082 shares, respectively, were awarded to participants. At December 31, 2001, outstanding awards of expected and maximum payouts were 106,471 and 113,390 shares, respectively. Expense recorded for the PSP was $561,000, $653,000 and $541,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The Company has a separate Performance Share Plan to provide long-term incentives to non-employee directors of a subsidiary bank (the 1997 Subsidiary PSP) and made a base grant of 20,000 shares, with a market value per share of $25.13, to vest over a sixty-three month period. The actual number of shares to be distributed in fiscal 2002 will depend on the subsidiary bank's performance as well as certain conditions to be met by the directors. At December 31, 2001, the expected and maximum payout was 18,261 shares, net of forfeitures. Expense recorded for the 1997 Subsidiary PSP was $84,000, $84,000 and $77,000 for the years ended December 31, 2001, 2000 and 1999, respectively. During 2000, the Company adopted a separate Performance Share Plan to provide long-term incentives to non-employee directors of a subsidiary bank (the 2000 Subsidiary PSP) and made a base grant of 20,000 shares, with a market value per share of $19.22 to vest over a sixty-four month period. The actual number of shares to be distributed in fiscal 2005 will depend on the subsidiary bank's performance as well as certain conditions to be met by directors. At December 31, 2001, the expected and maximum payout was 25,000 shares. Expense recorded for the 2000 Subsidiary PSP was $90,000 and $30,000 for the years ended December 31, 2001 and 2000, respectively. During 1999, the Company adopted the 1999 Long Term Incentive Plan (the LTI Plan) which provides for the award of incentive and non-qualified stock options, stock appreciation rights, restricted stock and performance awards to eligible employees of the Company. The total number of shares of common stock reserved and available for distribution under the LTI Plan is 300,000 shares. Any awards under the LTI Plan will be in addition to awards made under the PSP. During 2000, the Company granted 160,500 non-qualified stock options under the LTI Plan, which vest over a sixty-month period. Net of forfeitures, 145,500 stock options were outstanding at December 31, 2001. Expense recorded for the LTI Plan was $124,000 and $199,000 for the years ended December 31, 2001 and 2000, respectively. F-21 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 In connection with the 2001 business combination of Farmers, the Company assumed certain stock options of the acquired bank. Additionally, the Company had fixed stock option plans with outstanding options granted prior to 1997. A summary of the status of the Company's fixed stock options as of December 31, 2001, 2000 and 1999, and the changes during each of the three years then ended is presented below:
2001 2000 1999 ------------------ ----------------- ----------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------- -------- ------- -------- ------- -------- Outstanding, beginning of year................ 379,406 $14.12 239,371 $10.31 330,057 $ 9.43 Granted................. 164,018 18.88 3,518 26.78 Forfeited............... (15,000) 18.88 Assumed in business combination............ 75,076 27.45 Exercised............... (112,662) 8.85 (23,983) 8.60 (94,204) 7.83 -------- ------ ------- ------ ------- ------ Outstanding, end of year................... 326,820 $18.78 379,406 $14.12 239,371 $10.31 ======== ====== ======= ====== ======= ====== Options exercisable, end of year................ 181,320 218,906 231,913 ======== ======= =======
The following table summarizes information about fixed stock options outstanding at December 31, 2001:
Options Outstanding -------------------------- Remaining Exercise Number Contractual Options Price Outstanding Life Exercisable -------- ----------- -------------- ----------- $ 5.03.............................. 2,110 March 2004 2,110 $ 6.39.............................. 3,984 October 2002 3,984 $ 9.39.............................. 18,636 August 2006 18,636 $10.00.............................. 29,833 November 2004 29,833 $10.10.............................. 4,848 October 2004 4,848 $13.00.............................. 6,833 November 2005 6,833 $14.64.............................. 2,449 February 2006 2,449 $14.92.............................. 2,111 September 2006 2,111 $15.56.............................. 26,995 March 2007 26,995 $17.42.............................. 2,111 September 2006 2,111 $17.66.............................. 6,796 November 2002 6,796 $18.88.............................. 145,500 December 2010 $18.95.............................. 2,111 September 2006 2,111 $23.53.............................. 21,237 July 2003 21,237 $26.78.............................. 2,111 September 2006 2,111 $30.00.............................. 41,199 December 2004 41,199 $30.02.............................. 2,111 September 2006 2,111 $33.88.............................. 5,314 March 2002 5,314 $47.06.............................. 531 September 2009 531 ------- ------- 326,820 181,320 ======= =======
During 2001, the Company did not grant any stock options. The per share weighted-average fair value of stock options granted during 2000 and 1999 was $5.18 and $6.17, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 2000-- expected volatility 25.6%, expected dividend yield 3.5%, risk-free interest rate of 5.9%, and an expected life of 7.0 years; 1999--expected volatility 25.0%, expected dividend yield 3.0%, risk-free interest rate of 6.0%, and an expected life of 7.0 years. Total compensation expense recorded for the fixed stock option plans was $124,000, $253,000 and $53,000 for the years ended December 31, 2001, 2000 and 1999, respectively. F-22 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 Additionally, the Company and three of its subsidiary banks maintain deferral of compensation plans for certain directors who are not employees of the Company. Under the plans, a non-employee director may choose to have all or part of the cash and/or stock equivalents they would normally receive as compensation deferred for future payment, at such time and in such manner as the director specifies at the time of the election, so long as any annuity payment period does not exceed ten years. The cash portion of the deferral of compensation account earns interest at a rate which approximates the Company's short-term borrowing rate. Dividends earned on stock equivalent portions are credited to the deferral or compensation account in the form of additional stock equivalents. At December 31, 2001 and 2000, the amount deferred under the terms of these plans totaled $1,730,000 and $1,285,000, respectively. For the years ending December 31, 2001, 2000 and 1999, approximately $445,000, $410,000 and $418,000, respectively, was expensed under these plans. One of the Company's subsidiary banks has a deferred compensation plan whereby directors may elect to have all or a portion of their compensation deferred. Expense recognized under the plan was $17,000, $18,000 and $18,000 in 2001, 2000 and 1999, respectively. At December 31, 2001, amounts payable under the plan totaled $116,000. In connection with the Farmers merger during 2001, the Company assumed an employee stock ownership plan with 401(k) provisions. Concurrent with the Farmers merger, the employee stock ownership plan was terminated. The Company intends to liquidate the employee stock ownership plan pending receipt of a determination letter from the Internal Revenue Service. 11. Income Taxes The components of the provision for income taxes consist of the following for the years ended December 31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999 ------- ------- ------- Current: Federal.............................................. $10,277 $ 8,693 $11,291 State................................................ 415 321 1,185 ------- ------- ------- Total current expense.................................. 10,692 9,014 12,476 Deferred: Federal.............................................. 2,260 2,057 (1,561) State................................................ 280 350 (98) ------- ------- ------- Total deferred expense (benefit)....................... 2,540 2,407 (1,659) Change in valuation allowance.......................... ------- ------- ------- Total provision for income taxes....................... $13,232 $11,421 $10,817 ======= ======= =======
F-23 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 Temporary differences and carryforwards which give rise to a significant portion of the Company's deferred tax assets and liabilities for the years ended December 31, 2001 and 2000 are as follows (in thousands):
2001 2000 ------- ------ Deferred tax assets: Loan loss reserve............................................. $10,393 $6,544 Other real estate owned basis difference...................... 126 7 Net operating loss............................................ 1,103 146 Deferred compensation......................................... 3,614 2,431 Loan fees..................................................... 522 510 Unrealized loss on securities................................. 381 Other......................................................... 854 538 ------- ------ Total deferred tax assets....................................... 16,612 10,557 Deferred tax liabilities: Depreciation and basis difference............................. 12,139 7,336 Unrealized gains on securities................................ 553 Other......................................................... 326 266 Core deposits................................................. 164 178 ------- ------ Total deferred tax liabilities.................................. 13,182 7,780 ------- ------ Net deferred tax assets......................................... $ 3,430 $2,777 ======= ======
The Company did not establish a valuation allowance related to the deferred tax asset recorded at December 31, 2001 and 2000 due to taxes paid within the carryback period being sufficient to offset future deductions resulting from the reversal of these temporary differences. Total provision for income taxes differs from the amount which would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below for the years ended December 31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999 ------- ------- ------- Provision for income taxes at statutory federal income tax rate................................... $14,586 $12,934 $11,961 Increase (decrease) resulting from: State income taxes, net of federal income tax benefit......................................... 708 378 675 Tax free interest income......................... (1,557) (1,433) (1,304) Nondeductible meals and entertainment............ 113 97 79 Disallowed interest expense deduction............ 59 68 100 Goodwill and core deposit amortization........... 164 153 134 General business and other credits............... (861) (861) (830) Other, net....................................... 20 85 2 ------- ------- ------- Total provision for income taxes................... $13,232 $11,421 $10,817 ======= ======= =======
For federal income tax purposes, two of the Company's subsidiaries have net operating loss carryforwards totaling $3,164,000 and $310,000 at December 31, 2001 and 2000, respectively, which will expire beginning in 2006. For state income tax purposes, two of the Company's subsidiaries have net operating loss carryforwards and tax credits totaling $685,000 and $464,000 at December 31, 2001 and 2000, respectively. F-24 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 12. Noninterest Expense The following table sets forth, for the years ended December 31, 2001, 2000 and 1999, the principal components of noninterest expense (in thousands):
2001 2000 1999 ------- ------- ------- Salaries and employee benefits......................... $45,329 $39,017 $34,970 Commission based compensation.......................... 12,868 5,566 4,376 Net occupancy expense.................................. 9,722 8,906 7,884 Amortization of goodwill............................... 524 501 387 Advertising............................................ 1,254 1,039 1,133 Banking assessments.................................... 771 660 512 Core deposit amortization.............................. 627 377 197 Data processing expenses............................... 1,562 1,453 1,478 Legal and professional fees............................ 3,331 2,337 2,996 Noncredit losses, net of recoveries.................... 339 136 206 Postage and courier services........................... 1,776 1,776 1,336 Supplies and printing.................................. 1,926 1,740 1,376 Telephone.............................................. 1,224 1,167 1,059 Other.................................................. 10,980 9,436 7,950 ------- ------- ------- Total noninterest expense.............................. $92,233 $74,111 $65,860 ======= ======= =======
13. Earnings Per Share The following table reflects the reconciliation, after adjusting for stock splits, of the basic EPS computation to the diluted EPS computation (in thousands, except per share data):
Income Shares Amount ------- ------ ------ 2001 Basic EPS net income...................................... $28,415 11,853 $2.40 ======= ====== ===== Effect of dilutive securities............................. 288 ------- ------ Diluted EPS............................................... $28,415 12,141 $2.34 ======= ====== ===== 2000 Basic EPS net income...................................... $25,518 11,792 $2.16 ======= ====== ===== Effect of dilutive securities............................. 181 ------- ------ Diluted EPS............................................... $25,518 11,973 $2.13 ======= ====== ===== 1999 Basic EPS net income...................................... $23,306 11,814 $1.97 ======= ====== ===== Effect of dilutive securities............................. 194 ------- ------ Diluted EPS............................................... $23,306 12,008 $1.94 ======= ====== =====
14. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. F-25 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 Cash, Due From Banks, Interest-Bearing Cash Balances, and Federal Funds Sold--The carrying amount is a reasonable estimate of fair value. Investment, Available for Sale, and Trading Securities--Fair value is based on quoted market prices or dealer quotes. 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. Deposits--The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Federal Funds Purchased, Short-Term Borrowings, and Long-Term Debt--The carrying amount is a reasonable estimate of fair value. Commitments to Extend Credit and Standby Letters of Credit--All commitments to extend credit and standby letters of credit have original terms, at their issuance, of one year or less; therefore, the fair value of these instruments does not materially differ fdrom their stated value. The estimated fair values of financial instruments at December 31, 2001 and 2000 are as follows (in thousands):
2001 2000 --------------------- --------------------- Carrying Carrying Amount Fair Value Amount Fair Value ---------- ---------- ---------- ---------- Financial assets: Cash and due from banks.......... $ 78,262 $ 78,262 $ 80,476 $ 80,476 Interest-bearing deposits in other banks..................... $ 10,813 $ 10,813 $ 7,630 $ 7,630 Federal funds sold and securities purchased under agreements to resell.......................... $ 32,241 $ 32,241 $ 30,260 $ 30,260 Investment securities and securities available for sale... $ 567,688 $ 567,730 $ 386,059 $ 386,782 Trading securities............... $ 1,341 $ 1,341 $ 577 $ 577 Loans............................ $2,000,723 $2,054,886 $1,716,036 $1,747,475 Financial liabilities: Deposits......................... $2,066,759 $1,951,359 $1,807,095 $1,744,876 Federal funds purchased; securities sold under agreements to resell; and treasury, tax, and loan account................ $ 243,550 $ 243,550 $ 167,480 $ 167,480 Short-term borrowings............ $ 68,350 $ 68,350 $ 91,439 $ 91,439 Long-term debt................... $ 209,631 $ 211,049 $ 83,926 $ 84,077
F-26 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 15. Parent Company The condensed financial information of the parent company only as of December 31, 2001 and 2000, and for the years ended December 31, 2001, 2000 and 1999 is presented as follows (in thousands):
2001 2000 --------- -------- Balance Sheets Assets: Cash.................................................... $ 3,642 $ 2,908 Securities available for sale........................... 80 80 Investments in subsidiaries............................. 232,003 191,742 Intangibles............................................. 5,781 6,124 Other assets............................................ 3,398 3,190 --------- -------- Total assets.............................................. $ 244,904 $204,044 ========= ======== Liabilities and stockholders' equity: Accounts payable........................................ $ 4,930 $ 4,590 Accrued interest payable................................ 204 411 Short and long-term debt................................ 31,884 27,439 --------- -------- Total liabilities....................................... 37,018 32,440 Stockholders' equity: Common stock............................................ 12,425 11,922 Additional paid-in capital.............................. 103,624 86,115 Retained earnings....................................... 92,866 77,812 Treasury stock.......................................... (2,087) (3,431) Accumulated other comprehensive income (loss), net of taxes.................................................. 1,058 (814) --------- -------- Total stockholders' equity................................ 207,886 171,604 --------- -------- Total liabilities and stockholders' equity................ $ 244,904 $204,044 ========= ========
2001 2000 1999 ------- ------- ------- Statements of Income Income: Dividends from subsidiaries......................... $13,001 $ 8,566 $11,909 Securities gains.................................... 1 148 Other............................................... 30 40 36 ------- ------- ------- 13,031 8,607 12,093 ------- ------- ------- Expenses: Interest expense.................................... 1,446 1,527 816 Other expenses...................................... 3,878 3,089 2,771 ------- ------- ------- Total expenses........................................ 5,324 4,616 3,587 ------- ------- ------- Income before equity in undistributed earnings of subsidiaries and taxes............................... 7,707 3,991 8,506 Equity in undistributed earnings of subsidiaries...... 18,983 19,929 13,613 ------- ------- ------- Income before income taxes............................ 26,690 23,920 22,119 Income tax benefit.................................... 1,725 1,598 1,187 ------- ------- ------- Net income............................................ $28,415 $25,518 $23,306 ======= ======= =======
F-27 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 ------- ------- ------- Statements of Cash Flows Cash flows from operating activities: Net income.......................................... $28,415 $25,518 $23,306 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of investment in consolidated subsidiaries in excess of net assets acquired and core deposits............................... 342 342 338 Equity in undistributed earnings of subsidiaries.................................... (18,958) (19,903) (13,613) Deferred tax benefit............................. (475) (1,014) (87) Other............................................ 1,384 601 285 Increase (decrease) in other assets and liabilities..................................... (220) 2,355 (2,620) ------- ------- ------- Net cash provided by operating activities....... 10,488 7,899 7,609 ------- ------- ------- Cash flows from investing activities: Additional investment in subsidiaries............... (1,591) (10,200) Decrease in securities available for sale........... 256 ------- ------- ------- Net cash (used in) provided by investing activities..................................... (1,591) (10,200) 256 ------- ------- ------- Cash flows from financing activities: Dividends on common stock........................... (11,003) (9,289) (7,958) Change in other liabilities......................... 9 (303) Exercise of stock options........................... (408) 63 215 Net increase in borrowings...................... 3,911 11,050 4,889 Purchase of treasury stock.......................... (663) (588) Treasury stock acquired for purchase business combination........................................ (3,226) ------- ------- ------- Net cash (used in) provided by financing activities..................................... (8,163) 1,245 (6,383) ------- ------- ------- Net increase (decrease) in cash................. 734 (1,056) 1,482 Cash, beginning of year............................. 2,908 3,964 2,482 ------- ------- ------- Cash, end of year................................... $ 3,642 $ 2,908 $ 3,964 ======= ======= =======
16. Regulatory The subsidiary banks are required by law to maintain reserves in cash or deposits with the Federal Reserve Bank or other banks. At December 31, 2001, the required reserves totaled $11,420,000. At December 31, 2001 and 2000, securities with carrying values of $223,534,000 and $246,924,000, respectively, were pledged to secure U.S. government deposits and other public funds for purposes as required or permitted by law. The Company has a policy of collecting amounts from its subsidiaries sufficient to cover expenses of the Company and to service Company debt. Such amounts have been received in the form of dividends declared by the subsidiaries. Payment of dividends is subject to the financial condition of the subsidiaries and the Company's judgment as to the desirability of utilizing alternative sources of funds. The payment of dividends by the subsidiary banks is also subject to various regulatory requirements. At December 31, 2001, $50,852,000 of the retained earnings of the subsidiary banks are available for payment of dividends to the Company under the various regulatory requirements, without special approval from the applicable regulators. The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary-- F-28 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 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 must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company maintain minimum amounts and ratios (set forth in the table below) of total qualifying capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2001, that the Company meets all capital adequacy requirements to which it is subject. As of December 31, 2001, the most recent notification from the Federal Reserve Bank categorized the Company as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. The actual capital amounts and ratios of the Company at December 31, 2001 and 2000 are presented in the table below (in thousands):
To Be Well Capitalized Under Prompt For Capital Corrective Adequacy Action Actual Purposes Provisions -------------- -------------- -------------- Amount Ratio Amount Ratio Amount Ratio -------- ----- -------- ----- -------- ----- As of December 31, 2001: Total qualifying capital (to risk-weighted assets)........ $229,181 11.17% $164,140 8.00% $205,175 10.00% Tier I capital (to risk- weighted assets)............. $203,527 9.92% $ 82,067 4.00% $123,101 6.00% Tier I capital (to average assets)...................... $203,527 7.61% $106,979 4.00% $133,723 5.00% As of December 31, 2000: Total qualifying capital (to risk-weighted assets)........ $181,149 10.11% $143,342 8.00% $179,178 10.00% Tier I capital (to risk- weighted assets)............. $158,781 8.86% $ 71,684 4.00% $107,527 6.00% Tier I capital (to average assets)...................... $158,781 6.83% $ 92,990 4.00% $116,238 5.00%
The actual capital amounts and ratios of National Bank of Commerce, the Company's most significant subsidiary, at December 31, 2001 and 2000 are presented in the table below (in thousands):
To Be Well Capitalized Under Prompt For Capital Corrective Adequacy Action Actual Purposes Provisions ------------- ------------- ------------- Amount Ratio Amount Ratio Amount Ratio ------- ----- ------- ----- ------- ----- As of December 31, 2001: Total qualifying capital (to risk-weighted assets)........... $90,993 11.83% $61,534 8.00% $76,917 10.00% Tier I capital (to risk-weighted assets)......................... $81,544 10.60% $30,771 4.00% $46,157 6.00% Tier I capital (to average assets)......................... $81,544 7.72% $42,251 4.00% $52,513 5.00% As of December 31, 2000: Total qualifying capital (to risk-weighted assets)........... $83,688 10.97% $61,030 8.00% $76,288 10.00% Tier I capital (to risk-weighted assets)......................... $74,678 9.79% $30,512 4.00% $45,768 6.00% Tier I capital (to average assets)......................... $74,678 7.78% $38,395 4.00% $47,994 5.00%
F-29 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 17. Segment Reporting In addition to traditional commercial and consumer retail banking products, the Company offers mortgage lending services, investment services, securities brokerage and trust services and insurance services to its customers. During 2001, the Company changed its reportable segment disclosure to present the combined results of operations for the securities brokerage and trust divisions into a consolidated segment. This change is due to the similar customer base and products offered by these divisions and reflects management's view that these formerly separate segments should be combined for both internal and external monitoring and reporting. The securities brokerage and trust division includes a full service broker-dealer operation and also manages the assets and provides custodial and trust services for both corporate and individual customers located primarily in the Birmingham, Alabama market. The mortgage lending division makes home loans to individuals throughout the markets served by the Company. The majority of the loans made are sold to corporate investors, who also service the loans. The investment services division sells fixed income securities and provides trading services to both individual and corporate customers. The insurance division offers a full line of insurance products including life, property and casualty insurance to individual and corporate customers primarily in the state of Alabama. These four divisions, along with the commercial and retail banking division, are considered the Company's reportable segments for financial disclosure purposes. The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that certain overhead expenses are not allocated among the segments. Additionally, the fixed assets utilized by the various divisions are not separately identified by management. Accordingly, the results of operations for the mortgage lending, investment services, securities brokerage and trust, and insurance segments are not indicative of the results which would be achieved if each of the segments were a separate company. Intersegment transactions are accounted for at fair market value. F-30 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) For the Years Ended December 31, 2001, 2000 and 1999 The Company's reportable segments represent the distinct major product lines the Company offers and are viewed separately for strategic planning purposes by management. The following table is a reconciliation of the reportable segment revenues, expenses, and profit to the Company's consolidated totals (in thousands):
Securities Investment Brokerage Mortgage Retail and Services and Trust Lending Insurance Commercial Corporate Elimination Division Division Division(2) Division Banking Overhead((1) Entries Total ---------- ---------- ----------- --------- ---------- ------------ ----------- -------- Year ended December 31, 2000: Interest income......... $ $1,858 $1,117 5 $177,028 $ (59) $ (412) $179,537 Interest expense........ 407 624 6 88,381 1,387 (412) 90,393 ------ ------ ------ ----- -------- ------- ------- -------- Net interest income..... 1,451 493 (1) 88,647 (1,446) 89,144 Provision for loan losses................. 3,946 3,946 Noninterest income...... 13,717 8,800 7,660 2,126 16,374 30 48,707 Noninterest expense..... 10,334 8,836 4,924 2,107 61,528 4,504 92,233 ------ ------ ------ ----- -------- ------- ------- -------- Net income before provision for income taxes and minority interest............... $3,383 $1,415 $3,229 $ 18 $ 39,547 $(5,920) $ $ 41,672 ====== ====== ====== ===== ======== ======= ======= ======== Year ended December 31, 2000: Interest income......... $ $3,700 $ 424 $ 23 $168,951 $ (61) $(1,815) $171,222 Interest expense........ 1,805 315 14 89,141 1,527 (1,815) 90,987 ------ ------ ------ ----- -------- ------- ------- -------- Net interest income..... 1,895 109 9 79,810 (1,588) 80,235 Provision for loan losses................. 2,506 2,506 Noninterest income...... 5,867 7,692 3,866 2,099 13,782 41 33,347 Noninterest expense..... 5,377 7,579 2,746 1,837 53,432 3,140 74,111 ------ ------ ------ ----- -------- ------- ------- -------- Net income before provision for income taxes and minority interest............... $ 490 $2,008 $1,229 $ 271 $ 37,654 $(4,687) $ 36,965 ====== ====== ====== ===== ======== ======= ======= ======== Year ended December 31, 1999: Interest income......... $ $2,053 $ 527 $ 16 $131,342 $ (93) $ (739) $133,106 Interest expense........ 955 348 9 60,918 816 (739) 62,307 ------ ------ ------ ----- -------- ------- ------- -------- Net interest income..... 1,098 179 7 70,424 (909) 70,799 Provision for loan losses................. 2,107 2,107 Noninterest income...... 6,624 5,897 4,240 1,068 13,303 184 31,316 Noninterest expense..... 5,957 5,430 3,043 875 47,877 2,678 65,860 ------ ------ ------ ----- -------- ------- ------- -------- Net income before provision for income taxes and minority interest............... $ 667 $1,565 $1,376 $ 200 $ 33,743 $(3,403) $ $ 34,148 ====== ====== ====== ===== ======== ======= ======= ========
- ------- (1) Corporate overhead is comprised primarily of compensation and benefits for certain members of management, merger related costs, interest expense on parent company debt, amortization of intangibles and other expenses. (2) Mortgage lending includes allocated intercompany income totaling $229,000, $335,000 and $247,000 at December 31, 2001, 2000, and 1999, respectively. 18. Related Party Transactions In addition to the previously disclosed related party transactions, the Company received trust fees from related parties of approximately $548,000 in 2001, $631,000 in 2000 and $629,000 in 1999. 19. Treasury Stock Repurchase Plan In the second quarter of 2000, the Board of Directors of the Company authorized the repurchase of up to 250,000 shares of the Company's common stock. On October 10, 2000, this stock repurchase program was rescinded by the Board of Directors. A total of 30,000 shares were repurchased prior to the rescission of this plan. In the third quarter of 2001, the Board of Directors of the Company authorized the repurchase of up to 300,000 shares of the Company's common stock. As of December 31, 2001, 21,000 shares had been repurchased under this plan. F-31 EX-10.45 3 dex1045.txt KEY PERSONNEL STOCK OPTION PLAN EXHIBIT 10.45 THE FARMERS NATIONAL BANK OF OPELIKA KEY PERSONNEL STOCK OPTION PLAN EFFECTIVE DATE - OCTOBER 28, 1992 --------------------------------- 1. PURPOSE: This Key Personnel Stock Option Plan (the "Plan") of The Farmers ------- National Bank of Opelika (the "Bank") is intended to provide incentives to certain "key personnel" of the Bank, whether presently or prospectively employed, to encourage stock ownership in the Bank by key personnel and to encourage key personnel to remain employed by the Bank. 2. STOCK SUBJECT TO OPTION: On October 28, 1992, 287,168 shares of Farmers ----------------------- National Bancshares, Inc. stock have been issued, with 540,000 shares authorized. 286,868 shares were outstanding as of August 1, 1992, with 300 shares in Treasury. Subject to the provisions of Section 5 and 6, the total number of shares of stock with respect to which options ("Options") may be granted under the Plan is 125,000 shares of common stock (par value $0.05) of the Bank (the "Common Stock"). If an option expires or terminates for any reason without being exercised in full, the unpurchased shares subject to such option shall again be available for purposes of the plan. 3. ADMINISTRATION OF THE PLAN: The Plan shall be administered by a committee -------------------------- of the Board of Directors consisting of not less than three directors. As used herein, the term "Personnel Committee" refers to such committee. The Personnel Committee shall recommend to the Board of Directors the officers, key employees, and directors of the Bank, ("key personnel"), to whom Options shall be granted, the number of shares covered thereby and the terms and provisions of Options, subject to the terms and conditions of this Plan. In making such recommendations, the Personnel Committee shall take into account the nature of the services rendered and to be rendered by the respective key personnel, their present and potential contributions to the Bank and any other factors which the Bank deems relevant. Subject to the provisions of this Plan, the Personnel Committee shall have full and conclusive authority to interpret this Plan; to determine the terms and provisions of the respective Option agreements (which need not be identical); and to make all other determinations necessary or advisable for the proper administration of this Plan, all subject to the approval of the Board of Directors. 4. PARTICIPANTS: Participants will be selected by the Personnel Committee from ------------ among key personnel of the Bank and may include officers, directors, and key employees. 5. AWARD OF OPTIONS: Except for termination of this Plan as provided in ---------------- Sections 6.4 and 10, the Personnel Committee may, in its discretion, grant Options under this Plan from time to time prior to October 28, 2002. The shares covered by the unexercised portion of any terminated or expired Options shall become available again for the grant of Options under this Plan. It is intended that Options granted under this Plan shall not constitute incentive stock options ("ISOs") within the meaning of Section 422A of the Internal Revenue Code of 1986 or any successor provision, and shall be known and construed as "Non- Qualified Stock Options." 6. ADJUSTMENTS OF OPTIONS: ---------------------- 6.1 The number of shares of Common Stock subject to this Plan and the exercise Price (as defined in Section 7) shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from (a) the subdivision or consolidation of such shares, (b) the payment of a stock dividend on the Common Stock or (c) any other increase or decrease in the number of shares of the Common Stock effected without receipt of consideration by the Bank. 6.2 In the event of a change in the Common Stock as presently constituted, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of this Plan. 2 6.3 If the Bank shall be the surviving corporation in any merger, this Plan shall pertain to and apply to the securities to which a holder of the number of shares of the Common Stock then remaining subject to this Plan would have been entitled immediately after such merger if such holder had owned the Common Stock on the effective date of such merger. 6.4 A dissolution or liquidation of the Bank shall cause this Plan and the Options granted pursuant hereto to terminate. Upon a merger or consolidation in which the Bank is not the surviving corporation all Options granted pursuant hereto shall vest and the surviving corporation shall either (a) cause this Plan to terminate or (b) continue this Plan in full force and effect in accordance with its terms, except that this Plan shall pertain to and apply to the securities of the surviving corporation to which a holder of the number of shares of the Common Stock then remaining subject to this Plan would have been entitled immediately after such merger or consolidation if such holder had owned the Common Stock on the effective date of such merger or consolidation. The Bank shall notify in writing all key personnel holding Options granted pursuant to this Plan of any termination of the Plan or of such Options under this Section 6.4. Notwithstanding Section 7.5.1, such a termination of this Plan shall entitle all key personnel holding outstanding Options granted pursuant to this Plan to purchase, in whole or in part, the total number of shares of the surviving corporation to which a holder of the number of Option Shares (as defined below) then outstanding would have been entitled immediately after such merger or consolidation by exercising such Options 3 on or before one hundred ninety-five (195) days after receipt of written notice that this Plan is terminated. 7. TERMS AND CONDITIONS OF OPTIONS: Options granted under this Plan shall be ------------------------------- subject to the following terms and conditions and shall be evidenced by written Option Agreements in such form not inconsistent with this Plan as the Personnel Committee shall from time to time determine: 7.1 Option Effective Date: Each Option Agreement shall specify an --------------------- effective date (the "Effective Date") which shall be the date the Option is granted by the Board of Directors. 7.2 Option Term: An Option shall in no event be exercisable after the ----------- expiration of ten (10) years from the Effective Date of the Option. 7.3 Exercise Price: The exercise price of Options granted hereunder shall -------------- be the price per share fixed by the Board of Directors (the "Exercise Price"); provided, however, that the Exercise Price per share of Common Stock shall not be less than the fair market value of a share of Common Stock on the date the Option is granted, as determined in good faith by the Board of Directors. Beginning Option Price as of October 28, 1992 is $30.00 per share. 7.4 Change in Control: A "Change in Control" of the Bank is deemed to have ----------------- occurred for the purposes of this Plan if (1) a person or group of persons other than any person who has been granted by the Board of Directors an Option or Options pursuant to which such person is entitled to purchase shares of the Bank, becomes the beneficial owner of shares of the Bank equal to 25% or more of the total outstanding Common Stock or (2) as a result of, or in connection with, any cash tender offer or exchange offer, merger or other 4 business combination, sale of assets or contested election of Directors, or any combination of the foregoing transactions, the persons who were Directors of the Bank before such transaction will cease to constitute a majority of the Board of Directors of the Bank before such transaction will cease to constitute a majority of the Board of Directors of the Bank or any successor institution to the Bank. 7.5 Exercise of Options: ------------------- 7.5.1 Rate of Exercise. An Option which has been granted under this ---------------- Plan may be exercised with respect to (i) 20% of the total number of shares covered by the Option ("Option Shares") on or after one year from the Effective Date of the Option; (ii) 40% of the Option Shares on or after two years from the Effective Date; (iii) 60% of the Option Shares on or after three years from the Effective Date; (iv) 80% of the Option Shares on or after four years from the Effective Date; and (v) all the Option Shares on or after the fifth anniversary of the Effective Date. An Option granted under this Plan may be exercised at any rate in the sole discretion of the Optionee with respect to the shares subject to such Option. Except as provided in Section 7.8 below, an Option may not be exercised by the holder unless he or she is then, and continually after the grant of the Option has been, associated with the Bank. 7.5.2 Partial Exercise; Further Limitations. Any Option may be ------------------------------------- exercised for all or a part of the Option Shares with respect to which such Option is exercisable under this Section 7.5. The Personnel Committee may, however, in its discretion provide further 5 limitations on the exercise of Options granted under this Plan, subject to Board of Directors approval. 7.5.3 Acceleration. Notwithstanding the provisions of Section 7.5.1, ------------ upon the grant of any Option or at any time or times thereafter before an Option has expired or been exercised in full, the Board of Directors in its discretion may cause such Option to provide or amend such Option to provide that the Option may be exercised with respect to all or any portion of the Option Shares at a time or times earlier than that provided in Section 7.5.1, and any Option may be exercised with respect to all or any portion of the Option Shares immediately upon any Change in Control of the Bank or upon the death or total disability of an Option holder. 7.6 Method of Exercise. Subject to sections 7.5 and 7.9, an Option may be ------------------ exercised from time to time by written notice to the Controller stating the number of shares with respect to which the Option is being exercised, which notice shall be accompanied by payment in full for the stock acquired. Payment for the stock may be in cash, or if the optionee's Option Agreement so provides, payment in full for the shares acquired may be made in whole or in part by the surrender of Common Stock. In the event Common Stock is used to pay all or a portion of the price for the stock acquired, the optionee shall receive credit for the fair market value of the stock surrendered as of the date of surrender. 7.7 Non-assignability of Option Rights. No Option shall be assignable or ---------------------------------- transferable by an optionee except by will or by the laws of descent and distribution. Any distributee by will or by the laws of descent and distribution shall be bound by the provisions of this Plan. During the life of an optionee, the Option shall be exercisable only by such optionee. Any attempt to assign, 6 pledge, transfer, hypothecate or otherwise dispose of an option, and any levy of execution, attachment or similar process on an option shall be null and void. 7.8 Exercise After Termination of Employment or Death. In the event of ------------------------------------------------- termination of employment of the holder for any reason, other than death or disability, the holder may not exercise an Option more than three (3) months after termination of employment. If the holder of an Option dies or becomes disabled and his employment is terminated, such Option shall vest and may be exercised by a legatee or legatees of the holder under his last will, or by his personal representatives or distributees or guardians, at any time during the remaining Option Term provided in Section 7.2. 7.9 Restriction on Issuance of Shares. The Company shall not be obligated --------------------------------- to sell or issue any shares pursuant to any Option Agreement if such issuance would result in the violation of any laws, including the Securities Act of 1933, as amended (the "Act") or any rules and regulations promulgated by the Federal Deposit Insurance Corporation. 7.10 Purchase for Investment; Other Representation of Optionee. In the --------------------------------------------------------- event that the offering of shares with respect to which an Option is being exercised is not registered under the Act, but an exemption is available which requires an investment representation or other representation, each optionee electing to purchase such shares will be required to represent that such shares are being acquired for investment and not with a view to the sale or distribution thereof, and to make such other representations as are deemed necessary by counsel to the Bank. Stock certificates evidencing such unregistered shares acquired upon exercise of Options shall bear restrictive legends and such other restrictive legends as are required or advisable under the provisions of any applicable laws or any rules and regulations promulgated by the appropriate banking authorities. 7 7.11 Rights as a Shareholder. An optionee shall have no rights as a ----------------------- shareholder with respect to any shares covered by the Option until the date of issuance of a stock certificate for such shares. Subject to Section 6, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 8. NO SPECIAL EMPLOYMENT RIGHTS: Nothing contained in the Plan or in any ---------------------------- option granted under the Plan shall confer upon any option holder any right with respect to the continuation of his or her employment by the Bank (or subsidiary) or interfere in any way with the right of the Bank (or subsidiary), subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the option holder from the rate in existence at the time of the grant of an option. 9. APPROVAL OF SHAREHOLDERS: The Plan shall become effective when adopted by ------------------------ the Board of Directors, but no Non-Qualified Stock Option granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Bank's shareholders. If such shareholder approval is not obtained with twelve (12) months after the date of the Board's adoption of the Plan, any Non-Qualified Stock Options previously granted under the Plan shall terminate and no further Non-Qualified Stock Options shall be granted. Subject to this limitation, options may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan. 10. TERMINATION AND AMENDMENT OF THE PLAN: This Plan shall terminate on October ------------------------------------- 28, 2002, and no Option shall be granted under this Plan after that date, but Options granted before termination of this Plan shall remain exercisable thereafter until they expire or lapse according to 8 their terms. The Plan may be terminated, modified or amended by the Board of Directors of the Bank; provided, however, that: (a) no such termination, modification or amendment without the consent of the holder of an Option shall adversely affect such holder's rights under such Option; and (b) any modification or amendment which would (1) materially increase the aggregate number of shares of Common Stock which may be issued under this Plan, (2) materially modify the requirements as to eligibility for participation in this Plan, or (3) materially increase the benefits accruing to participants under this Plan, shall be effective only if it is approved by the shareholders of the Bank at the next annual meeting of shareholders after the date of adoption by the Board of Directors of such modification or amendment; and (c) no such termination, modification or amendment shall affect any Option granted prior to such termination, modification or amendment unless such Option is specifically amended to incorporate the terms of such termination, modification or amendment. 9 EX-10.46 4 dex1046.txt AMENDED ANNUAL INCENTIVE PLAN EXHIBIT 10.46 SECOND AMENDMENT AND RESTATEMENT OF THE ALABAMA NATIONAL BANCORPORATION ANNUAL INCENTIVE PLAN 1. Plan Purpose. The purpose of the annual incentive plan (the "Plan") is to ------------ reward certain key employees of Alabama National BanCorporation (the "Corporation") with a variable component of pay based upon performance. For any given year of this Plan (a "Plan Year"), this variable award can only be earned if the predetermined performance criteria outlined in this Plan are met for such Plan Year. The Plan is designed to assure that amounts paid to certain key employees of the Corporation will not fail to be deductible by the Corporation for Federal income tax purposes because of the limitations imposed by Section 162(m) of the Internal Revenue Code of 1986, as amended and any regulations promulgated thereunder ("Section 162(m)"). Financial performance criteria will be established each Plan Year for the Corporation, each of its divisions and each of its subsidiaries. Annual incentive awards will be based upon performance in relation to these predetermined criteria. 2. Effective Date. The effective date of this amendment and restatement of -------------- the Plan shall be February 27, 2002. 3. Eligibility and Participation. Eligibility for the Plan is restricted to ----------------------------- certain key employees of the Corporation and its affiliates. The Chief Executive Officer of the Corporation (the "CEO") will nominate participants ("Participants") to be approved by the Compensation Committee of the Board of Directors of the Corporation (the "Compensation Committee"). Participation will be reevaluated and redetermined on an annual basis. 4. Target Incentive Awards. If the Compensation Committee certifies that any ----------------------- of the performance objectives established for the relevant year under this Plan has been satisfied, each Participant will be entitled (subject to any adjustments provided herein) to receive a target incentive award equal to a percentage of the Participant's base salary up to a maximum of $900,000. The appropriate percentage will be defined as set forth herein. The Compensation Committee may, in its sole discretion, adjust an individual Participant's target percentage in order to reflect special circumstances, including, among others: . Market differentials for specific specialized jobs. . Responsibility for a specific profit center within a division. . Need for special performance focus in a given area for a specified period of time. Page 1 of 4 5. Award Determination. For each given Plan Year, a Participant's award will ------------------- be a function of performance against pre-established objectives, as illustrated: Payout as a % of Rating Target Award ------ ---------------- Maximum 200% Target 100 Threshold 33 Below Threshold 0 Threshold, Target and Maximum performance levels will be defined at the beginning of each Plan Year for each performance measure. Individual ratings will be determined by the Compensation Committee at the beginning of each Plan Year. 6. Performance Criteria. The apportionment of the award opportunity among -------------------- performance criteria will be determined at the beginning of each Plan Year (or at such other date as may be required or permitted under Section 162(m)). The performance objectives will be based upon the relative or comparative achievement of one or more of the following criteria, as determined and weighted by the Compensation Committee: (i) net income; (ii) operating income; (iii) income per share; (iv) return on equity; (v) return on assets; (vi) return on average equity; (vii) return on average assets; (viii) total return; (ix) division or subsidiary income; or (x) other reasonable bases provided that to the extent required by Section 162(m), all awards made to certain executive officers of the Company under the Plan shall be based on one or more of the criteria listed in (i) through (ix) above. 7. Determination of Whether Criteria are Achieved. The determination of ---------------------------------------------- whether the performance criteria have been achieved by the Corporation or any subsidiary or division of the Corporation shall be made by the Compensation Committee, which may in its sole discretion include or exclude the effects of accounting, tax or reserve changes, or other non-recurring items, including, without limitation, extraordinary investment gains or losses and accretive or dilutive effects of mergers, acquisitions and other non-recurring transactions. 8. Discretionary Judgment. Notwithstanding anything else contained in this ---------------------- Plan to the contrary, the Compensation Committee shall have the right, in its absolute discretion, (i) to reduce or eliminate the amount otherwise payable to any Participant under the Plan based on individual performance or any other factors that the Compensation Committee, in its discretion, shall deem appropriate and (ii) to establish rules or procedures that have the effect of limiting the amount payable to each Participant to an amount that is less than the maximum amount otherwise authorized under the Plan. 9. Incentive Reserve. The Corporation shall maintain an incentive reserve and ----------------- upon authorization by the Compensation Committee shall credit annually to the incentive reserve for each fiscal year an incentive provision which may not be more than five percent (5%) of the Corporation's income before income tax for such year, determined in accordance with generally accepted accounting principles. The Compensation Committee may direct that any lesser amount be credited to the incentive reserve and may determine whether and to what extent a non-recurring gain or loss may be included in the amount of income before income tax for purposes of the incentive reserve amount. Page 2 of 4 In any Plan Year the Compensation Committee may pay any part or all of the incentive reserve as awards. Any part of the incentive reserve which is not paid in any Plan Year may remain in the incentive reserve and be carried forward to the next Plan Year. 10. Form and Timing of Payments. --------------------------- (a) Subject to paragraphs (b) and (c) below, payments will be made in cash as soon as practical after award amounts are approved by the Board of Directors of the Corporation. (b) Each Participant who is a management or highly compensated employee and who is entitled to participate in the Alabama National BanCorporation Deferral of Compensation Plan for Key Employees may elect to defer payment of any award amounts in accordance with said plan. (c) Notwithstanding anything in the Plan to the contrary, the Compensation Committee may defer all or any portion of any distribution of an award to be made hereunder to the extent such distribution, when added to all other payments to be made to a Participant in a calendar year, would not be deductible compensation paid by the Corporation for federal income tax purposes within the meaning of Section 162 of the Internal Revenue Code of 1986, as amended (the "Code"). The deferred amount of the award shall be paid to such Participant (or, in the event of his or her death, to his or her designated beneficiary or, if none, to his or her estate) in a lump sum, or in installments, if necessary to preserve the deductibility of such payment, as of the earliest date that the payment of the deferred amount, or portion thereof, when added to all other payments to be made to a Participant in a calendar year, would be deductible by the Company for federal income tax purposes within the meaning of Section 162 of the Code (including Section 162(m)). 11. Change of Position. In the event that a Participant changes positions ------------------ during the Plan Year, whether due to promotion, demotion or lateral move, awards will be prorated for the Plan Year based on the time in each position. 12. Newly Hired Employees. An employee hired into an eligible position during --------------------- the first six (6) months of a Plan Year may participate in the Plan for the balance of the Plan Year on a pro rata basis. 13. Termination of Employment. In the event a Participant voluntarily resigns ------------------------- employment or is terminated involuntarily before the end of the Plan Year, any award will be forfeited. In the event of death, permanent disability or normal retirement, the award will be paid on a pro rata basis at the end of the Plan Year, after approval by the Board of Directors. 14. Withholding. The Corporation shall withhold from award payments any ----------- required Federal, State or local taxes. Page 3 of 4 15. Governance. The Compensation Committee shall be responsible for the ---------- administration, interpretation and governance of the Plan. Actions requiring Compensation Committee approval include final determination of Plan participation, identification of performance criteria and final award determination. The decisions of the Compensation Committee shall in all respects be final and binding on all Participants. The Compensation Committee shall have the authority to delegate its responsibilities hereunder to the CEO as to Participants other than the executive officers of the Corporation. However, in no event shall the Plan be interpreted in a manner which would cause any amount payable under the Plan to any Covered Employee to fail to qualify as performance-based compensation under Section 162(m). "Covered Employee" shall have the meaning set forth in Section 162(m). 16. Amendment, Modification or Termination of the Plan. The Board of Directors -------------------------------------------------- reserves the right to amend, modify, suspend or terminate the Plan at any time. However, no such action shall be effective without approval by the stockholders of the Corporation to the extent necessary to continue to qualify the amounts payable hereunder to Covered Employees as performance-based compensation under Section 162(m). Furthermore, the Board of Directors may not, without stockholder approval, amend the formula for computing credits to the Incentive Reserve. 17. Employment At Will. Nothing in the Plan shall interfere with or limit in ------------------ any way the Corporation's right to terminate a Participant's employment at any time. The Plan shall not be construed as a contract of employment or compensation agreement. 18. Designation of Beneficiary. Each Participant may designate a beneficiary -------------------------- or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant's death. Such designation may be changed or cancelled at any time without the consent of any such beneficiary. Any such designation, change or cancellation must be made in a form approved by the Compensation Committee and shall not be effective until received by the Compensation Committee. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant, the beneficiary shall be the participant's spouse, or, if no spouse survives the Participant, the Participant's estate. If a Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares, unless the Participant has designated otherwise. 19. Interpretation. Notwithstanding anything else contained in this Plan to -------------- the contrary, to the extent required to so qualify any award as other performance based compensation within the meaning of Section 162(m), the Compensation Committee shall not be entitled to exercise any discretion otherwise authorized under this Plan with respect to such award if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause such award to fail to qualify as other performance based compensation. Page 4 of 4 EX-10.47 5 dex1047.txt AMENDED & RESTATED DEED OF TRUST EXHIBIT 10.47 =========================================================== AMENDED AND RESTATED DECLARATION OF TRUST by and among STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as Institutional Trustee, ALABAMA NATIONAL BANCORPORATION, as Sponsor, and WILLIAM E. MATTHEWS, V, JOHN H. HOLCOMB, III and RICHARD MURRAY, IV as Administrators, Dated as of December 18, 2001 =========================================================== TABLE OF CONTENTS -----------------
Page ---- ARTICLE I INTERPRETATION AND DEFINITIONS..................................................................... 1 Section 1.1. Definitions....................................................................... 1 ----------- ARTICLE II ORGANIZATION...................................................................................... 7 Section 2.1. Name.............................................................................. 7 ---- Section 2.2. Office............................................................................ 7 ------ Section 2.3. Purpose........................................................................... 7 ------- Section 2.4. Authority......................................................................... 7 --------- Section 2.5. Title to Property of the Trust.................................................... 7 ------------------------------ Section 2.6. Powers and Duties of the Institutional Trustee and the Administrators............. 8 --------------------------------------------------------------------- Section 2.7. Prohibition of Actions by the Trust and the Institutional Trustee................. 11 ----------------------------------------------------------------- Section 2.8. Powers and Duties of the Institutional Trustee.................................... 12 ---------------------------------------------- Section 2.9. Certain Duties and Responsibilities of the Institutional Trustee and ------------------------------------------------------------------------------- Administrators.................................................................... 13 -------------- Section 2.10. Certain Rights of Institutional Trustee........................................... 14 --------------------------------------- Section 2.11. Execution of Documents............................................................ 16 ---------------------- Section 2.12. Not Responsible for Recitals or Issuance of Securities............................ 16 ------------------------------------------------------ Section 2.13. Duration of Trust................................................................. 16 ----------------- Section 2.14. Mergers........................................................................... 16 ------- ARTICLE III SPONSOR.......................................................................................... 18 Section 3.1. Sponsor's Purchase of Common Securities........................................... 18 --------------------------------------- Section 3.2. Responsibilities of the Sponsor................................................... 18 ------------------------------- Section 3.3. Expenses.......................................................................... 18 -------- Section 3.4. Right to Proceed.................................................................. 19 ---------------- ARTICLE IV INSTITUTIONAL TRUSTEE AND ADMINISTRATORS.......................................................... 19 Section 4.1. Institutional Trustee; Eligibility................................................ 19 ---------------------------------- Section 4.2. Administrators.................................................................... 19 -------------- Section 4.3. Appointment, Removal and Resignation of Institutional Trustee and ------------------------------------------------------------------------------- Administrators.................................................................... 20 -------------- Section 4.4. Institutional Trustee Vacancies................................................... 21 ------------------------------- Section 4.5. Effect of Vacancies............................................................... 21 ------------------- Section 4.6. Meetings of the Institutional Trustee and the Administrators...................... 21 ------------------------------------------------------------ Section 4.7. Delegation of Power............................................................... 22 ------------------- Section 4.8. Conversion, Consolidation or Succession to Business............................... 22 --------------------------------------------------- ARTICLE V DISTRIBUTIONS...................................................................................... 22 Section 5.1. Distributions..................................................................... 22 ------------- ARTICLE VI ISSUANCE OF SECURITIES............................................................................ 22 Section 6.1. General Provisions Regarding Securities........................................... 22 --------------------------------------- Section 6.2. Paying Agent, Transfer Agent and Registrar........................................ 23 ------------------------------------------ Section 6.3. Form and Dating................................................................... 23 --------------- Section 6.4. Mutilated, Destroyed, Lost or Stolen Certificates................................. 24 ------------------------------------------------- Section 6.5. Temporary Securities.............................................................. 24 -------------------- Section 6.6. Cancellation...................................................................... 24 ------------
i Section 6.7. Rights of Holders; Waivers of Past Defaults....................................... 24 ------------------------------------------- ARTICLE VII DISSOLUTION AND TERMINATION OF TRUST............................................................. 26 Section 7.1. Dissolution and Termination of Trust.............................................. 26 ------------------------------------ ARTICLE VIII TRANSFER OF INTERESTS........................................................................... 27 Section 8.1. General........................................................................... 27 ------- Section 8.2. Transfer Procedures and Restrictions.............................................. 28 ------------------------------------ Section 8.3. Deemed Security Holders........................................................... 29 ----------------------- ARTICLE IX LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, INSTITUTIONAL TRUSTEE OR OTHERS................. 30 Section 9.1. Liability......................................................................... 30 --------- Section 9.2. Exculpation....................................................................... 30 ----------- Section 9.3. Fiduciary Duty.................................................................... 31 -------------- Section 9.4. Indemnification................................................................... 31 --------------- Section 9.5. Outside Businesses................................................................ 33 ------------------ Section 9.6. Compensation; Fee................................................................. 33 ----------------- ARTICLE X ACCOUNTING......................................................................................... 34 Section 10.1. Fiscal Year....................................................................... 34 ----------- Section 10.2. Certain Accounting Matters........................................................ 34 -------------------------- Section 10.3. Banking........................................................................... 34 ------- Section 10.4. Withholding....................................................................... 34 ----------- ARTICLE XI AMENDMENTS AND MEETINGS........................................................................... 35 Section 11.1. Amendments........................................................................ 35 ---------- Section 11.2. Meetings of the Holders of Securities; Action by Written Consent.................. 36 ---------------------------------------------------------------- ARTICLE XII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE......................................................... 37 Section 12.1. Representations and Warranties of Institutional Trustee........................... 37 ------------------------------------------------------- ARTICLE XIII MISCELLANEOUS................................................................................... 38 Section 13.1. Notices........................................................................... 38 ------- Section 13.2. Governing Law..................................................................... 39 ------------- Section 13.3. Intention of the Parties.......................................................... 39 ------------------------ Section 13.4. Headings.......................................................................... 39 -------- Section 13.5. Successors and Assigns............................................................ 39 ---------------------- Section 13.6. Partial Enforceability............................................................ 39 ---------------------- Section 13.7. Counterparts...................................................................... 39 ------------
Annex I.................. Terms of Securities Exhibit A-1.............. Form of Capital Security Certificate Exhibit A-2.............. Form of Common Security Certificate Exhibit B................ Specimen of Initial Debenture Exhibit C................ Placement Agreement ii AMENDED AND RESTATED DECLARATION OF TRUST OF ALABAMA NATIONAL STATUTORY TRUST I December 18, 2001 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and ----------- effective as of December 18, 2001, by the Institutional Trustee (as defined herein), the Administrators (as defined herein), the Sponsor (as defined herein) and by the holders, from time to time, of undivided beneficial interests in the Trust (as defined herein) to be issued pursuant to this Declaration; WHEREAS, the Institutional Trustee, the Administrators and the Sponsor established Alabama National Statutory Trust I (the "Trust"), a statutory trust ----- under the Statutory Trust Act (as defined herein) pursuant to a Declaration of Trust dated as of November 8, 2001 (the "Original Declaration"), and a Certificate of Trust filed with the Secretary of State of the State of Connecticut on November 13, 2001, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain debentures of the Debenture Issuer (as defined herein); WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS, the Institutional Trustee, the Administrators and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a statutory trust under the Statutory Trust Act and that this Declaration constitutes the governing instrument of such statutory trust, the Institutional Trustee declares that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. The parties hereto hereby agree as follows: ARTICLE I INTERPRETATION AND DEFINITIONS Section 1.1 Definitions. Unless the context otherwise requires: ----------- (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; and 1 (e) a reference to the singular includes the plural and vice versa. "Additional Interest" has the meaning set forth in the Indenture. ------------------- "Administrative Action" has the meaning set forth in paragraph 4(a) of --------------------- Annex I. "Administrators" means each of William E. Matthews, V, John H. Holcomb, III -------------- and Richard Murray, IV, solely in such Person's capacity as Administrator of the Trust created and continued hereunder and not in such Person's individual capacity, or such Administrator's successor in interest in such capacity, or any successor appointed as herein provided. "Affiliate" has the same meaning as given to that term in Rule 405 of the --------- Securities Act or any successor rule thereunder. "Authorized Officer" of a Person means any Person that is authorized to ------------------ bind such Person. "Bankruptcy Event" means, with respect to any Person: ---------------- (a) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (b) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of such Person of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due. "Business Day" means any day other than Saturday, Sunday or any other day ------------ on which banking institutions in New York City or Hartford, Connecticut are permitted or required by any applicable law to close. "Capital Securities" has the meaning set forth in paragraph 1(a) of Annex ------------------ I. "Capital Security Certificate" means a definitive Certificate in fully ---------------------------- registered form representing a Capital Security substantially in the form of Exhibit A-1. "Capital Treatment Event" has the meaning set forth in paragraph 4(a) of ----------------------- Annex I. "Certificate" means any certificate evidencing Securities. ----------- "Closing Date" has the meaning set forth in the Placement Agreement. ------------ "Code" means the Internal Revenue Code of 1986, as amended from time to ---- time, or any successor legislation. "Common Securities" has the meaning set forth in paragraph 1(b) of Annex I. ----------------- 2 "Common Security Certificate" means a definitive Certificate in fully --------------------------- registered form representing a Common Security substantially in the form of Exhibit A-2. "Company Indemnified Person" means (a) any Administrator; (b) any Affiliate -------------------------- of any Administrator; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrator; or (d) any officer, employee or agent of the Trust or its Affiliates. "Corporate Trust Office" means the office of the Institutional Trustee at ---------------------- which the corporate trust business of the Institutional Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Declaration is located at 225 Asylum Street, Goodwin Square, Hartford, Connecticut. "Coupon Rate" has the meaning set forth in paragraph 2(a) of Annex I. ----------- "Covered Person" means: (a) any Administrator, officer, director, -------------- shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) any of the Trust's Affiliates; and (b) any Holder of Securities. "Creditor" has the meaning set forth in Section 3.3. -------- "Debenture Issuer" means Alabama National BanCorporation, a Delaware ---------------- corporation, in its capacity as issuer of the Debentures under the Indenture. "Debenture Trustee" means State Street Bank and Trust Company of ----------------- Connecticut, National Association, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "Debentures" means the Floating Rate Junior Subordinated Deferrable ---------- Interest Debentures due 2031 to be issued by the Debenture Issuer under the Indenture. "Defaulted Interest" has the meaning set forth in the Indenture. ------------------ "Determination Date" has the meaning set forth in paragraph 4(a) of Annex ------------------ I. "Direct Action" has the meaning set forth in Section 2.8(d). ------------- "Distribution" means a distribution payable to Holders of Securities in ------------ accordance with Section 5.1. "Distribution Payment Date" has the meaning set forth in paragraph 2(b) of ------------------------- Annex I. "Distribution Period" has the meaning set forth in paragraph 2(a) of Annex ------------------- I. "Distribution Rate" means, for the period beginning on (and including) the ----------------- date of original issuance and ending on (but excluding) March 18, 2002, 5.60%, and for the period beginning on (and including) March 18, 2002 and thereafter, the Coupon Rate. "Event of Default" means any one of the following events (whatever the ---------------- reason for such event 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 an Indenture Event of Default; or 3 (b) default by the Trust in the payment of any Redemption Price of any Security when it becomes due and payable; or (c) default in the performance, or breach, in any material respect, of any covenant or warranty of the Institutional Trustee in this Declaration (other than those specified in clause (a) or (b) 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 Institutional Trustee and to the Sponsor by the Holders of at least 25% in aggregate liquidation amount of the outstanding Capital 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 (d) the occurrence of a Bankruptcy Event with respect to the Institutional Trustee if a successor Institutional Trustee has not been appointed within 90 days thereof. "Extension Period" has the meaning set forth in paragraph 2(b) of Annex I. ---------------- "Federal Reserve" has the meaning set forth in paragraph 3 of Annex I. --------------- "Fiduciary Indemnified Person" shall mean the Institutional Trustee, any ---------------------------- Affiliate of the Institutional Trustee and any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee. "Fiscal Year" has the meaning set forth in Section 10.1. ----------- "Guarantee" means the guarantee agreement to be dated as of the Closing --------- Date, of the Sponsor in respect of the Capital Securities. "Holder" means a Person in whose name a Certificate representing a Security ------ is registered, such Person being a beneficial owner within the meaning of the Statutory Trust Act. "Indemnified Person" means a Company Indemnified Person or a Fiduciary ------------------ Indemnified Person. "Indenture" means the Indenture dated as of the Closing Date, between the --------- Debenture Issuer and the Debenture Trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued, as such Indenture and any supplemental indenture may be amended, supplemented or otherwise modified from time to time. "Indenture Event of Default" means an "Event of Default" as defined in the -------------------------- Indenture. "Institutional Trustee" means the Trustee meeting the eligibility --------------------- requirements set forth in Section 4.1. "Interest" means any interest due on the Debentures including any -------- Additional Interest and Defaulted Interest. "Investment Company" means an investment company as defined in the ------------------ Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as ---------------------- amended from time to time, or any successor legislation. "Investment Company Event" has the meaning set forth in paragraph 4(a) of ------------------------ Annex I. 4 "Liquidation" has the meaning set forth in paragraph 3 of Annex I. ----------- "Liquidation Distribution" has the meaning set forth in paragraph 3 of ------------------------ Annex I. "Majority in liquidation amount of the Securities" means Holder(s) of ------------------------------------------------ outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "Maturity Date" has the meaning set forth in paragraph 4(a) of Annex I. ------------- "Officers' Certificates" means, with respect to any Person, a certificate ---------------------- signed by two Authorized Officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant providing for it in this Declaration shall include: (a) a statement that each officer signing the Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "OTS" has the meaning set forth in paragraph 3 of Annex I. --- "Paying Agent" has the meaning specified in Section 6.2. ------------ "Person" means a legal person, including any individual, corporation, ------ estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Placement Agreement" means the Placement Agreement relating to the ------------------- offering and sale of Capital Securities in the form of Exhibit C. "Property Account" has the meaning set forth in Section 2.8(c). ---------------- "Pro Rata" has the meaning set forth in paragraph 8 of Annex I. -------- "Quorum" means a majority of the Administrators or, if there are only two ------ Administrators, both of them. "Redemption Date" has the meaning set forth in paragraph 4(a) of Annex I. --------------- "Redemption/Distribution Notice" has the meaning set forth in paragraph ------------------------------ 4(e) of Annex I. "Redemption Price" has the meaning set forth in paragraph 4(a) of Annex I. ---------------- 5 "Registrar" has the meaning set forth in Section 6.2. --------- "Responsible Officer" means, with respect to the Institutional Trustee, any ------------------- officer within the Corporate Trust Office of the Institutional Trustee, including any vice-president, any assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Restricted Securities Legend" has the meaning set forth in Section 8.2(b). ---------------------------- "Rule 3a-5" means Rule 3a-5 under the Investment Company Act. --------- "Rule 3a-7" means Rule 3a-7 under the Investment Company Act. --------- "Securities" means the Common Securities and the Capital Securities. ---------- "Securities Act" means the Securities Act of 1933, as amended from time to -------------- time, or any successor legislation. "Special Event" has the meaning set forth in paragraph 4(a) of Annex I. ------------- "Special Redemption Date" has the meaning set forth in paragraph 4(a) of ----------------------- Annex I. "Special Redemption Price" has the meaning set forth in paragraph 4(a) of ------------------------ Annex I. "Sponsor" means Alabama National BanCorporation, a Delaware corporation, or ------- any successor entity in a merger, consolidation or amalgamation, in its capacity as sponsor of the Trust. "Statutory Trust Act" means Chapter 615 of Title 34 of the Connecticut ------------------- General Statutes, Sections 500, et seq. as may be amended from time to time. "Successor Entity" has the meaning set forth in Section 2.14(b). ---------------- "Successor Institutional Trustee" has the meaning set forth in Section ------------------------------- 4.3(a). "Successor Securities" has the meaning set forth in Section 2.14(b). -------------------- "Super Majority" has the meaning set forth in paragraph 5(b) of Annex I. -------------- "Tax Event" has the meaning set forth in paragraph 4(a) of Annex I. --------- "10% in liquidation amount of the Securities" means Holder(s) of ------------------------------------------- outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "3-Month LIBOR" has the meaning set forth in paragraph 4(a) of Annex I. ------------- "Transfer Agent" has the meaning set forth in Section 6.2. -------------- 6 "Treasury Regulations" means the income tax regulations, including -------------------- temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trust Property" means (a) the Debentures, (b) any cash on deposit in, or -------------- owing to, the Property Account and (c) 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 Institutional Trustee pursuant to the trusts of this Declaration. "U.S. Person" means a United States Person as defined in Section ----------- 7701(a)(30) of the Code. ARTICLE II ORGANIZATION Section 2.1 Name. The Trust is named "Alabama National Statutory Trust I," ---- as such name may be modified from time to time by the Administrators following written notice to the Holders of the Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrators. Section 2.2 Office. The address of the principal office of the Trust is c/o ------ State Street Bank and Trust Company of Connecticut, National Association, 225 Asylum Street, Goodwin Square, Hartford, Connecticut 06103. On at least 10 Business Days written notice to the Holders of the Securities, the Administrators may designate another principal office, which shall be in a state of the United States or in the District of Columbia. Section 2.3 Purpose. The exclusive purposes and functions of the Trust are ------- (a) to issue and sell the Securities representing undivided beneficial interests in the assets of the Trust, (b) to invest the gross proceeds from such sale to acquire the Debentures, (c) to facilitate direct investment in the assets of the Trust through issuance of the Common Securities and the Capital Securities and (d) except as otherwise limited herein, to engage in only those other activities necessary or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. Section 2.4 Authority. Except as specifically provided in this Declaration, --------- the Institutional Trustee shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Institutional Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Institutional Trustee acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Institutional Trustee to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Institutional Trustee as set Declaration. The Administrators shall have only those ministerial duties set forth herein with respect to accomplishing the purposes of the Trust and are not intended to be trustees or fiduciaries with respect to the Trust or the Holders. The Institutional Trustee shall have the right, but shall not be obligated except as provided in Section 2.6, to perform those duties assigned to the Administrators. Section 2.5 Title to Property of the Trust. Except as provided in Section ------------------------------ 2.8 with respect to the Debentures and the Property Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. 7 Section 2.6 Powers and Duties of the Institutional Trustee and the ------------------------------------------------------ Administrators. - -------------- (a) The Institutional Trustee and the Administrators shall conduct the affairs of the Trust in accordance with the terms of this Declaration. Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Institutional Trustee and the Administrators shall have the authority to enter into all transactions and agreements determined by the Institutional Trustee to be appropriate in exercising the authority, express or implied, otherwise granted to the Institutional Trustee or the Administrators, as the case may be, under this Declaration, and to perform all acts in furtherance thereof, including without limitation, the following: (i) Each Administrator 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 Securities; (B) to cause the Trust to enter into, and to execute and deliver on behalf of the Trust, such agreements as may be necessary or desirable in connection with the purposes and function of the Trust, including agreements with the Paying Agent; (C) ensuring compliance with the Securities Act, applicable state securities or blue sky laws; (D) the sending of notices (other than notices of default), and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration; (E) the consent to the appointment of a Paying Agent, Transfer Agent and Registrar in accordance with this Declaration, which consent shall not be unreasonably withheld or delayed; (F) execution and delivery of the Securities in accordance with this Declaration; (G) execution and delivery of closing certificates pursuant to the Placement Agreement and the application for a taxpayer identification number; (H) unless otherwise determined by the Holders of a Majority in liquidation amount of the Securities or as otherwise required by the Statutory Trust Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrators) any documents that the Administrators have the power to execute pursuant to this Declaration; (I) the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); (J) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates; and 8 (K) to duly prepare and file all applicable tax returns and tax information reports that are required to be filed with respect to the Trust on behalf of the Trust. (ii) As among the Institutional Trustee and the Administrators, the Institutional 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 Property Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Property Account; (D) the distribution through the Paying Agent of amounts owed to the Holders in respect of the Securities; (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration; (G) the distribution of the Trust Property in accordance with the terms of this Declaration; (H) to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Connecticut; (I) after any Event of Default (provided that such Event of -------- Default is not by or with respect to the Institutional Trustee) the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration and protect and conserve the Trust Property for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); and (J) to take all action that may be necessary for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory trust under the laws of the State of Connecticut and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created. (iii) The Institutional Trustee shall have the power and authority to act on behalf of the Trust with respect to any of the duties, liabilities, powers or the authority of the Administrators set forth in Section 2.6(a)(i)(D), (E) and (F) herein but shall not have a duty to do any such act unless specifically requested to do so in writing by the Sponsor, and shall then be fully protected in acting pursuant to such written request; and in the event of a conflict between the action of the Administrators and the action of the Institutional Trustee, the action of the Institutional Trustee shall prevail. 9 (b) So long as this Declaration remains in effect, the Trust (or the Institutional Trustee or Administrators acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, neither the Institutional Trustee nor the Administrators may cause the Trust to (i) acquire any investments or engage in any activities not authorized by this Declaration, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Holders, except as expressly provided herein, (iii) take any action that would reasonably be expected (x) to cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes or (y) to require the trust to register as an Investment Company under the Investment Company Act, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a lien on any of the Trust Property. The Institutional Trustee shall, at the sole cost and expense of the Trust, 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 Holders in their capacity as Holders. (c) In connection with the issuance and sale of the Capital Securities, the Sponsor 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 Sponsor in furtherance of the following prior to the date of this Declaration are hereby ratified and confirmed in all respects): (i) the taking of any action necessary to obtain an exemption from the Securities Act; (ii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Administrators of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States in connection with the sale of the Capital Securities; (iii) the negotiation of the terms of, and the execution and delivery of, the Placement Agreement providing for the sale of the Capital Securities; and (iv) 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 Administrators and the Holders of a Majority in liquidation amount of the Common Securities are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not (i) be deemed to be an Investment Company required to be registered under the Investment Company Act, and (ii) fail to be classified as a "grantor trust" for United States federal income tax purposes. The Administrators and the Holders of a Majority in liquidation amount of the Common Securities shall not take any action inconsistent with the treatment of the Debentures as indebtedness of the Debenture Issuer for United States federal income tax purposes. In this connection, the Administrators and the Holders of a Majority in liquidation amount of the Common Securities are authorized to take any action, not inconsistent with applicable laws, the Certificate of Trust or this Declaration, as amended from time to time, that each of the Administrators and the Holders of a Majority in liquidation amount of the Common Securities determines in their discretion to be necessary or desirable for such purposes. 10 (e) All expenses incurred by the Administrators or the Institutional Trustee pursuant to this Section 2.6 shall be reimbursed by the Sponsor, and the Institutional Trustee and the Administrators shall have no obligations with respect to such expenses. (f) The assets of the Trust shall consist of the Trust Property. (g) Legal title to all Trust Property shall be vested at all times in the Institutional Trustee (in its capacity as such) and shall be held and administered by the Institutional Trustee and the Administrators for the benefit of the Trust in accordance with this Declaration. (h) If the Institutional Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Declaration and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Institutional Trustee or to such Holder, then and in every such case the Sponsor, the Institutional Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Institutional Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 2.7. Prohibition of Actions by the Trust and the Institutional --------------------------------------------------------- Trustee. - ------- (a) The Trust shall not, and the Institutional Trustee shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Institutional Trustee shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of the Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust Property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever other than as expressly provided herein; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; (vii) carry on any "trade or business" as that phrase is used in the Code; or (viii) other than as provided in this Declaration (including Annex I), (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such modification will not cause the Trust to cease to be classified as a "grantor trust" for United States federal income tax purposes. 11 Section 2.8. Powers and Duties of the Institutional Trustee. ----------------------------------------------- (a) The legal title to the Debentures shall be owned by and held of record in the name of the Institutional Trustee in trust for the benefit of the Trust and the Holders of the Securities. The right, title and interest of the Institutional Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section 4.3. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Institutional Trustee shall not transfer its right, title and interest in the Debentures to the Administrators. (c) The Institutional Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "Property Account") in the name of and under the exclusive ---------------- control of the Institutional Trustee, and maintained in the Institutional Trustee's trust department, on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Institutional Trustee, deposit such funds into the Property Account and make payments, or cause the Paying Agent to make payments, to the Holders of the Capital Securities and Holders of the Common Securities from the Property Account in accordance with Section 5.1. Funds in the Property Account shall be held uninvested until disbursed in accordance with this Declaration; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Capital Securities and the Common Securities to the extent the Debentures are redeemed or mature; and (iii) upon written notice of distribution issued by the Administrators in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain circumstances pursuant to the terms of the Securities. (d) The Institutional Trustee may bring or defend, pay, collect, compromise, arbitrate, resort to legal action with respect to, or otherwise adjust claims or demands of or against, the Trust which arises out of or in connection with an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge or arises out of the Institutional Trustee's duties and obligations under this Declaration; provided, however, that -------- ------- if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of the Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder (a "Direct Action") on or after the respective due ------------- date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of the Capital Securities to the extent of any payment made by the Debenture Issuer to such Holder of the Capital Securities in such Direct Action; provided, however, that no Holder of the Common Securities may exercise -------- ------- such right of subrogation so long as an Event of Default with respect to the Capital Securities has occurred and is continuing. (e) The Institutional Trustee shall continue to serve as a Trustee until either: 12 (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of the Securities pursuant to the terms of the Securities and this Declaration; or (ii) a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 4.3. (f) The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges of a Holder of the Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Institutional Trustee may, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to this Declaration (including Annex I) and the terms of the Securities. The Institutional Trustee must exercise the powers set forth in this Section 2.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 2.3, and the Institutional Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 2.3. Section 2.9. Certain Duties and Responsibilities of the Institutional -------------------------------------------------------- Trustee and Administrators. - -------------------------- (a) The Institutional Trustee, before the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Institutional Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 6.7), the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, 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 or her own affairs. (b) The duties and responsibilities of the Institutional Trustee and the Administrators shall be as provided by this Declaration. Notwithstanding the foregoing, no provision of this Declaration shall require the Institutional Trustee or Administrators 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 it shall have reasonable grounds to believe that repayment of such funds or adequate protection against such risk of liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Declaration relating to the conduct or affecting the liability of or affording protection to the Institutional Trustee or Administrators shall be subject to the provisions of this Article. Nothing in this Declaration shall be construed to relieve an Administrator or the Institutional Trustee from liability for its own negligent act, its own negligent failure to act, or its own willful misconduct. To the extent that, at law or in equity, the Institutional Trustee or an Administrator has duties and liabilities relating to the Trust or to the Holders, the Institutional Trustee or such Administrator shall not be liable to the Trust or to any Holder for the Institutional Trustee's or such Administrator's good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of the Administrators or the Institutional Trustee otherwise existing at law or in equity, are agreed by the Sponsor and the Holders to replace such other duties and liabilities of the Administrators or the Institutional Trustee. (c) All payments made by the Institutional Trustee or a Paying Agent in respect of the 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 Institutional Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Holder, by its acceptance of a Security, agrees that it will look solely to the revenue and proceeds from the Trust 13 Property to the extent legally available for distribution to it as herein provided and that the Institutional Trustee and the Administrators are not personally liable to it for any amount distributable in respect of any Security or for any other liability in respect of any Security. This Section 2.9(c) does not limit the liability of the Institutional Trustee expressly set forth elsewhere in this Declaration. (d) The Institutional Trustee shall not be liable for its own acts or omissions hereunder except as a result of its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Institutional Trustee shall not be liable for any error of judgment made in good faith by an Authorized Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts; (ii) the Institutional 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 Capital Securities or the Common Securities, as applicable, relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration; (iii) the Institutional Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Debentures and the Property Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its fiduciary accounts generally, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration; (iv) the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor; and money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Property Account maintained by the Institutional Trustee pursuant to Section 2.8(c)(i) and except to the extent otherwise required by law; and (v) the Institutional Trustee shall not be responsible for monitoring the compliance by the Administrators or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Administrators or the Sponsor. Section 2.10. Certain Rights of Institutional Trustee. Subject to the --------------------------------------- provisions of Section 2.9: (a) the Institutional Trustee may conclusively rely and shall fully 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, direction, 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, sent or presented by the proper party or parties; (b) if (i) in performing its duties under this Declaration, the Institutional Trustee is required to decide between alternative courses of action, (ii) in construing any of the provisions of this Declaration, the Institutional Trustee finds the same ambiguous or inconsistent with any other provisions contained herein, or (iii) the Institutional Trustee is unsure of the application of any provision of this Declaration, then, except as to any matter as to which the Holders of Capital Securities are entitled to vote under the 14 terms of this Declaration, the Institutional Trustee may deliver a notice to the Sponsor requesting the Sponsor's written instructions as to the course of action to be taken and the Institutional Trustee shall take such action, or refrain from taking such action, as the Institutional Trustee shall be instructed in writing, in which event the Institutional Trustee shall have no liability except for its own negligence or willful misconduct; (c) any direction or act of the Sponsor or the Administrators contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before undertaking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may request and conclusively rely upon an Officers' Certificate as to factual matters which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrators; (e) the Institutional 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 rerecording, refiling or reregistration thereof; (f) the Institutional Trustee may consult with counsel of its selection (which counsel may be counsel to the Sponsor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (g) the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any of the Holders pursuant to this Declaration, unless such Holders shall have offered to the Institutional Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; provided, -------- that nothing contained in this Section 2.10(g) shall be taken to relieve the Institutional Trustee, subject to Section 2.9(b), upon the occurrence of an Event of Default, to exercise such of the rights and powers vested in it by this Declaration, 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 or her own affairs; (h) the Institutional Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Holders, but the Institutional Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Institutional 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 and the Institutional Trustee shall not be responsible for any misconduct or negligence on the part of or for the supervision of, any such agent or attorney appointed with due care by it hereunder; (j) whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Institutional Trustee (i) may request instructions from the Holders of the Capital Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Capital Securities as would be entitled to direct the Institutional Trustee under the terms of the Capital 15 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 fully protected in acting in accordance with such instructions; (k) except as otherwise expressly provided in this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; (l) when the Institutional Trustee incurs expenses or renders services in connection with a Bankruptcy Event, such expenses (including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors rights generally; (m) the Institutional Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Institutional Trustee obtains actual knowledge of such event or the Institutional Trustee receives written notice of such event from any Holder, the Sponsor or the Debenture Trustee; (n) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Institutional Trustee's or its agent's taking such action; and (o) no provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional 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 Institutional 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 Institutional Trustee shall be construed to be a duty. Section 2.11. Execution of Documents. Unless otherwise determined in ---------------------- writing by the Institutional Trustee, and except as otherwise required by the Statutory Trust Act, the Institutional Trustee, or any one or more of the Administrators, as the case may be, is authorized to execute on behalf of the Trust any documents that the Institutional Trustee or the Administrators, as the case may be, have the power and authority to execute pursuant to Section 2.6. Section 2.12. Not Responsible for Recitals or Issuance of Securities. The ------------------------------------------------------ recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Institutional Trustee does not assume any responsibility for their correctness. The Institutional Trustee makes no representations as to the value or condition of the property of the Trust or any part thereof. The Institutional Trustee makes no representations as to the validity or sufficiency of this Declaration, the Debentures or the Securities. Section 2.13. Duration of Trust. The Trust, unless earlier dissolved ----------------- pursuant to the provisions of Article VII hereof, shall be in existence for 35 years from the Closing Date. Section 2.14. Mergers. ------- (a) The Trust may not 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 corporation or other body, except as described in this Section 2.14(b) and (c) and except in connection with the liquidation of 16 the Trust and the distribution of the Debentures to Holders of Securities pursuant to Section 7.1(a)(iv) of the Declaration or Section 4 of Annex I. (b) The Trust may, with the consent of the Institutional Trustee and without the consent of the Holders of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any state; provided that: (i) if the Trust is not the surviving entity, such successor entity (the "Successor Entity") either: ---------------- (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the "Successor --------- Securities") so that the Successor Securities rank the same as the ---------- Securities rank with respect to Distributions and payments upon Liquidation, redemption and otherwise; (ii) the Sponsor expressly appoints a trustee of the Successor Entity that possesses the same powers and duties as the Institutional Trustee as the Holder of the Debentures; (iii) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect; (iv) the Institutional Trustee receives written confirmation from Moody's Investor Services, Inc. or any other nationally recognized statistical rating organization that rates securities issued by the initial purchaser of the Capital Securities that it will not reduce or withdraw the rating of any such securities because of such merger, conversion, consolidation, amalgamation or replacement; (v) such Successor Entity has a purpose substantially identical to that of the Trust; (vi) prior to such merger, consolidation, amalgamation or replacement, the Trust has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect; (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (C) following such merger, consolidation, amalgamation or replacement, the Trust (or the Successor Entity) will continue to be classified as a "grantor trust" for United States federal income tax purposes; (vii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Guarantee; (viii) the Sponsor owns 100% of the common securities of any Successor Entity; and 17 (ix) prior to such merger, consolidation, amalgamation or replacement, the Institutional Trustee shall have received an Officers' Certificate of the Administrators and an opinion of counsel, each to the effect that all conditions precedent under this Section 2.14(b) to such transaction have been satisfied. (c) Notwithstanding Section 2.14(b), the Trust shall not, except with the consent of Holders of 100% in aggregate liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE III SPONSOR Section 3.1. Sponsor's Purchase of Common Securities. On the Closing Date, --------------------------------------- the Sponsor will purchase all of the Common Securities issued by the Trust in an amount at least equal to 3% of the capital of the Trust, at the same time as the Capital Securities are sold. Section 3.2. Responsibilities of the Sponsor. In connection with the issue ------------------------------- and sale of the Capital Securities, the Sponsor shall have the exclusive right and responsibility to engage in, or direct the Administrators to engage in, the following activities: (a) to determine the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; and (b) to negotiate the terms of and/or execute on behalf of the Trust, the Placement Agreement and other related agreements providing for the sale of the Capital Securities. Section 3.3. Expenses. In connection with the offering, sale and issuance -------- of the Debentures to the Trust and in connection with the sale of the Securities by the Trust, the Sponsor, in its capacity as Debenture Issuer, shall: (a) pay all reasonable costs and expenses relating to the offering, sale and issuance of the Debentures, including compensation of the Debenture Trustee under the Indenture in accordance with the provisions of the Indenture; (b) be responsible for and shall pay all debts and obligations (other than with respect to the Securities) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust), the offering, sale and issuance of the Securities (including fees to the placement agents in connection therewith), the fees and expenses (including reasonable counsel fees and expenses) of the Institutional Trustee and the Administrators, the costs and expenses relating to the operation of the Trust, including, without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, Paying Agents, Registrars, Transfer Agents, duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets and the enforcement by the Institutional Trustee of the rights of the Holders; and 18 (c) to pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. The Sponsor's obligations under this Section 3.3 shall be for the benefit of, and shall be enforceable by, any Person to whom such debts, obligations, costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor -------- has received notice hereof. Any such Creditor may enforce the Sponsor's obligations under this Section 3.3 directly against the Sponsor and the Sponsor irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other Person before proceeding against the Sponsor. The Sponsor agrees to execute such additional agreements as may be necessary or desirable in order to give full effect to the provisions of this Section 3.3. Section 3.4. Right to Proceed. The Sponsor acknowledges the rights of ---------------- Holders to institute a Direct Action as set forth in Section 2.8(d)hereto. ARTICLE IV INSTITUTIONAL TRUSTEE AND ADMINISTRATORS Section 4.1. Institutional Trustee; Eligibility. ---------------------------------- (a) There shall at all times be one Institutional Trustee which shall: (i) not be an Affiliate of the Sponsor; (ii) not offer or provide credit or credit enhancement to the Trust; and (iii) be a banking corporation or trust company organized and doing business under the laws of the United States of America or any state thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000.00), and subject to supervision or examination by Federal, state, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 4.1(a)(iii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Institutional Trustee shall cease to be eligible to so act under Section 4.1(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 4.3(a). (c) If the Institutional Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act of 1939, as amended, the Institutional Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to this Declaration. (d) The initial Institutional Trustee shall be State Street Bank and Trust Company of Connecticut, National Association. Section 4.2. Administrators. Each Administrator shall be a U.S. Person, 21 -------------- years of age or older and authorized to bind the Sponsor. The initial Administrators shall be William E. Matthews, V, John H. Holcomb, III and Richard Murray, IV. There shall at all times be at least one Administrator. Except where a requirement for action by a specific number of Administrators is expressly set forth in this 19 Declaration and except with respect to any action the taking of which is the subject of a meeting of the Administrators, any action required or permitted to be taken by the Administrators may be taken by, and any power of the Administrators may be exercised by, or with the consent of, any one such Administrator. Section 4.3. Appointment, Removal and Resignation of Institutional Trustee -------------------------------------------------------------- and Administrators. - ------------------ (a) Notwithstanding anything to the contrary in this Declaration, no resignation or removal of the Institutional Trustee and no appointment of a Successor Institutional Trustee pursuant to this Article shall become effective until the acceptance of appointment by the Successor Institutional Trustee in accordance with the applicable requirements of this Section 4.3. Subject to the immediately preceding paragraph, the Institutional Trustee may resign at any time by giving written notice thereof to the Holders of the Securities and by appointing a Successor Institutional Trustee. Upon the resignation of the Institutional Trustee, the Institutional Trustee shall appoint a successor by requesting from at least three Persons meeting the eligibility requirements, its expenses and charges to serve as the successor Institutional Trustee on a form provided by the Administrators, and selecting the Person who agrees to the lowest expense and charges (the "Successor --------- Institutional Trustee"). If the instrument of acceptance by the Successor - --------------------- Institutional Trustee required by this Section 4.3 shall not have been delivered to the Institutional Trustee within 60 days after the giving of such notice of resignation or delivery of the instrument of removal, the Institutional Trustee may petition, at the expense of the Trust, any Federal, state or District of Columbia court of competent jurisdiction for the appointment of a Successor Institutional Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Institutional Trustee. The Institutional Trustee shall have no liability for the selection of such successor pursuant to this Section 4.3. The Institutional Trustee may be removed by the act of the Holders of a Majority in liquidation amount of the Capital Securities, delivered to the Institutional Trustee (in its individual capacity and on behalf of the Trust) if an Event of Default shall have occurred and be continuing. If the Institutional Trustee shall be so removed, the Holders of Capital Securities, by act of the Holders of a Majority in liquidation amount of the Capital Securities then outstanding delivered to the Institutional Trustee, shall promptly appoint a Successor Institutional Trustee, and such Successor Institutional Trustee shall comply with the applicable requirements of this Section 4.3. If no Successor Institutional Trustee shall have been so appointed by the Holders of a Majority in liquidation amount of the Capital Securities and accepted appointment in the manner required by this Section 4.3, within 30 days after delivery of an instrument of removal, any Holder who has been a Holder of the Securities for at least 6 months may, on behalf of himself and all others similarly situated, petition any Federal, state or District of Columbia court of competent jurisdiction for the appointment of the Successor Institutional Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Institutional Trustee. The Institutional Trustee shall give notice of its resignation and removal and each appointment of a Successor Institutional Trustee to all Holders in the manner provided in Section 13.1(d) and shall give notice to the Sponsor. Each notice shall include the name of the Successor Institutional Trustee and the address of its Corporate Trust Office. (b) In case of the appointment hereunder of a Successor Institutional Trustee, the retiring Institutional Trustee and the Successor Institutional Trustee shall execute and deliver an amendment hereto wherein the Successor Institutional Trustee shall accept such appointment and which (i) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, the Successor Institutional Trustee all the rights, powers, trusts and duties of the retiring Institutional Trustee with respect to the Securities and the Trust and (ii) shall add to or change any of the provisions of this 20 Declaration as shall be necessary to provide for or facilitate the administration of the Trust by more than one Institutional Trustee, it being understood that nothing herein or in such amendment shall constitute such Institutional Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Institutional Trustee shall become effective to the extent provided therein and each Successor Institutional Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Institutional Trustee; but, on request of the Trust or any Successor Institutional Trustee such retiring Institutional Trustee shall duly assign, transfer and deliver to such Successor Institutional Trustee all Trust Property, all proceeds thereof and money held by such retiring Institutional Trustee hereunder with respect to the Securities and the Trust. (c) No Institutional Trustee shall be liable for the acts or omissions to act of any Successor Institutional Trustee. (d) The Holders of the Capital Securities will have no right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Holder of the Common Securities. Section 4.4. Institutional Trustee Vacancies. If the Institutional Trustee ------------------------------- ceases to hold office for any reason a vacancy shall occur. A resolution certifying the existence of such vacancy by the Institutional Trustee shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a trustee appointed in accordance with Section 4.3. Section 4.5. Effect of Vacancies. The death, resignation, retirement, ------------------- removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of the Institutional Trustee shall not operate to dissolve, terminate or annul the Trust or terminate this Declaration. Section 4.6. Meetings of the Institutional Trustee and the Administrators. ------------------------------------------------------------ Meetings of the Administrators shall be held from time to time upon the call of an Administrator. Regular meetings of the Administrators may be held in person in the United States or by telephone, at a place (if applicable) and time fixed by resolution of the Administrators. Notice of any in-person meetings of the Institutional Trustee with the Administrators or meetings of the Administrators shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Institutional Trustee with the Administrators or meetings of the Administrators or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of the Institutional Trustee or an Administrator, as the case may be, at a meeting shall constitute a waiver of notice of such meeting except where the Institutional Trustee or an Administrator, as the case may be, attends a meeting for the express purpose of objecting to the transaction of any activity on the grounds that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Institutional Trustee or the Administrators, as the case may be, may be taken at a meeting by vote of the Institutional Trustee or a majority vote of the Administrators present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Institutional Trustee or the Administrators. Meetings of the Institutional Trustee and the Administrators together shall be held from time to time upon the call of the Institutional Trustee or an Administrator. 21 Section 4.7. Delegation of Power. ------------------- (a) Any Administrator may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 that is a U.S. Person his or her power for the purpose of executing any documents contemplated in Section 2.6; and (b) the Administrators shall have power to delegate from time to time to such of their number the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrators or otherwise as the Administrators may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. Section 4.8. Conversion, Consolidation or Succession to Business. Any --------------------------------------------------- Person into which the Institutional Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Institutional Trustee shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Institutional Trustee shall be the successor of the Institutional 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. ARTICLE V DISTRIBUTIONS Section 5.1. Distributions. Holders shall receive Distributions in ------------- accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Capital Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of Interest or any principal on the Debentures held by the Institutional Trustee, the Institutional Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "Distribution") of such amounts to Holders. ------------ ARTICLE VI ISSUANCE OF SECURITIES Section 6.1. General Provisions Regarding Securities. --------------------------------------- (a) The Administrators shall, on behalf of the Trust, issue one series of capital securities substantially in the form of Exhibit A-1 representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I and one series of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I. The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities and the Common Securities. The Capital Securities rank pari passu to, and payment thereon shall be made Pro Rata with, the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Capital Securities as set forth in Annex I. (b) The Certificates shall be signed on behalf of the Trust by one or more Administrators. Such signature shall be the facsimile or manual signature of any Administrator. In case any Administrator of the Trust who shall have signed any of the Securities shall cease to be such Administrator before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as 22 though the person who signed such Certificates had not ceased to be such Administrator, and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Security, shall be an Administrator of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such an Administrator. A Capital Security shall not be valid until authenticated by the facsimile or manual signature of an Authorized Officer of the Institutional Trustee. Such signature shall be conclusive evidence that the Capital Security has been authenticated under this Declaration. Upon written order of the Trust signed by one Administrator, the Institutional Trustee shall authenticate the Capital Securities for original issue. The Institutional Trustee may appoint an authenticating agent that is a U.S. Person acceptable to the Trust to authenticate the Capital Securities. A Common Security need not be so authenticated. (c) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (d) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and, except as provided in Section 9.1(b) with respect to the Common Securities, non-assessable. (e) Every Person, by virtue of having become a Holder in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration and the Guarantee. Section 6.2. Paying Agent, Transfer Agent and Registrar. The Trust shall ------------------------------------------ maintain in Hartford, Connecticut, an office or agency where the Capital Securities may be presented for payment ("Paying Agent"), and an office or ------------ agency where Securities may be presented for registration of transfer or exchange (the "Transfer Agent"). The Trust shall keep or cause to be kept at -------------- such office or agency a register for the purpose of registering Securities, transfers and exchanges of Securities, such register to be held by a registrar (the "Registrar"). The Administrators may appoint the Paying Agent, the --------- Registrar and the Transfer Agent and may appoint one or more additional Paying Agents or one or more co-Registrars, or one or more co-Transfer Agents in such other locations as it shall determine. The term "Paying Agent" includes any ------------ additional paying agent, the term "Registrar" includes any additional registrar --------- or co-Registrar and the term "Transfer Agent" includes any additional transfer -------------- agent. The Administrators may change any Paying Agent, Transfer Agent or Registrar at any time without prior notice to any Holder. The Administrators shall notify the Institutional Trustee of the name and address of any Paying Agent, Transfer Agent and Registrar not a party to this Declaration. The Administrators hereby initially appoint the Institutional Trustee to act as Paying Agent, Transfer Agent and Registrar for the Capital Securities and the Common Securities. The Institutional Trustee or any of its Affiliates in the United States may act as Paying Agent, Transfer Agent or Registrar. Section 6.3. Form and Dating. The Capital Securities and the Institutional --------------- Trustee's certificate of authentication thereon shall be substantially in the form of Exhibit A-1, and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates may be typed, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrators, as conclusively evidenced by their execution thereof. The Securities may have letters, numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange rule, agreements to which the Trust is subject if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Sponsor). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Institutional Trustee in writing. Each Capital Security shall be dated on or before the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the 23 terms of this Declaration and to the extent applicable, the Institutional Trustee, the Administrators and the Sponsor, by their execution and delivery of this Declaration, expressly agree to such terms and provisions and to be bound thereby. Capital Securities will be issued only in blocks having a stated liquidation amount of not less than $500,000.00 and any multiple of $1,000.00 in excess thereof. The Capital Securities are being offered and sold by the Trust pursuant to the Placement Agreement in definitive, registered form without coupons and with the Restricted Securities Legend. Section 6.4. Mutilated, Destroyed, Lost or Stolen Certificates. -------------------------------------------------- If: (a) any mutilated Certificates should be surrendered to the Registrar, or if the Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Registrar, the Administrators and the Institutional Trustee such security or indemnity as may be required by them to keep each of them harmless; then, in the absence of notice that such Certificate shall have been acquired by a protected purchaser, an Administrator on behalf of the Trust shall execute (and in the case of a Capital Security Certificate, the Institutional Trustee shall authenticate) and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 6.4, the Registrar or the Administrators may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 6.5. Temporary Securities. Until definitive Securities are ready -------------------- for delivery, the Administrators may prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate, temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Administrators consider appropriate for temporary Securities. Without unreasonable delay, the Administrators shall prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate, definitive Securities in exchange for temporary Securities. Section 6.6. Cancellation. The Administrators at any time may deliver ------------ Securities to the Institutional Trustee for cancellation. The Registrar shall forward to the Institutional Trustee any Securities surrendered to it for registration of transfer, redemption or payment. The Institutional Trustee shall promptly cancel all Securities surrendered for registration of transfer, payment, replacement or cancellation and shall dispose of such canceled Securities as the Administrators direct. The Administrators may not issue new Securities to replace Securities that have been paid or that have been delivered to the Institutional Trustee for cancellation. Section 6.7. Rights of Holders; Waivers of Past Defaults. ------------------------------------------- (a) The legal title to the Trust Property is vested exclusively in the Institutional Trustee (in its capacity as such) in accordance with Section 2.5, and the Holders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their 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 Securities shall be personal property giving only the rights specifically set forth therein and in this Declaration. The Securities shall have no preemptive or similar rights. 24 (b) For so long as any Capital Securities remain outstanding, if upon an Indenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of a Majority in liquidation amount of the Capital Securities then outstanding shall have the right to make such declaration by a notice in writing to the Institutional Trustee, the Sponsor and the Debenture Trustee. At any time after a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as provided in the Indenture, if the Institutional Trustee fails to annul any such declaration and waive such default, the Holders of a Majority in liquidation amount of the Capital Securities, by written notice to the Institutional Trustee, the Sponsor and the Debenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Debenture Issuer has paid or deposited with the Debenture Trustee a sum sufficient to pay (A) all overdue installments of interest on all of the Debentures, (B) any accrued Additional Interest on all of the Debentures, (C) the principal of (and premium, if any, on) any Debentures that have become due otherwise than by such declaration of acceleration and interest and Additional Interest thereon at the rate borne by the Debentures, and (D) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Debenture Trustee and the Institutional Trustee, their agents and counsel; and (ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures that has become due solely by such acceleration, have been cured or waived as provided in Section 5.7 of the Indenture. The Holders of at least a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default, except a default or Event of Default in the payment of principal or interest (unless such default or Event of Default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default or Event of Default in respect of a covenant or provision that under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. Upon receipt by the Institutional Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of any part of the Capital Securities, a record date shall be established for determining Holders of outstanding Capital Securities entitled to join in such notice, which record date shall be at the close of business on the day the Institutional Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless such declaration of acceleration, or rescission and - -------- annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day that is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no 25 further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice that has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 6.7. (c) Except as otherwise provided in paragraphs (a) and (b) of this Section 6.7, the Holders of at least a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default and its consequences. Upon such waiver, any such default or Event of Default shall cease to exist, and any default or Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. ARTICLE VII DISSOLUTION AND TERMINATION OF TRUST Section 7.1. Dissolution and Termination of Trust. ------------------------------------ (a) The Trust shall dissolve on the first to occur of: (i) unless earlier dissolved, on December 18, 2036, the expiration of the term of the Trust; (ii) upon a Bankruptcy Event with respect to the Sponsor, the Trust or the Debenture Issuer; (iii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Guarantee, as the case may be) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor, upon the consent of Holders of a Majority in liquidation amount of the Securities voting together as a single class to file a certificate of cancellation with respect to the Trust or upon the revocation of the charter of the Sponsor and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iv) upon the distribution of the Debentures to the Holders of the Securities; (v) upon exercise of the right of the Holder of all of the outstanding Common Securities to dissolve the Trust as provided in Annex I hereto; (vi) upon the entry of a decree of judicial dissolution of the Holder of the Common Securities, the Sponsor, the Trust or the Debenture Issuer; (vii) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; or (viii) before the issuance of any Securities, with the consent of the Institutional Trustee and the Sponsor. 26 (b) As soon as is practicable after the occurrence of an event referred to in Section 7.1(a), and after satisfaction of liabilities to creditors of the Trust as required by applicable law, including of the Statutory Trust Act, and subject to the terms set forth in Annex I, the Institutional Trustee shall terminate the Trust by filing a certificate of cancellation with the Secretary of State of the State of Connecticut. (c) The provisions of Section 2.9 and Article IX shall survive the termination of the Trust. ARTICLE VIII TRANSFER OF INTERESTS Section 8.1. General. ------- (a) Subject to Section 8.1(c), where Capital Securities are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal number of Capital Securities represented by different certificates, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfer and exchanges, the Trust shall issue and the Institutional Trustee shall authenticate Capital Securities at the Registrar's request. (b) Upon issuance of the Common Securities, the Sponsor shall acquire and retain beneficial and record ownership of the Common Securities and for so long as the Securities remain outstanding, the Sponsor shall maintain 100% ownership of the Common Securities; provided, however, that any permitted successor of the -------- ------- Sponsor, in its capacity as Debenture Issuer, under the Indenture that is a U.S. Person may succeed to the Sponsor's ownership of the Common Securities. (c) Capital Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. To the fullest extent permitted by applicable law, any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void and will be deemed to be of no legal effect whatsoever and any such transferee shall be deemed not to be the holder of such Capital Securities for any purpose, including but not limited to the receipt of Distributions on such Capital Securities, and such transferee shall be deemed to have no interest whatsoever in such Capital Securities. (d) The Registrar shall provide for the registration of Securities and of transfers of Securities, which will be effected without charge but only upon payment (with such indemnity as the Registrar may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Securities, the Registrar shall cause one or more new Securities of the same tenor to be issued in the name of the designated transferee or transferees. Every Security surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Security surrendered for registration of transfer shall be canceled by the Institutional Trustee pursuant to Section 6.6. A transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Security. By acceptance of a Security, each transferee shall be deemed to have agreed to be bound by this Declaration. (e) The Trust shall not be required (i) to issue, register the transfer of, or exchange any Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Securities to be redeemed, or (ii) to register the transfer or exchange of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. 27 Section 8.2. Transfer Procedures and Restrictions. ------------------------------------ (a) The Capital Securities shall bear the Restricted Securities Legend, which shall not be removed unless there is delivered to the Trust such satisfactory evidence, which may include an opinion of counsel licensed to practice law in the State of Connecticut, as may be reasonably required by the Trust, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of the Securities Act. Upon provision of such satisfactory evidence, the Institutional Trustee, at the written direction of the Trust, shall authenticate and deliver Capital Securities that do not bear the legend. (b) Except as permitted by Section 8.2(a), each Capital Security shall bear a legend (the "Restricted Securities Legend") in substantially the following ---------------------------- form and a Capital Security shall not be transferred except in compliance with such legend, unless otherwise determined by the Sponsor, upon the advice of counsel expert in securities law, in accordance with applicable law: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE SPONSOR OR THE TRUST, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE SPONSOR'S AND THE TRUST'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE SPONSOR OR THE TRUST. HEDGING TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT. 28 THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95- 60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $500,000.00 (500 SECURITIES) AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $500,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. (c) To permit registrations of transfers and exchanges, the Trust shall execute and the Institutional Trustee shall authenticate Capital Securities at the Registrar's request. (d) Registrations of transfers or exchanges will be effected without charge, but only upon payment (with such indemnity as the Registrar or the Sponsor may require) in respect of any tax or other governmental charge that may be imposed in relation to it. (e) All Capital Securities issued upon any registration of transfer or exchange pursuant to the terms of this Declaration shall evidence the same security and shall be entitled to the same benefits under this Declaration as the Capital Securities surrendered upon such registration of transfer or exchange. Section 8.3. Deemed Security Holders. The Trust, the Administrators, the ----------------------- Institutional Trustee, the Paying Agent, the Transfer Agent or the Registrar may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate 29 and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust, the Administrators, the Institutional Trustee, the Paying Agent, the Transfer Agent or the Registrar shall have actual or other notice thereof ARTICLE IX LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, INSTITUTIONAL TRUSTEE OR OTHERS Section 9.1. Liability. --------- (a) Except as expressly set forth in this Declaration, the Guarantee and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; or (ii) required to pay to the Trust or to any Holder of the Securities any deficit upon dissolution of the Trust or otherwise. (b) The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to the Statutory Trust Act, the Holders of the Capital Securities 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 Connecticut. Section 9.2. Exculpation. ----------- (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and, if selected by such Indemnified Person, has been selected by such Indemnified Person with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. 30 Section 9.3. Fiduciary Duty. -------------- (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of the Indemnified Person. (b) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. Section 9.4. Indemnification. --------------- (a) The Sponsor shall indemnify, to the full extent permitted by law, any Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) arising out of or in connection with the acceptance or administration of this Declaration by reason of the fact that he is or was an Indemnified Person against expenses (including reasonable attorneys' fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Sponsor shall indemnify, to the full extent permitted by law, any Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor arising out of or in connection with the acceptance or administration of this Declaration by reason of the fact that he is or was an Indemnified Person against expenses (including reasonable attorneys' fees and expenses) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust; provided, however, that no such indemnification -------- ------- shall be made in respect of any claim, issue or matter as to which such Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. 31 (c) To the extent that an Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 9.4, or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees and expenses) actually and reasonably incurred by him in connection therewith. (d) Any indemnification of an Administrator under paragraphs (a) and (b) of this Section 9.4 (unless ordered by a court) shall be made by the Sponsor only as authorized in the specific case upon a determination that indemnification of the Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (i) by the Administrators by a majority vote of a Quorum consisting of such Administrators who were not parties to such action, suit or proceeding, (ii) if such a Quorum is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion, or (iii) by the Common Security Holder of the Trust. (e) To the fullest extent permitted by law, expenses (including reasonable attorneys' fees and expenses) incurred by an Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 9.4 shall be paid by the Sponsor in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Sponsor as authorized in this Section 9.4. Notwithstanding the foregoing, no advance shall be made by the Sponsor if a determination is reasonably and promptly made (i) by the Administrators by a majority vote of a Quorum of disinterested Administrators, (ii) if such a Quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion or (iii) by the Common Security Holder of the Trust, that, based upon the facts known to the Administrators, counsel or the Common Security Holder at the time such determination is made, such Indemnified Person acted in bad faith or in a manner that such Indemnified Person did not believe to be in the best interests of the Trust, or, with respect to any criminal proceeding, that such Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Administrators, independent legal counsel or the Common Security Holder reasonably determine that such Indemnified Person deliberately breached his duty to the Trust or its Common or Capital Security Holders. (f) The Institutional Trustee, at the sole cost and expense of the Sponsor, retains the right to representation by counsel of its own choosing in any action, suit or any other proceeding for which it is indemnified under paragraphs (a) and (b) of this Section 9.4, without affecting its right to indemnification hereunder or waiving any rights afforded to it under this Declaration or applicable law. (g) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 9.4 shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Sponsor or Capital Security Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 9.4 shall be deemed to be provided by a contract between the Sponsor and each Indemnified Person who serves in such capacity at any time while this Section 9.4 is in effect. Any repeal or modification of this Section 9.4 shall not affect any rights or obligations then existing. 32 (h) The Sponsor or the Trust may purchase and maintain insurance on behalf of any Person who is or was an Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Sponsor would have the power to indemnify him against such liability under the provisions of this Section 9.4. (i) For purposes of this Section 9.4, references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any Person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 9.4 with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 9.4 shall, unless otherwise provided when authorized or ratified, (i) continue as to a Person who has ceased to be an Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a Person; and (ii) survive the termination or expiration of this Declaration or the earlier removal or resignation of an Indemnified Person. Section 9.5. Outside Businesses. Any Covered Person, the Sponsor and the ------------------ Institutional 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 Securities shall have no rights by virtue of this Declaration 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. None of any Covered Person, the Sponsor or the Institutional 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 any Covered Person, the Sponsor and the Institutional Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person and the Institutional Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. Section 9.6. Compensation; Fee. The Sponsor agrees: ----------------- (a) to pay to the Institutional Trustee from time to time such compensation for all services rendered by it hereunder as the parties shall agree from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and (b) except as otherwise expressly provided herein, to reimburse the Institutional Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Institutional Trustee in accordance with any provision of this Declaration (including the reasonable compensation and the expenses and disbursements of their respective agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, bad faith or willful misconduct. The provisions of this Section 9.6 shall survive the dissolution of the Trust and the termination of this Declaration and the removal or resignation of the Institutional Trustee. No Trustee may claim any lien or charge on any property of the Trust as a result of any amount due pursuant to this Section 9.6. 33 ARTICLE X ACCOUNTING Section 10.1. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust ----------- ----------- shall be the calendar year, or such other year as is required by the Code. Section 10.2. Certain Accounting Matters. -------------------------- (a) At all times during the existence of the Trust, the Administrators shall keep, or cause to be kept at the principal office of the Trust in the United States, as defined for purposes of Treasury Regulations section 301.7701-7, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust. The books of account shall be maintained, at the Sponsor's expense, in accordance with generally accepted accounting principles, consistently applied. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Administrators. (b) The Administrators shall cause to be duly prepared and delivered to each of the Holders of Securities Form 1099 or such other annual United States federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Administrators shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (c) The Administrators, at the Sponsor's expense, shall cause to be duly prepared at the principal office of the Trust in the United States, as defined for purposes of Treasury Regulations section 301.7701-7, and filed an annual United States federal income tax return on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Administrators on behalf of the Trust with any state or local taxing authority. Section 10.3. Banking. The Trust shall maintain in the United States, as ------- defined for purposes of Treasury Regulations section 301.7701-7, one or more bank accounts in the name and for the sole benefit of the Trust; provided, -------- however, that all payments of funds in respect of the Debentures held by the - ------- Institutional Trustee shall be made directly to the Property Account and no other funds of the Trust shall be deposited in the Property Account. The sole signatories for such accounts (including the Property Account) shall be designated by the Institutional Trustee. Section 10.4. Withholding. The Institutional Trustee or any Paying Agent ----------- and the Administrators shall comply with all withholding requirements under United States federal, state and local law. The Institutional Trustee or any Paying Agent shall request, and each Holder shall provide to the Institutional Trustee or any Paying Agent, such forms or certificates as are necessary to establish an exemption from withholding with respect to the Holder, and any representations and forms as shall reasonably be requested by the Institutional Trustee or any Paying Agent to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Administrators shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Institutional Trustee or any Paying Agent is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount 34 required to be withheld was not withheld from actual Distributions made, the Institutional Trustee or any Paying Agent may reduce subsequent Distributions by the amount of such withholding. ARTICLE XI AMENDMENTS AND MEETINGS Section 11.1. Amendments. ---------- (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by the Institutional Trustee. (b) Notwithstanding any other provision of this Article XI, an amendment may be made, and any such purported amendment shall be valid and effective only if: (i) the Institutional Trustee shall have first received (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (ii) the result of such amendment would not be to (A) cause the Trust to cease to be classified for purposes of United States federal income taxation as a grantor trust; or (B) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act. (c) Except as provided in Section 11.1(d), (e) or (h), no amendment shall be made, and any such purported amendment shall be void and ineffective unless the Holders of a Majority in liquidation amount of the Capital Securities shall have consented to such amendment. (d) In addition to and notwithstanding any other provision in this Declaration, without the consent of each affected Holder, this Declaration may not be amended to (i) change the amount or timing of any Distribution on the Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Securities as of a specified date or change any conversion or exchange provisions or (ii) restrict the right of a Holder to institute suit for the enforcement of any such payment on or after such date. (e) Section 8.1 (b) and 8.1(c) and this Section 11.1 shall not be amended without the consent of all of the Holders of the Securities. (f) Article III shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. 35 (g) The rights of the Holders of the Capital Securities under Article IV to appoint and remove the Institutional Trustee shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Capital Securities. (h) This Declaration may be amended by the Institutional Trustee and the Holders of a Majority in liquidation amount of the Common Securities without the consent of the Holders of the Capital Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; or (iv) modify, eliminate or add to any provision of this Declaration to such extent as may be necessary to ensure that the Trust will be classified for United States federal income tax purposes at all times as a grantor trust and will not be required to register as an "investment company" under the Investment Company Act (including without limitation to conform to any change in Rule 3a-5, Rule 3a-7 or any other applicable rule under the Investment Company Act or written change in interpretation or application thereof by any legislative body, court, government agency or regulatory authority) which amendment does not have a material adverse effect on the rights, preferences or privileges of the Holders of Securities; provided, however, that no such modification, elimination or addition -------- ------- referred to in clauses (i), (ii) or (iii) shall adversely affect in any material respect the powers, preferences or special rights of Holders of Capital Securities. Section 11.2. Meetings of the Holders of Securities; Action by Written -------------------------------------------------------- Consent. - ------- (a) Meetings of the Holders of any class of Securities may be called at any time by the Administrators (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration or the terms of the Securities. The Administrators shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Administrators one or more calls in a writing stating that the signing Holders of the Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of the Securities calling a meeting shall specify in writing the Certificates held by the Holders of the Securities exercising the right to call a meeting and only those Securities represented by such Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of the Securities: (i) notice of any such meeting shall be given to all the Holders of the Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of the Securities is permitted or required under this Declaration, such vote, consent or approval may be given at a meeting of the Holders of the Securities. Any action that may be taken at a meeting of the Holders of the Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of the Securities owning not less than the minimum amount of Securities 36 in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of the Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of the Securities entitled to vote who have not consented in writing. The Administrators may specify that any written ballot submitted to the Holders of the Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrators; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of the Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Connecticut relating to proxies, and judicial interpretations thereunder, as if the Trust were a Connecticut corporation and the Holders of the Securities were stockholders of a Connecticut corporation; each meeting of the Holders of the Securities shall be conducted by the Administrators or by such other Person that the Administrators may designate; and (iii) unless the Statutory Trust Act, this Declaration, or the terms of the Securities otherwise provides, the Administrators, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of the Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote; provided, however, that each meeting shall be conducted in -------- ------- the United States (as that term is defined in Treasury regulations section 301.7701-7). ARTICLE XII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE Section 12.1. Representations and Warranties of Institutional Trustee. The ------------------------------------------------------- initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Institutional Trustee's acceptance of its appointment as Institutional Trustee, that: (a) the Institutional Trustee is a national banking association with trust powers, duly organized and validly existing under the laws of the United States of America with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) the execution, delivery and performance by the Institutional Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Institutional Trustee. This Declaration has been duly executed and delivered by the Institutional Trustee, and it constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity (regardless of whether considered in a proceeding in equity or at law); 37 (c) the execution, delivery and performance of this Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or by-laws of the Institutional Trustee; and (d) no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority is required for the execution, delivery or performance by the Institutional Trustee of this Declaration. ARTICLE XIII MISCELLANEOUS Section 13.1. Notices. All notices provided for in this Declaration shall ------- be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied (which telecopy shall be followed by notice delivered or mailed by first class mail) or mailed by first class mail, as follows: (a) if given to the Trust in care of the Administrators at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): c/o Alabama National BanCorporation 1927 1st Avenue North Birmingham, Alabama 35203-4009 Attention: William E. Matthews, V Telecopy: 205-583-3275 (b) if given to the Institutional Trustee, at the Institutional Trustee's mailing address set forth below (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities): State Street Bank and Trust Company of Connecticut, National Association 225 Asylum Street, Goodwin Square Hartford, Connecticut 06103 Attention: Vice President, Corporate Trust Department Telecopy: 860-244-1889 With a copy to: State Street Bank and Trust Company P.O. Box 778 Boston, Massachusetts 02102-0778 Attention: Paul D. Allen, Corporate Trust Department Telecopy: 617-662-1462 (c) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust): Alabama National BanCorporation 1927 1st Avenue North Birmingham, Alabama 35203-4009 Attention: William E. Matthews, V Telecopy: 205-583-3275 38 (d) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. Section 13.2. Governing Law. This Declaration and the rights of the parties ------------- hereunder shall be governed by and interpreted in accordance with the law of the State of Connecticut and all rights and remedies shall be governed by such laws without regard to the principles of conflict of laws of the State of Connecticut or any other jurisdiction that would call for the application of the law of any jurisdiction other than the State of Connecticut; provided, however, that there -------- ------- shall not be applicable to the Trust, the Institutional Trustee or this Declaration any provision of the laws (statutory or common) of the State of Connecticut pertaining to trusts that relate to or regulate, in a manner inconsistent with the terms hereof (a) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (b) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (c) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (d) fees or other sums payable to trustees, officers, agents or employees of a trust, (e) the allocation of receipts and expenditures to income or principal, or (f) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding or investing trust assets. Section 13.3. Intention of the Parties. It is the intention of the parties ------------------------ hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. Section 13.4. Headings. Headings contained in this Declaration are inserted -------- for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. Section 13.5. Successors and Assigns. Whenever in this Declaration any of ---------------------- the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Institutional Trustee shall bind and inure to the benefit of their respective successors and assigns, whether or not so expressed. Section 13.6. Partial Enforceability. If any provision of this Declaration, ---------------------- or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Section 13.7. Counterparts. This Declaration may contain more than one ------------ counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Institutional Trustee and Administrators to any of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. Signatures appear on the following page 39 IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day and year first above written. STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as Institutional Trustee By: /s/ Paul D. Allen -------------------------------- Name: Paul D. Allen Title: Vice President ALABAMA NATIONAL BANCORPORATION, as Sponsor By: /s/ William E. Matthews, V -------------------------------- Name: William E. Matthews, V Title: Executive Vice President and CFO ALABAMA NATIONAL STATUTORY TRUST I By: /s/ William E. Matthews, V -------------------------------- Administrator By: /s/ Richard Murray, IV -------------------------------- Administrator By: /s/ John H. Holcomb, III -------------------------------- Administrator 40 ANNEX I TERMS OF SECURITIES Pursuant to Section 6.1 of the Amended and Restated Declaration of Trust, dated as of December 18, 2001 (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration): 1. Designation and Number. ---------------------- (a) 15,000 Floating Rate Capital Securities of Alabama National Statutory Trust I (the "Trust"), with an aggregate stated liquidation amount with respect to the assets of the Trust of $15,000,000.00 and a stated liquidation amount with respect to the assets of the Trust of $1,000.00 per Capital Security, are hereby designated for the purposes of identification only as the "Capital Securities". The Capital Security Certificates evidencing the ------------------ Capital Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. (b) 464 Floating Rate Common Securities of the Trust (the "Common ------ Securities") will be evidenced by Common Security Certificates substantially in - ---------- the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. Distributions. ------------- (a) Distributions will be payable on each Security for the period beginning on (and including) the date of original issuance and ending on (but excluding) March 18, 2002 at a rate per annum of 5.60% and shall bear interest for each successive period beginning on (and including) March 18, 2002, and each succeeding Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment Date (each, a "Distribution Period") at a rate ------------------- per annum equal to the 3-Month LIBOR, determined as described below, plus 3.60% (the "Coupon Rate"); provided, however, that prior to December 18, 2006, the ----------- -------- ------- Coupon Rate shall not exceed 12.50%, applied to the stated liquidation amount thereof, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarterly period will bear interest thereon compounded quarterly at the applicable Distribution Rate (to the extent permitted by law). A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. In the event that any date on which a Distribution is payable on the Securities is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), 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. The amount of interest payable for any Distribution Period will be calculated by applying the Coupon Rate to the principal amount outstanding at the commencement of the Distribution Period and multiplying each such amount by the actual number of days in the Distribution Period concerned divided by 360. All percentages resulting from any calculations on the Capital Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% or .09876545 being rounded to 9.87655% or .0987655, and all dollar I-1 amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)). (b) Distributions on the Securities will be cumulative, will accrue from the date of original issuance, and will be payable, subject to extension of distribution payment periods as described herein, quarterly in arrears on March 18, June 18, September 18 and December 18 of each year, commencing on March 18, 2002 (each a "Distribution Payment Date") when, as and if available for payment. ------------------------- The Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures, so long as no Indenture Event of Default has occurred and is continuing, by deferring the payment of interest on the Debentures for up to 20 consecutive quarterly periods (each an "Extension --------- Period") at any time and from time to time, subject to the conditions described below, although such interest would continue to accrue on the Debentures at the Distribution Rate compounded quarterly (to the extent permitted by law) during any Extension Period. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period the Debenture Issuer shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no -------- ------- Extension Period may extend beyond the Maturity Date and provided further, -------- ------- however, during any such Extension Period, the Debenture Issuer and its - ------- Affiliates shall 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 Debenture Issuer's or its Affiliates' capital stock (other than payments of dividends or distributions to the Debenture Issuer) or make any guarantee payments with respect to the foregoing, or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Debenture Issuer or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (i) and (ii) above, (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Debenture Issuer in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Debenture Issuer (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of any exchange or conversion of any class or series of the Debenture Issuer's capital stock (or any capital stock of a subsidiary of the Debenture Issuer) for any class or series of the Debenture Issuer's capital stock or of any class or series of the Debenture Issuer's indebtedness for any class or series of the Debenture Issuer's capital stock, (c) the purchase of fractional interests in shares of the Debenture Issuer's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholders' rights plan, or the issuance of rights, stock or other property under any stockholders' rights plan, or the redemption or repurchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (f) payments under the Capital Securities Guarantee). Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates I-2 payable (after giving effect to any Extension Period) to the extent that the Trust has funds available for the payment of such distributions in the Property Account of the Trust. The Trust's funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee. (c) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. The relevant record dates shall be 15 days before the relevant Distribution Payment Date. Distributions payable on any Securities that are not punctually paid on any Distribution Payment Date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, as the case may be, when due (taking into account any Extension Period), will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution 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 payment date. (d) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities. 3. Liquidation Distribution Upon Dissolution. In the event of the voluntary ----------------------------------------- or involuntary liquidation, dissolution, winding-up or termination of the Trust (each a "Liquidation") other than in connection with a redemption of the ----------- Debentures, the Holders of the Securities will be entitled to receive out of the assets of the Trust available for distribution to Holders of the Securities, after satisfaction of liabilities to creditors of the Trust (to the extent not satisfied by the Debenture Issuer), distributions equal to the lesser of (i) the aggregate of the stated liquidation amount of $1,000.00 per Security plus accrued and unpaid Distributions thereon to the date of payment, to the extent the Trust shall have funds available therefor, and (ii) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust (such amount being, in either case, the "Liquidation Distribution"), ------------------------ unless in connection with such Liquidation, the Debentures in aggregate stated principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Distribution Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, and having the same record date as, such Securities, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with the Statutory Trust Act, shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities. The Sponsor, as the Holder of all of the Common Securities, has the right at any time to dissolve the Trust (including, without limitation, upon the occurrence of a Special Event), subject to the receipt by the Debenture Issuer of prior approval from the Board of Governors of the Federal Reserve System and any successor federal agency that is primarily responsible for regulating the activities of Sponsor (the "Federal Reserve"), if the Sponsor is a bank holding --------------- company, or from the Office of Thrift Supervision and any successor federal agency that is primarily responsible for regulating the activities of Sponsor, (the "OTS") if the company is a savings and loan holding company, in either case --- if then required under applicable capital guidelines or policies of the Federal Reserve or OTS, as applicable, and, after satisfaction of liabilities to creditors of the Trust, cause the Debentures to be distributed to the Holders of the Securities on a Pro Rata basis in accordance with the aggregate stated liquidation amount thereof. I-3 If a Liquidation of the Trust occurs as described in clause (i), (ii), (iii) or (v) in Section 7.1(a) of the Declaration, the Trust shall be liquidated by the Institutional Trustee as expeditiously as it determines to be possible by distributing, after satisfaction of liabilities to creditors of the Trust, to the Holders of the Securities, the Debentures on a Pro Rata basis to the extent not satisfied by the Debenture Issuer, unless such distribution is determined by the Institutional Trustee not to be practical, in which event such Holders will be entitled to receive out of the assets of the Trust available for distribution to the Holders, after satisfaction of liabilities of creditors of the Trust to the extent not satisfied by the Debenture Issuer, an amount equal to the Liquidation Distribution. An early Liquidation of the Trust pursuant to clause (iv) of Section 7.1(a) of the Declaration shall occur if the Institutional Trustee determines that such Liquidation is possible by distributing, after satisfaction of liabilities to creditors of Trust, to the Holders of the Securities on a Pro Rata basis, the Debentures, and such distribution occurs. If, upon any such Liquidation 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 the amounts payable directly by the Trust on such Capital Securities shall be paid to the Holders of the Trust Securities on a Pro Rata basis, except that if an Event of Default has occurred and is continuing, the Capital Securities shall have a preference over the Common Securities with regard to such distributions. After the date for any distribution of the Debentures upon dissolution of the Trust (i) the Securities of the Trust will be deemed to be no longer outstanding, (ii) upon surrender of a Holder's Securities certificate, such Holder of the Securities will receive a certificate representing the Debentures to be delivered upon such distribution, and (iii) any certificates representing the Securities still outstanding will be deemed to represent undivided beneficial interests in such of the Debentures as have an aggregate principal amount equal to the aggregate stated liquidation amount with an interest rate identical to the Distribution Rate of, and bearing accrued and unpaid interest equal to accrued and unpaid distributions on, the Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissuance (and until such certificates are so surrendered, no payments of interest or principal shall be made to Holders of Securities in respect of any payments due and payable under the Debentures; provided, however that such -------- ------- failure to pay shall not be deemed to be an Event of Default and shall not entitle the Holder to the benefits of the Guarantee), and (iv) all rights of Holders of Securities under the Declaration shall cease, except the right of such Holders to receive Debentures upon surrender of certificates representing such Securities. 4. Redemption and Distribution. --------------------------- (a) The Debentures will mature on December 18, 2031. The Debentures may be redeemed by the Debenture Issuer, in whole or in part at any time and from time to time on or after December 18, 2006, at the Redemption Price. In addition, the Debentures may be redeemed by the Debenture Issuer at the Special Redemption Price, in whole but not in part, at any Distribution Payment Date, upon the occurrence and continuation of a Special Event within 120 days following the occurrence of such Special Event at the Special Redemption Price, upon not less than 30 nor more than 60 days' notice to holders of such Debentures so long as such Special Event is continuing. In each case, the right of the Debenture Issuer to redeem the Debentures is subject to the Debenture Issuer having received prior approval from the Federal Reserve (if the Debenture Issuer is a bank holding company) or prior approval from the OTS (if the Debenture Issuer is a savings and loan holding company), in each case if then required under applicable capital guidelines or policies of the applicable federal agency. "3-Month LIBOR" means the London interbank offered interest rate for ------------- three-month, U.S. dollar deposits determined by the Debenture Trustee in the following order of priority: (1) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the I-4 related Determination Date (as defined below). "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits; (2) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (3) if fewer than two such quotations are provided as requested in clause (2) above, the Debenture Trustee will request four major New York City banks to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (4) if fewer than two such quotations are provided as requested in clause (3) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period. If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date. (5) The Coupon Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law. "Capital Treatment Event" means the receipt by the Debenture Issuer and the ----------------------- Trust of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of any amendment to, or change (including any announced prospective change) in, the laws, rules or regulations of the United States or any political subdivision thereof or therein, or as the result of any official or administrative pronouncement or action or decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is announced on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that the Sponsor will not, within 90 days of the date of such opinion, be entitled to treat an amount equal to the aggregate liquidation amount of the Debentures as "Tier 1 Capital" (or its then equivalent) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Sponsor (or if the Sponsor is not a bank holding company, such guidelines applied to the Sponsor as if the Sponsor were subject to such guidelines); provided, however, that the inability of the Sponsor to treat all -------- ------- or any portion of the liquidation amount of the Debentures as Tier l Capital shall not constitute the basis for a Capital Treatment Event, if such inability results from the Sponsor having cumulative preferred stock, minority interests in consolidated subsidiaries, or any other class of security or interest which the Federal Reserve or OTS, as applicable, may now or hereafter accord Tier 1 Capital treatment in excess of the amount which may now or hereafter qualify for treatment as Tier 1 Capital under applicable capital adequacy guidelines; provided further, however, that the distribution of Debentures in connection - -------- ------- ------- with the I-5 Liquidation of the Trust shall not in and of itself constitute a Capital Treatment Event unless such Liquidation shall have occurred in connection with a Tax Event or an Investment Company Event. "Determination Date" means the date that is two London Banking Days (i.e., ------------------ a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the particular Distribution Period for which a Coupon Rate is being determined. "Investment Company Event" means the receipt by the Debenture Issuer 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 written change (including any announced prospective change) in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the Trust is or will be considered an Investment Company that is required to be registered under the Investment Company Act which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the issuance of the Debentures. "Maturity Date" means December 18, 2031. ------------- "Redemption Date" shall mean the date fixed for the redemption of Capital --------------- Securities, which shall be March 18, June 18, September 18 or December 18 commencing December 18, 2006. "Redemption Price" means 100% of the principal amount of the Debentures ---------------- being redeemed, plus accrued and unpaid interest on such Debentures to the Redemption Date. "Special Event" means a Tax Event, an Investment Company Event or a Capital ------------- Treatment Event. "Special Redemption Date" means a Redemption Date on which a Special Event ----------------------- redemption occurs. "Special Redemption Price" means (i) 107.5% of the principal amount of the ------------------------ Debentures being redeemed on a Redemption Date that occurs before December 18, 2006 and (ii) 100% of the principal amount of the Debentures being redeemed on a Redemption Date that occurs on December 18, 2006 or after, plus accrued and unpaid interest on such Debentures to the Redemption Date. "Tax Event" means the receipt by the Debenture Issuer 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 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 (including any private letter ruling, technical advice memorandum, field service advice, regulatory procedure, notice or announcement including any notice or announcement of intent to adopt such procedures or regulations (an "Administrative Action")) or judicial decision --------------------- interpreting or applying such laws or regulations, regardless of whether such Administrative Action or judicial decision is issued to or in connection with a proceeding involving the Debenture Issuer or the Trust and whether or not subject to review or appeal, which amendment, clarification, change, Administrative Action or decision is enacted, promulgated or announced, in each case on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Debenture Issuer on the Debentures is not, or within 90 days of the date of such opinion, will not be, deductible by the Debenture Issuer, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. I-6 (b) Upon the repayment in full at maturity or redemption in whole or in part of the Debentures (other than following the distribution of the Debentures to the Holders of the Securities), the proceeds from such repayment or payment shall concurrently be applied to redeem Pro Rata at the applicable Redemption Price or Special Redemption Price, as applicable, Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed; provided, however, that holders of such -------- ------- Securities shall be given not less than 30 nor more than 60 days' notice of such redemption (other than at the scheduled maturity of the Debentures). (c) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Capital Securities will be redeemed Pro Rata and the Capital Securities to be redeemed will be redeemed Pro Rata from each Holder of Capital Securities. (d) The Trust may not redeem fewer than all the outstanding Capital Securities unless all accrued and unpaid Distributions have been paid on all Capital Securities for all quarterly Distribution periods terminating on or before the date of redemption. (e) Redemption or Distribution Procedures. ------------------------------------- (i) Notice of any redemption of or notice of distribution of the Debentures in exchange for, the Securities (a "Redemption/Distribution ----------------------- Notice") will be given by the Trust by mail to each Holder of Securities to ------ be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of such Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of such Securities at the address of each such Holder appearing on the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) If the Securities are to be redeemed and the Trust gives a Redemption/ Distribution Notice, which notice may only be issued if the Debentures are redeemed as set out in this paragraph 4 (which notice will be irrevocable), then, provided that the Institutional Trustee has a -------- sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will pay the relevant Redemption Price or Special Redemption Price, as applicable, to the Holders of such Securities by check mailed to the address of each such Holder appearing on the books and records of the Trust on the Redemption Date. If a Redemption/Distribution Notice shall have been given and funds deposited as required then immediately prior to the close of business on the date of such deposit Distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the applicable Redemption Price or Special Redemption Price specified in paragraph 4(a), but without interest on such Redemption Price or Special Redemption Price. If any date fixed for redemption of Securities is not a Business Day, then payment of any such Redemption Price or Special 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 fixed for redemption. If payment of the Redemption Price or Special Redemption Price I-7 in respect of any Securities is improperly withheld or refused and not paid either by the Trust or by the Debenture Issuer as guarantor pursuant to the Guarantee, Distributions on such Securities will continue to accrue at the Distribution Rate from the original Redemption Date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price or Special Redemption Price. In the event of any redemption of the Capital Securities issued by the Trust in part, the Trust shall not be required to (i) issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before any selection for redemption of the Capital Securities and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Capital Securities to be so redeemed or (ii) register the transfer of or exchange any Capital Securities so selected for redemption, in whole or in part except for the unredeemed portion of any Capital Securities being redeemed in part. (iii) Redemption/Distribution Notices shall be sent by the Administrators on behalf of the Trust to (A) in respect of the Capital Securities, the Holders thereof and (B) in respect of the Common Securities, the Holder thereof. (iv) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), and provided that the acquiror is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Capital Securities by tender, in the open market or by private agreement. 5. Voting Rights - Capital Securities. ---------------------------------- (a) Except as provided under paragraphs 5(b) and 7 and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. The Administrators are required to call a meeting of the Holders of the Capital Securities if directed to do so by Holders of at least 10% in liquidation amount of the Capital Securities. (b) Subject to the requirements of obtaining a tax opinion by the Institutional Trustee in certain circumstances set forth in the last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Capital Securities, voting separately as a class, have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies available under the Indenture as the holder of the Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent on behalf of all the Holders of the Capital Securities to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required; provided, however, that, where -------- ------ a consent or action under the Indenture would require the consent or act of the holders of greater than a simple majority in aggregate principal amount of Debentures (a "Super Majority") affected thereby, the Institutional Trustee may --------------- only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Capital Securities outstanding which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. If the Institutional Trustee fails to enforce its rights under the Debentures after the Holders of a Majority in liquidation amount of such Capital Securities have so directed the Institutional Trustee, to the fullest extent permitted by law, a Holder of the Capital Securities may institute a legal proceeding directly against the Debenture Issuer to enforce the Institutional Trustee's rights under the Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is I-8 continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date the interest or principal is payable (or in the case of redemption, the Redemption Date), then a Holder of record of the Capital Securities may directly institute a proceeding for enforcement of payment on or after the respective due dates specified in the Debentures, to such Holder directly of the principal of or interest on the Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder. The Institutional Trustee shall notify all Holders of the Capital Securities of any default actually known to the Institutional Trustee with respect to the Debentures unless (x) such default has been cured prior to the giving of such notice or (y) the Institutional Trustee determines in good faith that the withholding of such notice is in the interest of the Holders of such Capital Securities, except where the default relates to the payment of principal of or interest on any of the Debentures. Such notice shall state that such Indenture Event of Default also constitutes an Event of Default hereunder. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Institutional Trustee shall not take any of the actions described in clauses (i), (ii) or (iii) above unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes. In the event the consent of the Institutional Trustee, as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Institutional Trustee shall request the direction of the Holders of the Securities with respect to such amendment modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, -------- ------- that where a consent under the Indenture would require the consent of a Super-Majority, the Institutional Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities outstanding which the relevant Super-Majority represents of the aggregate principal amount of the Debentures outstanding. The Institutional Trustee shall not take any such action in accordance with the directions of the Holders of the Securities unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes. A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Event of Default hereunder. Any required approval or direction of Holders of the Capital Securities may be given at a separate meeting of Holders of the Capital Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The Institutional Trustee will cause a notice of any meeting at which Holders of the Capital Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of the Capital Securities. Each such notice will include a statement setting forth the following information (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Capital Securities will be required for the Trust to redeem and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of the Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not entitle the Holder thereof to vote or consent and shall, for purposes of such vote or consent, be treated as if such Capital Securities were not outstanding. In no event will Holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Sponsor as the Holder of all I-9 of the Common Securities of the Trust. Under certain circumstances as more fully described in the Declaration, Holders of Capital Securities have the right to vote to appoint, remove or replace the Institutional Trustee. 6. Voting Rights - Common Securities. --------------------------------- (a) Except as provided under paragraphs 6(b), 6(c) and 7 and as otherwise required by law and the Declaration, the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article IV of the Declaration, to vote to appoint, remove or replace any Administrators. (c) Subject to Section 6.7 of the Declaration and only after each Event of Default (if any) with respect to the Capital Securities has been cured, waived, or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; provided, however, that, where a consent or action under the -------- ------- Indenture would require a Super Majority, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Notwithstanding this paragraph 6(c), the Institutional Trustee shall not revoke any action previously authorized or approved by a vote or consent of the Holders of the Capital Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action described in (i), (ii) or (iii) above, unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration to the fullest extent permitted by law, any Holder of the Common Securities may institute a legal proceeding directly against any Person to enforce the Institutional Trustee's rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person. Any approval or direction of Holders of the Common Securities may be given at a separate meeting of Holders of the Common Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The Administrators will cause a notice of any meeting at which Holders of the Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of the Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. I-10 7. Amendments to Declaration and Indenture. --------------------------------------- (a) In addition to any requirements under Section 11.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Institutional Trustee, Sponsor or Administrators otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the Liquidation of the Trust, other than as described in Section 7.1 of the Declaration, then the Holders of outstanding Securities, voting together as a single 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 Securities, affected thereby; provided, however, if any amendment or proposal -------- ------- referred to in clause (i) above would adversely affect only the Capital Securities or only the Common Securities, then only the affected 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 a Majority in liquidation amount of such class of Securities. (b) In the event the consent of the Institutional Trustee as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification, or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require -------- ------- a Super Majority, the Institutional Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. (c) Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust, (ii) reduce or otherwise adversely affect the powers of the Institutional Trustee or (iii) cause the Trust to be deemed an Investment Company which is required to be registered under the Investment Company Act. (d) Notwithstanding any provision of the Declaration, the right of any Holder of the Capital Securities to receive payment of distributions and other payments upon redemption or otherwise, on or after their respective due dates, or to institute a suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. For the protection and enforcement of the foregoing provision, each and every Holder of the Capital Securities shall be entitled to such relief as can be given either at law or equity. 8. Pro Rata. A reference in these terms of the Securities to any --------- payment, distribution or treatment as being "Pro Rata" shall mean pro rata to --------- each Holder of the Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities then outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities Pro Rata according to the aggregate liquidation amount of the Capital Securities held by the relevant Holder relative to the aggregate liquidation amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of the Common Securities Pro Rata according to the aggregate liquidation amount of the Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 9. Ranking. The Capital Securities rank pari passu with and payment ------- thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default has occurred and is I-11 continuing, the rights of Holders of the Common Securities to receive payment of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of the Holders of the Capital Securities with the result that no payment of any Distribution on, or Redemption Price of, any Common Security, and no other payment on account of redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all outstanding Capital 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 Capital Securities then called for redemption, shall have been made or provided for, and all funds immediately available to the Institutional Trustee shall first be applied to the payment in full in cash of all Distributions on, or the Redemption Price of, the Capital Securities then due and payable. 10. Acceptance of Guarantee and Indenture. Each Holder of the Capital ------------------------------------- Securities and the Common Securities,by the acceptance of such Securities, agrees to the provisions of the Guarantee, including the subordination provisions therein and to the provisions of the Indenture. 11. No Preemptive Rights. The Holders of the Securities shall have no -------------------- preemptive or similar rights to subscribe for any additional securities. 12. Miscellaneous. These terms constitute a part of the Declaration. ------------- The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business. I-12 EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE [FORM OF FACE OF SECURITY] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE SPONSOR OR THE TRUST, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE SPONSOR'S AND THE TRUST'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE SPONSOR OR THE TRUST. HEDGING TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE A-1-1 MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $500,000.00 (500 SECURITIES) AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $500,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE DECLARATION TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. Certificate Number P-1 15,000 Capital Securities December 18, 2001 Certificate Evidencing Floating Rate Capital Securities of Alabama National Statutory Trust I (liquidation amount $1,000.00 per Capital Security) Alabama National Statutory Trust I, a statutory trust created under the laws of the State of Connecticut (the "Trust"), hereby certifies that The Bank of New York, as indenture trustee under the Indenture dated as of December 18, 2001 among Preferred Term Securities IV, Ltd., Preferred Term Securities IV, Inc. and The Bank of New York (the "Holder") is the registered owner of securities of the Trust representing undivided beneficial interests in the assets of the Trust, (liquidation amount $1,000.00 per capital security) (the "Capital Securities"). Subject to the Declaration (as defined below), the Capital 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. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities represented hereby are issued pursuant to, and shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of December 18, 2001, among William E. Matthews, V, John H. Holcomb, III and Richard Murray, IV as Administrators, State Street Bank and Trust Company of Connecticut, National Association, as Institutional Trustee, Alabama National BanCorporation, as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, including the designation of the terms of the Capital Securities as set forth in Annex I to such amended and restated declaration as the same may be amended from time to time (the "Declaration"). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business. A-1-2 Upon receipt of this Security, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this Security, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of beneficial ownership in the Debentures. This Capital Security is governed by, and construed in accordance with, the laws of the State of Connecticut, without regard to principles of conflict of laws. IN WITNESS WHEREOF, the Trust has duly executed this certificate. ALABAMA NATIONAL STATUTORY TRUST I By:___________________________________ Name: Title: Administrator CERTIFICATE OF AUTHENTICATION ----------------------------- This is one of the Capital Securities referred to in the within-mentioned Declaration. STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as the Institutional Trustee By:___________________________________ Authorized Officer A-1-3 [FORM OF REVERSE OF SECURITY] Distributions payable on each Capital Security will be payable at an annual rate equal to 5.60% beginning on (and including) the date of original issuance and ending on (but excluding) March 18, 2002 and at an annual rate for each successive period beginning on (and including) March 18, 2002, and each succeeding Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment Date (each a "Distribution Period"), equal to 3-Month LIBOR, determined as described below, plus 3.60% (the "Coupon Rate"); provided, however, that prior to December 18, 2006, the Coupon Rate shall not - -------- ------- exceed 12.50%, applied to the stated liquidation amount of $1,000.00 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than a quarterly period will bear interest thereon compounded quarterly at the Distribution Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes payments of Interest and any principal on the Debentures held by the Institutional Trustee unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. As used herein, "Determination Date" means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the commencement of the relevant Distribution Period. In the event that any date on which a Distribution is payable on this Capital Security is not a Business Day, then a payment of the Distribution payable on such date will be made on the next succeeding day which is a Business Day (and without any Distribution 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 the payment was originally payable. The amount of interest payable for any Distribution Period will be calculated by applying the Coupon Rate to the principal amount outstanding at the commencement of the Distribution Period and multiplying each such amount by the actual number of days in the Distribution Period concerned divided by 360. "3-Month LIBOR" as used herein, means the London interbank offered interest rate for three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of priority: (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date ("Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four major New York City banks to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period. If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date. A-1-4 The Coupon Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law. All percentages resulting from any calculations on the Capital Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% or .09876545 being rounded to 9.87655% or .0987655, and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)). Except as otherwise described below, Distributions on the Capital Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on March 18, June 18, September 18 and December 18 of each year, commencing on March 18, 2002. The Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest payment period for up to 20 consecutive quarterly periods (each an "Extension Period") on the Debentures, subject to the conditions described below, although such interest would continue to accrue on the Debentures at an annual rate equal to the Distribution Rate compounded quarterly to the extent permitted by law during any Extension Period. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period the Debenture Issuer shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no Extension Period may extend beyond the Maturity Date. Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds available for the payment of such distributions in the Property Account of the Trust. The Trust's funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee. The Capital Securities shall be redeemable as provided in the Declaration. A-1-5 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to: __________________________________________________________________________ (Insert assignee's social security or tax identification number)__________ __________________________________________________________________________ __________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints __________________________________________________________________________ agent to transfer this Capital Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:______________________________ Signature:_________________________ (Sign exactly as your name appears on the other side of this Capital Security Certificate) Signature Guarantee:/1/ _____________ /1/Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-1-6 EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION. THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT IN COMPLIANCE WITH SECTION 8.1 OF THE DECLARATION. Certificate Number C-1 464 Common Securities December 18, 2001 Certificate Evidencing Floating Rate Common Securities of Alabama National Statutory Trust I Alabama National Statutory Trust I, a statutory trust created under the laws of the State of Connecticut (the "Trust"), hereby certifies that Alabama National BanCorporation (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust (the "Common Securities"). The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued pursuant to, and shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of December 18, 2001, among William E. Matthews, V, John H. Holcomb, III and Richard Murray, IV, as Administrators, State Street Bank and Trust Company of Connecticut, National Association, as Institutional Trustee, Alabama National BanCorporation as Sponsor, and the holders from time to time of undivided beneficial interest in the assets of the Trust including the designation of the terms of the Common Securities as set forth in Annex I to such amended and restated declaration, as the same may be amended from time to time (the "Declaration"). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Guarantee and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business. As set forth in the Declaration, where an Event of Default has occurred and is continuing, the rights of Holders of Common Securities to payment in respect of Distributions and payments upon Liquidation, redemption or otherwise are subordinated to the rights of payment of Holders of the Capital Securities. Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this Certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of undivided beneficial ownership in the Debentures. This Common Security is governed by, and construed in accordance with, the laws of the State of Connecticut, without regard to principles of conflict of laws. A-2-1 IN WITNESS WHEREOF, the Trust has duly executed this certificate. ALABAMA NATIONAL STATUTORY TRUST I By:_____________________________________ Name: Title: Administrator A-2-2 [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be identical in amount to the Distributions payable on each Capital Security, which is at an annual rate equal to 5.60% beginning on (and including) the date of original issuance and ending on (but excluding) March 18, 2002 and at an annual rate for each successive period beginning on (and including) March 18, 2002, and each succeeding Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment Date (each a "Distribution Period"), equal to 3-Month LIBOR, determined as described below, plus 3.60% (the "Coupon Rate"); provided, however, that prior to December 18, 2006, the Coupon Rate shall not - -------- ------- exceed 12.50%, applied to the stated liquidation amount of $1,000.00 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one period will bear interest thereon compounded at the Distribution Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes payments of Interest and any principal on the Debentures held by the Institutional Trustee unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. As used herein, "Determination Date" means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the commencement of the relevant Distribution Period. In the event that any date on which a Distribution is payable on this Common Security is not a Business Day, then a payment of the Distribution payable on such date will be made on the next succeeding day which is a Business Day (and without any Distribution 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 the payment was originally payable. The amount of interest payable for any Distribution Period will be calculated by applying the Coupon Rate to the principal amount outstanding at the commencement of the Distribution Period and multiplying each such amount by the actual number of days in the Distribution Period concerned divided by 360. "3-Month LIBOR" as used herein, means the London interbank offered interest rate for three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of priority: (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date ("Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four major New York City banks to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period. If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date. A-2-3 The Coupon Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law. All percentages resulting from any calculations on the Common Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% or .09876545 being rounded to 9.87655% or .0987655, and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)). Except as otherwise described below, Distributions on the Common Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on March 18, June 18, September 18 and December 18 of each year, commencing on March 18, 2002. The Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest payment period for up to 20 consecutive quarterly periods (each an "Extension Period") on the Debentures, subject to the conditions described below, although such interest would continue to accrue on the Debentures at an annual rate equal to the Distribution Rate compounded quarterly to the extent permitted by law during any Extension Period. No Extension Period may end on a date other than an Interest Payment Date. At the end of any such Extension Period the Sponsor shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that -------- ------- no Extension Period may extend beyond the Maturity Date. Prior to the termination of any Extension Period, the Sponsor may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Sponsor may commence a new Extension Period, subject to the foregoing requirements. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds available for the payment of such distributions in the Property Account of the Trust. The Trust's funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee. The Common Securities shall be redeemable as provided in the Declaration. A-2-4 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: __________________________________________________________________________ (Insert assignee's social security or tax identification number)__________ __________________________________________________________________________ __________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints __________________________________________________________________________ _______________________________________________________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:_____________________________ Signature:________________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) Signature:________________________ (Sign exactly as your name appears on the other side of this common Security Certificate) Signature Guarantee/2/ ___________ /2/Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union, meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-2-5 EXHIBIT B SPECIMEN OF INITIAL DEBENTURE B-1 EXHIBIT C PLACEMENT AGREEMENT C-1 EX-10.48 6 dex1048.txt INDENTURE EXHIBIT 10.48 ================================================================== ALABAMA NATIONAL BANCORPORATION, as Issuer INDENTURE Dated as of December 18, 2001 STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as Trustee FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES DUE 2031 =================================================================== TABLE OF CONTENTS -----------------
Page ---- ARTICLE I. DEFINITIONS....................................................................................... 1 Section 1.1. Definitions....................................................................... 1 ARTICLE II. DEBENTURES....................................................................................... 7 Section 2.1. Authentication and Dating......................................................... 7 Section 2.2. Form of Trustee's Certificate of Authentication................................... 7 Section 2.3. Form and Denomination of Debentures............................................... 8 Section 2.4. Execution of Debentures........................................................... 8 Section 2.5. Exchange and Registration of Transfer of Debentures............................... 8 Section 2.6. Mutilated, Destroyed, Lost or Stolen Debentures................................... 0 Section 2.7. Temporary Debentures.............................................................. 11 Section 2.8. Payment of Interest and Additional Interest....................................... 11 Section 2.9. Cancellation of Debentures Paid, etc.............................................. 13 Section 2.10. Computation of Interest Rate...................................................... 13 Section 2.11. Extension of Interest Payment Period.............................................. 14 Section 2.12. CUSIP Numbers..................................................................... 15 ARTICLE III. PARTICULAR COVENANTS OF THE COMPANY............................................................. 15 Section 3.1. Payment of Principal, Premium and Interest; Agreed Treatment of the Debentures.... 15 Section 3.2. Offices for Notices and Payments, etc............................................. 16 Section 3.3. Appointments to Fill Vacancies in Trustee's Office................................ 17 Section 3.4. Provision as to Paying Agent...................................................... 17 Section 3.5. Certificate to Trustee............................................................ 17 Section 3.6. Additional Sums................................................................... 18 Section 3.7. Compliance with Consolidation Provisions.......................................... 18 Section 3.8. Limitation on Dividends........................................................... 18 Section 3.9. Covenants as to the Trust......................................................... 19 Section 3.10. Additional Junior Indebtedness.................................................... 19 ARTICLE IV. SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE................................ 19 Section 4.1. Securityholders' Lists............................................................ 19 Section 4.2. Preservation and Disclosure of Lists.............................................. 19 ARTICLE V. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS UPON AN EVENT OF DEFAULT.............................. 20 Section 5.1. Events of Default................................................................. 20 Section 5.2. Payment of Debentures on Default; Suit Therefor................................... 22 Section 5.3. Application of Moneys Collected by Trustee........................................ 23 Section 5.4. Proceedings by Securityholders.................................................... 24 Section 5.5. Proceedings by Trustee............................................................ 24 Section 5.6. Remedies Cumulative and Continuing; Delay or Omission Not a Waiver................ 24
i Section 5.7. Direction of Proceedings and Waiver of Defaults by Majority of Securityholders.... 25 Section 5.8. Notice of Defaults................................................................ 25 Section 5.9. Undertaking to Pay Costs.......................................................... 25 ARTICLE VI. CONCERNING THE TRUSTEE........................................................................... 26 Section 6.1. Duties and Responsibilities of Trustee............................................ 26 Section 6.2. Reliance on Documents, Opinions, etc.............................................. 27 Section 6.3. No Responsibility for Recitals, etc............................................... 27 Section 6.4. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Debentures.................................................................... 28 Section 6.5. Moneys to be Held in Trust........................................................ 28 Section 6.6. Compensation and Expenses of Trustee.............................................. 28 Section 6.7. Officers' Certificate as Evidence................................................. 29 Section 6.8. Eligibility of Trustee............................................................ 29 Section 6.9. Resignation or Removal of Trustee................................................. 29 Section 6.10. Acceptance by Successor Trustee................................................... 30 Section 6.11. Succession by Merger, etc......................................................... 31 Section 6.12. Authenticating Agents............................................................. 31 ARTICLE VII. CONCERNING THE SECURITYHOLDERS.................................................................. 32 Section 7.1. Action by Securityholders......................................................... 32 Section 7.2. Proof of Execution by Securityholders............................................. 33 Section 7.3. Who Are Deemed Absolute Owners.................................................... 33 Section 7.4. Debentures Owned by Company Deemed Not Outstanding................................ 33 Section 7.5. Revocation of Consents; Future Holders Bound...................................... 33 ARTICLE VIII. SECURITYHOLDERS' MEETINGS...................................................................... 34 Section 8.1. Purposes of Meetings.............................................................. 34 Section 8.2. Call of Meetings by Trustee....................................................... 34 Section 8.3. Call of Meetings by Company or Securityholders.................................... 34 Section 8.4. Qualifications for Voting......................................................... 34 Section 8.5. Regulations....................................................................... 35 Section 8.6. Voting............................................................................ 35 Section 8.7. Quorum; Actions................................................................... 35 ARTICLE IX. SUPPLEMENTAL INDENTURES.......................................................................... 36 Section 9.1. Supplemental Indentures without Consent of Securityholders........................ 36 Section 9.2. Supplemental Indentures with Consent of Securityholders........................... 37 Section 9.3. Effect of Supplemental Indentures................................................. 38 Section 9.4. Notation on Debentures............................................................ 38 Section 9.5. Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee....... 38 ARTICLE X. REDEMPTION OF SECURITIES.......................................................................... 38 Section 10.1. Optional Redemption............................................................... 38 Section 10.2. Special Event Redemption.......................................................... 39 Section 10.3. Notice of Redemption; Selection of Debentures..................................... 39 Section 10.4. Payment of Debentures Called for Redemption....................................... 39
ii ARTICLE XI. CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE................................................ 40 Section 11.1. Company May Consolidate, etc., on Certain Terms................................... 40 Section 11.2. Successor Entity to be Substituted................................................ 40 Section 11.3. Opinion of Counsel to be Given to Trustee......................................... 41 ARTICLE XII. SATISFACTION AND DISCHARGE OF INDENTURE......................................................... 41 Section 12.1. Discharge of Indenture............................................................ 41 Section 12.2. Deposited Moneys to be Held in Trust by Trustee................................... 41 Section 12.3. Paying Agent to Repay Moneys Held................................................. 41 Section 12.4. Return of Unclaimed Moneys........................................................ 42 ARTICLE XIII. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS................................ 42 Section 13.1. Indenture and Debentures Solely Corporate Obligations............................. 42 ARTICLE XIV. MISCELLANEOUS PROVISIONS........................................................................ 42 Section 14.1. Successors........................................................................ 42 Section 14.2. Official Acts by Successor Entity................................................. 42 Section 14.3. Surrender of Company Powers....................................................... 42 Section 14.4. Addresses for Notices, etc........................................................ 42 Section 14.5. Governing Law..................................................................... 43 Section 14.6. Evidence of Compliance with Conditions Precedent.................................. 43 Section 14.7. Non-Business Days................................................................. 43 Section 14.8. Table of Contents, Headings, etc.................................................. 43 Section 14.9. Execution in Counterparts......................................................... 43 Section 14.10. Separability...................................................................... 43 Section 14.11. Assignment........................................................................ 44 Section 14.12. Acknowledgment of Rights.......................................................... 44 ARTICLE XV. SUBORDINATION OF DEBENTURES...................................................................... 44 Section 15.1. Agreement to Subordinate.......................................................... 44 Section 15.2. Default on Senior Indebtedness.................................................... 44 Section 15.3. Liquidation, Dissolution, Bankruptcy.............................................. 45 Section 15.4. Subrogation....................................................................... 46 Section 15.5. Trustee to Effectuate Subordination............................................... 46 Section 15.6. Notice by the Company............................................................. 46 Section 15.7. Rights of the Trustee; Holders of Senior Indebtedness............................. 47 Section 15.8. Subordination May Not Be Impaired................................................. 47
Exhibit A Form of Junior Subordinated Deferrable Interest Debenture iii THIS INDENTURE, dated as of December 18, 2001, between Alabama National BanCorporation, a Delaware corporation (the "Company"), and State Street Bank ------- and Trust Company of Connecticut, National Association, a national banking association organized under the laws of the United States of America, as debenture trustee (the "Trustee"). ------- WITNESSETH: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its Floating Rate Junior Subordinated Deferrable Interest Debentures due 2031 (the "Debentures") under this Indenture to provide, among ---------- other things, for the execution and authentication, delivery and administration thereof, and the Company has duly authorized the execution of this Indenture; and WHEREAS, all acts and things necessary to make this Indenture a valid agreement according to its terms, have been done and performed; NOW, THEREFORE, This Indenture Witnesseth: In consideration of the premises, and the purchase of the Debentures by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Debentures as follows: ARTICLE I. DEFINITIONS ----------- Section 1.1. Definitions. The terms defined in this Section 1.1 (except as ----------- herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles and the term "generally accepted accounting principles" means such accounting principles as are generally accepted in the United States at the time of any computation. The words "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. "Additional Interest" means interest, if any, that shall accrue on any ------------------- interest on the Debentures the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the Interest Rate, compounded quarterly (to the extent permitted by law). "Additional Junior Indebtedness" means, without duplication and other than ------------------------------ the Debentures, any indebtedness, liabilities or obligations of the Company, or any Affiliate of the Company, under debt securities (or guarantees in respect of debt securities) initially issued to any trust, or a trustee of a trust, partnership or other entity affiliated with the Company that is, directly or indirectly, a finance subsidiary (as such term is defined in Rule 3a-5 under the Investment Company Act of 1940) or other financing vehicle of the Company or any Affiliate of the Company in connection with the issuance by that entity of preferred securities or other securities that are eligible to qualify for Tier 1 capital treatment (or its then equivalent) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company (or, if the Company is not a bank holding company, such guidelines applied to the Company as if the Company were subject to such guidelines); provided, however, that the inability of the Company to treat all or any portion - -------- ------- of the Additional Junior Indebtedness as Tier 1 capital shall not disqualify it as Additional Junior Indebtedness 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 (including the 1 Debentures) in excess of the amount which may qualify for treatment as Tier 1 capital under applicable capital adequacy guidelines. "Additional Sums" has the meaning set forth in Section 3.6. --------------- "Affiliate" has the same meaning as given to that term in Rule 405 of the --------- Securities Act or any successor rule thereunder. "Authenticating Agent" means any agent or agents of the Trustee which at -------------------- the time shall be appointed and acting pursuant to Section 6.12. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state -------------- law for the relief of debtors. "Board of Directors" means the board of directors or the executive ------------------ committee or any other duly authorized designated officers of the Company. "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 and delivered to the Trustee. "Business Day" means any day other than a Saturday, Sunday or any other day ------------ on which banking institutions in New York City or Hartford, Connecticut are permitted or required by any applicable law to close. "Capital Securities" means undivided beneficial interests in the assets of ------------------ Alabama National Statutory Trust I which rank pari passu with Common Securities issued by the Trust; provided, however, that upon the occurrence of an Event of -------- ------- Default (as defined in the Declaration), the rights of holders of such Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of such Capital Securities. "Capital Securities Guarantee" means the guarantee agreement that the ---------------------------- Company enters into with State Street Bank and Trust Company of Connecticut, National Association, as guarantee trustee, or other Persons that operates directly or indirectly for the benefit of holders of Capital Securities of the Trust. "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 the occurrence of any amendment to, or change (including any announced prospective change) in, the laws, rules or regulations of the United States or any political subdivision thereof or therein, or as the result of any official or administrative pronouncement or action or decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is announced on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that the Company will not, within 90 days of the date of such opinion be entitled to treat an amount equal to the aggregate liquidation amount of the Debentures as "Tier 1 Capital" (or its then equivalent) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company (or if the Company is not a bank holding company, such guidelines applied to the Company as if the Company were subject to such guidelines); provided, however, that the inability of the Company to treat all or any portion - -------- ------- of the liquidation amount of the Debentures as Tier l 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 or OTS, as applicable, may now or hereafter accord Tier 1 Capital treatment in excess of the amount which may now or hereafter qualify for treatment as Tier 1 Capital under applicable capital 2 adequacy guidelines; provided further, however, that the distribution of -------- ------- ------- Debentures in connection with the liquidation of the Trust shall not in and of itself constitute a Capital Treatment Event unless such liquidation shall have occurred in connection with a Tax Event or an Investment Company Event. "Certificate" means a certificate signed by any one of the principal ----------- executive officer, the principal financial officer or the principal accounting officer of the Company. "Common Securities" means undivided beneficial interests in the assets of ----------------- the Trust which rank pari passu with Capital Securities issued by the Trust; provided, however, that upon the occurrence of an Event of Default (as defined - -------- ------- in the Declaration), the rights of holders of such Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of such Capital Securities. "Company" means Alabama National BanCorporation, a Delaware corporation, ------- and, subject to the provisions of Article XI, shall include its successors and assigns. "Coupon Rate" has the meaning set forth in Section 2.8. ----------- "Debenture" or "Debentures" has the meaning stated in the first recital of --------- ---------- this Indenture. "Debenture Register" has the meaning specified in Section 2.5. ------------------ "Declaration" means the Amended and Restated Declaration of Trust of the ----------- Trust, as amended or supplemented from time to time. "Default" means any event, act or condition that with notice or lapse of ------- time, or both, would constitute an Event of Default. "Defaulted Interest" has the meaning set forth in Section 2.8. ------------------ "Distribution Period" has the meaning set forth in Section 2.8. ------------------- "Determination Date" has the meaning set forth in Section 2.10. ------------------ "Event of Default" means any event specified in Section 5.1, continued for ---------------- the period of time, if any, and after the giving of the notice, if any, therein designated. "Extension Period" has the meaning set forth in Section 2.11. ---------------- "Federal Reserve" means the Board of Governors of the Federal Reserve --------------- System and any successor federal agency that is primarily responsible for regulating the activities of bank holding companies. "Indenture" means this instrument as originally executed or, if amended or --------- supplemented as herein provided, as so amended or supplemented, or both. "Institutional Trustee" has the meaning set forth in the Declaration. --------------------- "Interest Payment Date," means each March 18, June 18, September 18 and ---------------------- December 18 during the term of this Indenture. 3 "Interest Rate" means for the period beginning on (and including) the date ------------- of original issuance and ending on (but excluding) March 18, 2002 the rate per annum of 5.60% and for each Distribution Period thereafter, the Coupon Rate. "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 written change (including any announced prospective change) in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the issuance of the Debentures. "Liquidation Amount" means the stated amount of $ 1,000.00 per Trust ------------------ Security. "Maturity Date" means December 18, 2031. ------------- "Officers' Certificate" means a certificate signed by the Chairman of the --------------------- Board, the Vice Chairman, the President, any Managing Director or any Vice President, and by the Treasurer, an Assistant Treasurer, the Comptroller, an Assistant Comptroller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 14.6 if and to the extent required by the provisions of such Section. "Opinion of Counsel" means an opinion in writing signed by legal counsel, ------------------ who may be an employee of or counsel to the Company, or may be other counsel reasonably satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 14.6 if and to the extent required by the provisions of such Section. "OTS" means the Office of Thrift Supervision and any successor federal --- agency that is primarily responsible for regulating the activities of savings and loan holding companies. The term "outstanding," when used with reference to Debentures, means, ----------- subject to the provisions of Section 7.4, as of any particular time, all Debentures authenticated and delivered by the Trustee or the Authenticating Agent under this Indenture, except: (a) Debentures theretofore canceled by the Trustee or the Authenticating Agent or delivered to the Trustee for cancellation; (b) Debentures, or portions thereof, for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided, however, that, if such Debentures, or portions -------- ------- thereof, are to be redeemed prior to maturity thereof, notice of such redemption shall have been given as provided in Section 10.3 or provision satisfactory to the Trustee shall have been made for giving such notice; (c) Debentures paid pursuant to Section 2.6 or in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.6 unless proof satisfactory to the Company and the Trustee is presented that any such Debentures are held by bona fide holders in due course; and (d) Debentures held in accordance with Section 7.4 hereof. 4 "Person" means any individual, corporation, limited liability company, ------ partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Principal Office of the Trustee," or other similar term, means the office ------------------------------- of the Trustee, at which at any particular time its corporate trust business shall be principally administered, which at the time of the execution of this Indenture shall be 225 Asylum Street, Goodwin Square, Hartford, Connecticut 06103. "Redemption Date" has the meaning set forth in Section 10.1. --------------- "Redemption Price" means 100% of the principal amount of the Debentures ---------------- being redeemed, plus accrued and unpaid interest on such Debentures to the Redemption Date. "Responsible Officer" means, with respect to the Trustee, any officer ------------------- within the Principal Office of the Trustee, including any vice-president, any assistant vice-president, any secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Principal Trust Office of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Securities Act" means the Securities Act of 1933, as amended from time to -------------- time or any successor legislation. "Securityholder," "holder of Debentures," or other similar terms, means any -------------- Person in whose name at the time a particular Debenture is registered on the register kept by the Company or the Trustee for that purpose in accordance with the terms hereof. "Senior Indebtedness" means, with respect to the Company, (i) the ------------------- principal, premium, if any, and interest in respect of (A) indebtedness of the Company for money borrowed and (B) indebtedness evidenced by securities, debentures, notes, bonds or other similar instruments issued by the Company; (ii) all capital lease obligations of the Company; (iii) all obligations of the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement; (iv) all obligations of the Company for the reimbursement of any letter of credit, any banker's acceptance, any security purchase facility, any repurchase agreement or similar arrangement, any interest rate swap, any other hedging arrangement, any obligation under options or any similar credit or other transaction; (v) all obligations of the type referred to in clauses (i) through (iv) above of other Persons for the payment of which the Company is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) above of other Persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), whether incurred on or prior to the date of this Indenture or thereafter incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (1) any Additional Junior Indebtedness, (2) Debentures issued pursuant to this Indenture and guarantees in respect of such Debentures, (3) trade accounts payable of the Company arising in the ordinary course of business (such trade accounts payable being pari passu in right of payment to the Debentures), or (4) obligations with respect to which (a) in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are pari passu, junior or otherwise not superior in right of payment to the Debentures and (b) the Company, prior to the issuance thereof, has notified (and, if then required under the applicable guidelines of the regulating entity, has received approval from) the Federal Reserve (if the Company is a bank holding company) or the OTS (if the Company is a savings and loan holding company). Senior Indebtedness shall continue to be Senior 5 Indebtedness and be entitled to the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. "Special Event" means any of a Capital Treatment Event, an Investment ------------- Company Event or a Tax Event. "Special Redemption Date" has the meaning set forth in Section 10.2. ----------------------- "Special Redemption Price" means (i) 107.5% of the principal amount of the ------------------------ Debentures being redeemed on a Redemption Date that occurs before December 18, 2006 and (ii) 100% of the principal amount of the Debentures being redeemed on a Redemption Date that occurs on December 18, 2006 or after, plus accrued and unpaid interest on such Debentures to the Redemption Date. "Subsidiary" means with respect to any Person, (i) any corporation at least ---------- a majority of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture or similar entity, at least a majority of the outstanding partnership or similar interests of which shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. For the purposes of this definition, "voting stock" 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. "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 (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 (including any private letter ruling, technical advice memorandum, field service advice, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations (an "Administrative Action")) or judicial decision --------------------- interpreting or applying such laws or regulations, regardless of whether such Administrative Action or judicial decision is issued to or in connection with a proceeding involving the Company or the Trust and whether or not subject to review or appeal, which amendment, clarification, change, Administrative Action or decision is enacted, promulgated or announced, in each case on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Company on the Debentures is not, or within 90 days of the date of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "3-Month LIBOR" has the meaning set forth in Section 2.10. ------------- "Telerate Page 3750" has the meaning set forth in Section 2.10. ------------------ "Trust" shall mean Alabama National Statutory Trust I, a Connecticut ----- statutory trust, or any other similar trust created for the purpose of issuing Capital Securities in connection with the issuance of Debentures under this Indenture, of which the Company is the sponsor. "Trust Securities" means Common Securities and Capital Securities of the ---------------- Trust. 6 "Trustee" means State Street Bank and Trust Company of Connecticut, ------- National Association, and, subject to the provisions of Article VI hereof, shall also include its successors and assigns as Trustee hereunder. ARTICLE II. DEBENTURES ---------- Section 2.1. Authentication and Dating. Upon the execution and delivery of ------------------------- this Indenture, or from time to time thereafter, Debentures in an aggregate principal amount not in excess of $15,464,000 may be executed and delivered by the Company to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Debentures to or upon the written order of the Company, signed by its Chairman of the Board of Directors, Vice Chairman, the President, one of its Managing Directors or one of its Vice Presidents without any further action by the Company hereunder. In authenticating such Debentures, and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon: (a) a copy of any Board Resolution or Board Resolutions relating thereto and, if applicable, an appropriate record of any action taken pursuant to such resolution, in each case certified by the Secretary or an Assistant Secretary of the Company, as the case may be; and (b) an Opinion of Counsel prepared in accordance with Section 14.6 which shall also state: (1) that such Debentures, when authenticated and delivered by the Trustee and issued by the Company in each case in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, subject to or limited by applicable bankruptcy, insolvency, reorganization, conservatorship, receivership, moratorium and other statutory or decisional laws relating to or affecting creditors' rights or the reorganization of financial institutions (including, without limitation, preference and fraudulent conveyance or transfer laws), heretofore or hereafter enacted or in effect, affecting the rights of creditors generally; and (2) that all laws and requirements in respect of the execution and delivery by the Company of the Debentures have been complied with and that authentication and delivery of the Debentures by the Trustee will not violate the terms of this Indenture. The Trustee shall have the right to decline to authenticate and deliver any Debentures under this Section if the Trustee, being advised in writing by counsel, determines that such action may not lawfully be taken or if a Responsible Officer of the Trustee in good faith shall determine that such action would expose the Trustee to personal liability to existing holders. The definitive Debentures shall be typed, printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Debentures, as evidenced by their execution of such Debentures. Section 2.2. Form of Trustee's Certificate of Authentication. The Trustee's ----------------------------------------------- certificate of authentication on all Debentures shall be in substantially the following form: 7 This is one of the Debentures referred to in the within-mentioned Indenture. State Street Bank and Trust Company of Connecticut, National Association, as Trustee By______________________________ Authorized Signer Section 2.3. Form and Denomination of Debentures. The Debentures shall be ----------------------------------- substantially in the form of Exhibit A attached hereto. The Debentures shall be in registered, certificated form without coupons and in minimum denominations of $500,000.00 and any multiple of $1,000.00 in excess thereof. Any attempted transfer of the Debentures in a block having an aggregate principal amount of less than $500,000.00 shall be deemed to be voided and of no legal effect whatsoever. Any such purported transferee shall be deemed not to be a holder of such Debentures for any purpose, including, but not limited to the receipt of payments on such Debentures, and such purported transferee shall be deemed to have no interest whatsoever in such Debentures. The Debentures shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the officers executing the same may determine with the approval of the Trustee as evidenced by the execution and authentication thereof. Section 2.4. Execution of Debentures. The Debentures shall be signed in the ----------------------- name and on behalf of the Company by the manual or facsimile signature of its Chairman of the Board of Directors, Vice Chairman, President, one of its Managing Directors or one of its Executive Vice Presidents, Senior Vice Presidents or Vice Presidents. Only such Debentures as shall bear thereon a certificate of authentication substantially in the form herein before recited, executed by the Trustee or the Authenticating Agent by the manual signature of an authorized signer, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee or the Authenticating Agent upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Debentures shall cease to be such officer before the Debentures so signed shall have been authenticated and delivered by the Trustee or the Authenticating Agent, or disposed of by the Company, such Debentures nevertheless may be authenticated and delivered or disposed of as though the Person who signed such Debentures had not ceased to be such officer of the Company; and any Debenture may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Debenture, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Every Debenture shall be dated the date of its authentication. Section 2.5. Exchange and Registration of Transfer of Debentures. The --------------------------------------------------- Company shall cause to be kept, at the office or agency maintained for the purpose of registration of transfer and for exchange as provided in Section 3.2, a register (the "Debenture Register") for the Debentures issued hereunder in ------------------ which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration and transfer of all Debentures as in this Article II provided. The Debenture Register shall be in written form or in any other form capable of being converted into written form within a reasonable time. Debentures to be exchanged may be surrendered at the principal corporate trust office of the Trustee or at any office or agency to be maintained by the Company for such purpose as provided in Section 3.2, and the Company shall execute, the Company or the Trustee shall register and the Trustee or 8 the Authenticating Agent shall authenticate and make available for delivery in exchange therefor the Debenture or Debentures which the Securityholder making the exchange shall be entitled to receive. Upon due presentment for registration of transfer of any Debenture at the principal corporate trust office of the Trustee or at any office or agency of the Company maintained for such purpose as provided in Section 3.2, the Company shall execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in the name of the transferee or transferees a new Debenture for a like aggregate principal amount. Registration or registration of transfer of any Debenture by the Trustee or by any agent of the Company appointed pursuant to Section 3.2, and delivery of such Debenture, shall be deemed to complete the registration or registration of transfer of such Debenture. All Debentures presented for registration of transfer or for exchange or payment shall (if so required by the Company or the Trustee or the Authenticating Agent) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee or the Authenticating Agent duly executed by the holder or his attorney duly authorized in writing. No service charge shall be made for any exchange or registration of transfer of Debentures, but the Company or the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in connection therewith. The Company or the Trustee shall not be required to exchange or register a transfer of any Debenture for a period of 15 days next preceding the date of selection of Debentures for redemption. Notwithstanding anything herein to the contrary, Debentures may not be transferred except in compliance with the restricted securities legend set forth below, unless otherwise determined by the Company, upon the advice of counsel expert in securities law, in accordance with applicable law: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S 9 RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $500,000.00 AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $500,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. Section 2.6. Mutilated, Destroyed, Lost or Stolen Debentures. In case any ----------------------------------------------- Debenture shall become mutilated or be destroyed, lost or stolen, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, a new Debenture bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of such Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and deliver the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other 10 governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Debenture which has matured or is about to mature or has been called for redemption in full shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless and, in case of destruction, loss or theft, evidence satisfactory to the Company and to the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. Every substituted Debenture issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any such Debenture is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. All Debentures shall be held and owned upon the express condition that, to the extent permitted by applicable law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.7. Temporary Debentures. Pending the preparation of definitive -------------------- Debentures, the Company may execute and the Trustee shall authenticate and make available for delivery temporary Debentures that are typed, printed or lithographed. Temporary Debentures shall be issuable in any authorized denomination, and substantially in the form of the definitive Debentures in lieu of which they are issued but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every such temporary Debenture shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Debentures. Without unreasonable delay the Company will execute and deliver to the Trustee or the Authenticating Agent definitive Debentures and thereupon any or all temporary Debentures may be surrendered in exchange therefor, at the principal corporate trust office of the Trustee or at any office or agency maintained by the Company for such purpose as provided in Section 3.2, and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in exchange for such temporary Debentures a like aggregate principal amount of such definitive Debentures. Such exchange shall be made by the Company at its own expense and without any charge therefor except that in case of any such exchange involving a registration of transfer the Company may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures authenticated and delivered hereunder. Section 2.8. Payment of Interest and Additional Interest. Interest at the ------------------------------------------- Interest Rate and any Additional Interest on any Debenture that is payable, and is punctually paid or duly provided for, on any Interest Payment Date for Debentures shall be paid to the Person in whose name said Debenture (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest installment except that interest and any Additional Interest payable on the Maturity Date shall be paid to the Person to whom principal is paid. In the event that any Debenture or portion thereof is called for redemption and the redemption date is subsequent to a regular record date with respect to any Interest Payment Date and prior to such Interest Payment Date, interest on such Debenture will be paid upon presentation and surrender of such Debenture. 11 Each Debenture shall bear interest for the period beginning on (and including) the date of original issuance and ending on (but excluding) March 18, 2002 at a rate per annum of 5.60%, and shall bear interest for each successive period beginning on (and including) March 18, 2002, and each succeeding Interest Payment Date, and ending on (but excluding) the next succeeding Interest Payment Date (each, a "Distribution Period") at a rate per annum equal to the 3-Month ------------------- LIBOR, determined as described in Section 2.10, plus 3.60% (the "Coupon Rate"); ----------- provided, however, that prior to December 18, 2006, the Coupon Rate shall not - -------- ------- exceed 12.50%, applied to the principal amount thereof, 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 (without duplication) on any overdue installment of interest at the Interest Rate compounded quarterly. Interest shall be payable (subject to any relevant Extension Period) quarterly in arrears on each Interest Payment Date with the first installment of interest to be paid on March 18, 2002. Any interest on any Debenture, including Additional Interest, that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be ------------------ payable to the registered holder on the relevant regular record date by virtue of having been such holder; and such Defaulted Interest shall be paid by the Company to the Persons in whose names such Debentures (or their respective Predecessor Securities) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing at least 25 days prior to the date of the proposed payment of the amount of Defaulted Interest proposed to be paid on each such Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Securityholder at its address as it appears in the Debenture Register, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Debentures (or their respective Predecessor Securities) are registered on such special record date and shall be no longer payable. The Company may make payment of any Defaulted Interest on any Debentures in any other lawful manner after notice given by the Company to the Trustee of the proposed payment method; provided, however, the Trustee in its sole discretion -------- ------- deems such payment method to be practical. Any interest scheduled to become payable on an Interest Payment Date occurring during an Extension Period shall not be Defaulted Interest and shall be payable on such other date as may be specified in the terms of such Debentures. The term "regular record date" as used in this Section shall mean the close of business on the 15th day next preceding the applicable Interest Payment Date. Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Debenture. 12 Section 2.9. Cancellation of Debentures Paid, etc. All Debentures ------------------------------------ surrendered for the purpose of payment, redemption, exchange or registration of transfer, shall, if surrendered to the Company or any paying agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee or any Authenticating Agent, shall be promptly canceled by it, and no Debentures shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. All Debentures canceled by any Authenticating Agent shall be delivered to the Trustee. The Trustee shall destroy all canceled Debentures unless the Company otherwise directs the Trustee in writing. If the Company shall acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are surrendered to the Trustee for cancellation. Section 2.10. Computation of Interest Rate. The amount of interest payable ---------------------------- for the Distribution Period commencing on March 18, 2002 and each succeeding Distribution Period will be calculated by applying the Interest Rate to the principal amount outstanding at the commencement of the Distribution Period and multiplying each such amount by the actual number of days in the Distribution Period concerned divided by 360. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), 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. All percentages resulting from any calculations on the Debentures will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% or .09876545 being rounded to 9.87655% or .0987655, and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)). (a) "3-Month LIBOR" means the London interbank offered interest rate for three-month, U.S. dollar deposits determined by the Debenture Trustee in the following order of priority: (1) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date (as defined below). "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits; (2) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (3) if fewer than two such quotations are provided as requested in clause (2) above, the Debenture Trustee will request four major New York City banks to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and 13 (4) if fewer than two such quotations are provided as requested in clause (3) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period. If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date. (5) The Coupon Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law. (6) "Determination Date" means the date that is two London Banking ------------------ Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the particular Distribution Period for which a Coupon Rate is being determined. (b) The Trustee shall notify the Company, the Institutional Trustee and any securities exchange or interdealer quotation system on which the Capital Securities are listed, of the Coupon Rate and the Determination Date for each Distribution Period, in each case as soon as practicable after the determination thereof but in no event later than the thirtieth (30th) day of the relevant Distribution Period. Failure to notify the Company, the Institutional Trustee or any securities exchange or interdealer quotation system, or any defect in said notice, shall not affect the obligation of the Company to make payment on the Debentures at the applicable Coupon Rate. Any error in the calculation of the Coupon Rate by the Institutional Trustee may be corrected at any time by notice delivered as above provided. Upon the request of a holder of a Debenture, the Trustee shall provide the Coupon Rate then in effect and, if determined, the Coupon Rate for the next Distribution Period. (c) Subject to the corrective rights set forth above, all certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions relating to the payment and calculation of interest on the Debentures and distributions on the Capital Securities by the Trustee or the Institutional Trustee will (in the absence of willful default, bad faith and manifest error) be final, conclusive and binding on the Trust, the Company and all of the holders of the Debentures and the Capital Securities, and no liability shall (in the absence of willful default, bad faith or manifest error) attach to the Trustee or the Institutional Trustee in connection with the exercise or non-exercise by either of them or their respective powers, duties and discretion. Section 2.11. Extension of Interest Payment Period. So long as no Event of ------------------------------------ Default has occurred and is continuing, the Company shall have the right, from time to time, and without causing an Event of Default, to defer payments of interest on the Debentures by extending the interest payment period on the Debentures at any time and from time to time during the term of the Debentures, for up to 20 consecutive quarterly periods (each such extended interest payment period, an "Extension Period"), during which Extension Period no interest ---------------- (including Additional Interest) shall be due and payable. No Extension Period may end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, -------- ------- that no Extension Period may extend beyond the Maturity Date; provided further, -------- ------- however, that during any such Extension Period, the Company shall not and shall - ------- not permit any Affiliate to (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 or such Affiliate's capital stock (other than payments of dividends or distributions to the Company) or make any 14 guarantee payments with respect to the foregoing or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (i) or (ii) above, (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of any exchange or conversion of any class or series of the Company's capital stock (or any capital stock of a subsidiary of the Company) for any class or series of the Company's capital stock or of any class or series of the Company's indebtedness for any class or series of the Company's capital stock, (c) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholders' rights plan, or the issuance of rights, stock or other property under any stockholders' rights plan, or the redemption or repurchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (f) payments under the Capital Securities Guarantee). Prior to the termination of any Extension Period, the Company may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest to the extent permitted by applicable law. The Company must give the Trustee notice of its election to begin or extend such Extension Period at least 5 Business Days prior to the earlier of (i) the date interest on the Debentures would have been payable except for the election to begin or extend such Extension Period or (ii) the date such interest is payable, but in any event not less than 5 Business Days prior to such record date. The Trustee shall give notice of the Company's election to begin a new Extension Period to the Securityholders. Section 2.12. CUSIP Numbers. The Company in issuing the Debentures may use ------------- "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Securityholders; provided, however, that any such notice may state that no representation is made - -------- ------- as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the CUSIP numbers. ARTICLE III. PARTICULAR COVENANTS OF THE COMPANY ----------------------------------- Section 3.1. Payment of Principal, Premium and Interest; Agreed Treatment ------------------------------------------------------------ of the Debentures. - ----------------- (a) The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any, and interest and any Additional Interest on the Debentures at the 15 place, at the respective times and in the manner provided in this Indenture and the Debentures. Each installment of interest on the Debentures may be paid (i) by mailing checks for such interest payable to the order of the holder of Debentures entitled thereto as they appear on the registry books of the Company if a request for a wire transfer has not been received by the Company or (ii) by wire transfer to any account with a banking institution located in the United States designated in writing by such Person to the paying agent no later than the related record date. Notwithstanding the foregoing, so long as the holder of this Debenture is the Institutional Trustee, the payment of the principal of and interest on this Debenture will be made in immediately available funds at such place and to such account as may be designated by the Institutional Trustee. (b) The Company will treat the Debentures as indebtedness, and the amounts payable in respect of the principal amount of such Debentures as interest, for all United States federal income tax purposes. All payments in respect of such Debentures will be made free and clear of United States withholding tax to any beneficial owner thereof that has provided an Internal Revenue Service Form W8 BEN (or any substitute or successor form) establishing its non-United States status for United States federal income tax purposes. (c) As of the date of this Indenture, the Company has no present intention to exercise its right under Section 2.11 to defer payments of interest on the Debentures by commencing an Extension Period. (d) As of the date of this Indenture, the Company believes that the likelihood that it would exercise its right under Section 2.11 to defer payments of interest on the Debentures by commencing an Extension Period at any time during which the Debentures are outstanding is remote because of the restrictions that would be imposed on the Company's ability to declare or pay dividends or distributions on, or to redeem, purchase or make a liquidation payment with respect to, any of its outstanding equity and on the Company's ability to make any payments of principal of or interest on, or repurchase or redeem, any of its debt securities that rank pari passu in all respects with (or junior in interest to) the Debentures. Section 3.2. Offices for Notices and Payments, etc. So long as any of the ------------------------------------- Debentures remain outstanding, the Company will maintain in Hartford, Connecticut, an office or agency where the Debentures may be presented for payment, an office or agency where the Debentures may be presented for registration of transfer and for exchange as in this Indenture provided and an office or agency where notices and demands to or upon the Company in respect of the Debentures or of this Indenture may be served. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. Until otherwise designated from time to time by the Company in a notice to the Trustee, or specified as contemplated by Section 2.5, such office or agency for all of the above purposes shall be the office or agency of the Trustee. In case the Company shall fail to maintain any such office or agency in Hartford, Connecticut, or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the principal corporate trust office of the Trustee. In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside Hartford, Connecticut, where the Debentures may be presented for registration of transfer and for exchange in the manner provided in this Indenture, and the Company may from time to time rescind such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner - -------- ------- relieve the Company of its obligation to maintain any such office or agency in Hartford, Connecticut, for the purposes above mentioned. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof. 16 Section 3.3. Appointments to Fill Vacancies in Trustee's Office. The -------------------------------------------------- Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.9, a Trustee, so that there shall at all times be a Trustee hereunder. Section 3.4. Provision as to Paying Agent. ---------------------------- (a) If the Company shall appoint a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provision of this Section 3.4, (1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest, if any, on the Debentures (whether such sums have been paid to it by the Company or by any other obligor on the Debentures) in trust for the benefit of the holders of the Debentures; (2) that it will give the Trustee prompt written notice of any failure by the Company (or by any other obligor on the Debentures) to make any payment of the principal of and premium, if any, or interest, if any, on the Debentures when the same shall be due and payable; and (3) that it will, at any time during the continuance of any Event of Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such paying agent. (b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of and premium, if any, or interest, if any, on the Debentures, set aside, segregate and hold in trust for the benefit of the holders of the Debentures a sum sufficient to pay such principal, premium or interest so becoming due and will notify the Trustee in writing of any failure to take such action and of any failure by the Company (or by any other obligor under the Debentures) to make any payment of the principal of and premium, if any, or interest, if any, on the Debentures when the same shall become due and payable. Whenever the Company shall have one or more paying agents for the Debentures, it will, on or prior to each due date of the principal of and premium, if any, or interest, if any, on the Debentures, deposit with a paying agent a sum sufficient to pay the principal, premium or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto and (unless such paying agent is the Trustee) the Company shall promptly notify the Trustee in writing of its action or failure to act. (c) Anything in this Section 3.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge with respect to the Debentures, or for any other reason, pay, or direct any paying agent to pay to the Trustee all sums held in trust by the Company or any such paying agent, such sums to be held by the Trustee upon the trusts herein contained. (d) Anything in this Section 3.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 3.4 is subject to Sections 12.3 and 12.4. Section 3.5. Certificate to Trustee. The Company will deliver to the ---------------------- Trustee on or before 120 days after the end of each fiscal year, so long as Debentures are outstanding hereunder, a Certificate stating that in the course of the performance by the signers of their duties as officers of the Company they would normally have knowledge of any default during such fiscal year by the Company in the performance of any covenants contained herein, stating whether or not they have knowledge of any such 17 default and, if so, specifying each such default of which the signers have knowledge and the nature and status thereof. Section 3.6. Additional Sums. If and for so long as the Trust is the holder --------------- of all Debentures and the Trust is required to pay any additional taxes, duties, assessments or other governmental charges as a result of a Tax Event, the Company will pay such additional amounts ("Additional Sums") on the Debentures --------------- as shall be required so that the net amounts received and retained by the Trust after paying taxes, duties, assessments or other governmental charges will be equal to the amounts the Trust would have received if no such taxes, duties, assessments or other governmental charges had been imposed. Whenever in this Indenture or the Debentures there is a reference in any context to the payment of principal of or interest on the Debentures, such mention shall be deemed to include mention of payments of the Additional Sums provided for in this paragraph to the extent that, in such context, Additional Sums are, were or would be payable in respect thereof pursuant to the provisions of this paragraph and express mention of the payment of Additional Sums (if applicable) in any provisions hereof shall not be construed as excluding Additional Sums in those provisions hereof where such express mention is not made; provided, however, -------- ------- that the deferral of the payment of interest during an Extension Period pursuant to Section 2.11 shall not defer the payment of any Additional Sums that may be due and payable. Section 3.7. Compliance with Consolidation Provisions. The Company will ---------------------------------------- not, while any of the Debentures remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other Person unless the provisions of Article XI hereof are complied with. Section 3.8. Limitation on Dividends. If Debentures are initially issued to ----------------------- the Trust or a trustee of such trust in connection with the issuance of Trust Securities by the Trust (regardless of whether Debentures continue to be held by such Trust) and (i) there shall have occurred and be continuing an Event of Default, (ii) the Company shall be in default with respect to its payment of any obligations under the Capital Securities Guarantee, or (iii) the Company shall have given notice of its election to defer payments of interest on the Debentures by extending the interest payment period as provided herein and such period, or any extension thereof, shall be continuing, then the Company shall not, and shall not allow any Affiliate of the Company to, (x) 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 its Affiliates' capital stock (other than payments of dividends or distributions to the Company) or make any guarantee payments with respect to the foregoing or (y) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (x) and (y) above, (1) repurchases, redemptions or other acquisitions of shares of capital stock of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, if any, (2) as a result of any exchange or conversion of any class or series of the Company's capital stock (or any capital stock of a subsidiary of the Company) for any class or series of the Company's capital stock or of any class or series of the Company's indebtedness for any class or series of the Company's capital stock, (3) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (4) any declaration of a dividend in connection with any stockholders' rights plan, or the issuance of rights, stock or other property under any stockholders' rights plan, or the redemption or repurchase of rights pursuant thereto, (5) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on 18 which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (6) payments under the Capital Securities Guarantee). Section 3.9. Covenants as to the Trust. For so long as the Trust Securities ------------------------- remain outstanding, the Company shall maintain 100% ownership of the Common Securities; provided, however, that any permitted successor of the Company under -------- ------- this Indenture may succeed to the Company's ownership of such Common Securities. The Company, as owner of the Common Securities, shall, except in connection with a distribution of Debentures to the holders of Trust Securities in liquidation of the Trust, the redemption of all of the Trust Securities or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, cause the Trust (a) to remain a statutory trust, (b) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes, and (c) to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Debentures. Section 3.10. Additional Junior Indebtedness. The Company shall not, and it ------------------------------ shall not cause or permit any Affiliate of the Company to, incur, issue or be obligated on any Additional Junior Indebtedness, either directly or indirectly, by way of guarantee, suretyship or otherwise, other than: (i) Additional Junior Indebtedness that, by its terms, is expressly stated to be either junior and subordinate or pari passu in all respects to the Debentures, and (ii) Additional Junior Indebtedness of which the Company has notified (and, if then required under the applicable guidelines of the regulating entity, has received approval from) the Federal Reserve, if the Company is a bank holding company, or the OTS, if the Company is a savings and loan holding company. ARTICLE IV. SECURITYHOLDERS' LISTS AND REPORTS ---------------------------------- BY THE COMPANY AND THE TRUSTEE ------------------------------ Section 4.1. Securityholders' Lists. The Company covenants and agrees that ---------------------- it will furnish or caused to be furnished to the Trustee: (a) on each regular record date for the Debentures, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Securityholders of the Debentures as of such record date; 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; except that no such lists need be furnished under this Section 4.1 so long as the Trustee is in possession thereof by reason of its acting as Debenture registrar. Section 4.2. Preservation and Disclosure of Lists. ------------------------------------- (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures (1) contained in the most recent list furnished to it as provided in Section 4.1 or (2) received by it in the capacity of Debentures registrar (if so acting) hereunder. The Trustee may destroy any list furnished to it as provided in Section 4.1 upon receipt of a new list so furnished. (b) In case three or more holders of Debentures (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Debenture for a period of at least 6 months preceding the date of such application, and such application 19 states that the applicants desire to communicate with other holders of Debentures with respect to their rights under this Indenture or under such Debentures and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within 5 Business Days after the receipt of such application, at its election, either: (1) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2, or (2) inform such applicants as to the approximate number of holders of Debentures whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder whose name and address appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2 a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Securities and Exchange Commission, if permitted or required by applicable law, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of all Debentures, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If said Commission, as permitted or required by applicable law, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, said Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Each and every holder of Debentures, by receiving and holding the same, agrees with Company and the Trustee that neither the Company nor the Trustee nor any paying agent shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Debentures in accordance with the provisions of subsection (b) of this Section 4.2, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b). ARTICLE V. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ------------------------------------------- UPON AN EVENT OF DEFAULT ------------------------ Section 5.1. Events of Default. "Event of Default," wherever used herein, ----------------- ---------------- means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the Company defaults in the payment of any interest upon any Debenture when it becomes due and payable, and fails to cure such default for a period of 30 days; provided, however, that a valid -------- ------- 20 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; or (b) the Company defaults in the payment of all or any part of the principal of (or premium, if any, on) any Debentures as and when the same shall become due and payable either at maturity, upon redemption, by declaration of acceleration or otherwise; or (c) the Company defaults in the performance of, or breaches, any of its covenants or agreements in this Indenture or in the terms of the Debentures established as contemplated in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the outstanding Debentures, 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 (d) a court of competent jurisdiction shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (e) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (f) the Trust shall have voluntarily or involuntarily liquidated, dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of the Debentures to holders of such Trust Securities in liquidation of their interests in the Trust, (ii) the redemption of all of the outstanding Trust Securities or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration. If an Event of Default occurs and is continuing with respect to the Debentures, then, and in each and every such case, unless the principal of the Debentures shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by Securityholders), may declare the entire principal of the Debentures and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. The foregoing provisions, however, are subject to the condition that if, at any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures and the principal of and premium, if any, on the Debentures which shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and Additional Interest) and such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other 21 amounts due to the Trustee pursuant to Section 6.6, and if any and all Events of Default under this Indenture, other than the non-payment of the principal of or premium, if any, on Debentures which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein -- then and in every such case the holders of a majority in aggregate principal amount of the Debentures then outstanding, by written notice to the Company and to the Trustee, may waive all defaults and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right 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, the Trustee and the holders of the Debentures shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the holders of the Debentures shall continue as though no such proceeding had been taken. Section 5.2. Payment of Debentures on Default; Suit Therefor. The Company ----------------------------------------------- covenants that upon the occurrence of an Event of Default pursuant to Section 5.1(a) or Section 5.1(b) then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debentures the whole amount that then shall have become due and payable on all Debentures for principal and premium, if any, or interest, or both, as the case may be, with Additional Interest accrued on the Debentures (to the extent that payment of such interest is enforceable under applicable law and, if the Debentures are held by the Trust or a trustee of such Trust, without duplication of any other amounts paid by the Trust or a trustee in respect thereof); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any other amounts due to the Trustee under Section 6.6. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions 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 any other obligor on such Debentures and collect in the manner provided by law out of the property of the Company or any other obligor on such Debentures wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Debentures under Bankruptcy Law, or in case a receiver or trustee shall have been appointed for the property of the Company or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or other obligor upon the Debentures, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Debentures shall then be due and payable as therein expressed or by declaration of acceleration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Debentures and, in case of any judicial proceedings, (ii) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all other amounts due to the Trustee 22 under Section 6.6), and of the Securityholders allowed in such judicial proceedings relative to the Company or any other obligor on the Debentures, or to the creditors or property of the Company or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Debentures in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or Person performing similar functions in comparable proceedings, (iii) to collect and receive any moneys or other property payable or deliverable on any such claims, and (iv) to distribute the same after the deduction of its charges and expenses. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Securityholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other amounts due to the Trustee under Section 6.6. Nothing herein contained shall be construed 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 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. All rights of action and of asserting claims under this Indenture, or under any of the Debentures, may be enforced by the Trustee without the possession of any of the 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 be for the ratable benefit of the holders of the Debentures. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the holders of the Debentures, and it shall not be necessary to make any holders of the Debentures parties to any such proceedings. Section 5.3. Application of Moneys Collected by Trustee. Any moneys ------------------------------------------ collected by the Trustee pursuant to this Article V shall be applied in the following order, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Debentures in respect of which moneys have been collected, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of costs and expenses incurred by, and reasonable fees of, the Trustee, its agents, attorneys and counsel, and of all other amounts due to the Trustee under Section 6.6; Second: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article XV; Third: To the payment of the amounts then due and unpaid upon Debentures for principal (and premium, if any), and interest on the Debentures, in respect of which or for the benefit of which money has been collected, ratably, without preference or priority of any kind, according to the amounts due on such Debentures for principal (and premium, if any) and interest, respectively; and 23 Fourth: The balance, if any, to the Company. Section 5.4. Proceedings by Securityholders. No holder of any Debenture ------------------------------ shall have any right to institute any suit, action or proceeding for any remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default with respect to the Debentures and unless the holders of not less than 25% in aggregate principal amount of the Debentures then outstanding shall have given the Trustee a written request to institute such action, suit or proceeding and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred thereby, and 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. Notwithstanding any other provisions in this Indenture, however, the right of any holder of any Debenture to receive payment of the principal of, premium, if any, and interest, on such Debenture when due, or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the consent of such holder and by accepting a Debenture hereunder it is expressly understood, intended and covenanted by the taker and holder of every Debenture with every other such taker and holder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatsoever by virtue or by availing itself of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 5.5. Proceedings by Trustee. 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 by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 5.6. Remedies Cumulative and Continuing; Delay or Omission Not a ----------------------------------------------------------- Waiver. Except as otherwise provided in Section 2.6, all powers and remedies - ----- given by this Article V 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 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 the Debentures, and no delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 5.4, every power and remedy given by this Article V or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. No delay or omission of the Trustee or any Securityholder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to any Securityholder may be exercised from time to time, and as often as may be deemed expedient, by the Trustee (in accordance with its duties under Section 6.1 hereof) or by such holder, as the case may be. 24 Section 5.7. Direction of Proceedings and Waiver of Defaults by Majority of -------------------------------------------------------------- Securityholders. The holders of a majority in aggregate principal amount of the - --------------- Debentures affected (voting as one class) at the time outstanding 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 with respect to such Debentures; provided, however, that (subject to -------- ------- the provisions of Section 6.1) the Trustee shall have the right to decline to follow any such direction if the Trustee shall determine that the action so directed would be unjustly prejudicial to the holders not taking part in such direction or if the Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if a Responsible Officer of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Debentures at the time outstanding may on behalf of the holders of all of the Debentures waive (or modify any previously granted waiver of) any past default or Event of Default, and its consequences, except a default (a) in the payment of principal of, premium, if any, or interest on any of the Debentures, (b) in respect of covenants or provisions hereof which cannot be modified or amended without the consent of the holder of each Debenture affected, or (c) in respect of the covenants contained in Section 3.9; provided, however, that if the Debentures -------- ------- are held by the Trust or a trustee of such 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 Debenture is required, such waiver shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such waiver. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section, said default or Event of Default shall for all purposes of the Debentures and this Indenture be deemed to have been cured and to be not continuing. Section 5.8. Notice of Defaults. The Trustee shall, within 90 days after ------------------ the actual knowledge by a Responsible Officer of the Trustee of the occurrence of a default with respect to the Debentures, mail to all Securityholders, as the names and addresses of such holders appear upon the Debenture Register, notice of all defaults with respect to the Debentures known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purpose of this Section 5.8 being hereby defined to be the events specified in clauses (a), (b), (c), (d), (e) and (f) of Section 5.1, not including periods of grace, if any, provided for therein); provided, however, -------- ------- that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the Debentures, the Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interests of the Securityholders. Section 5.9. Undertaking to Pay Costs. All parties to this Indenture agree, ------------------------ and each holder of any Debenture by his 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 and expenses, 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; provided, however, that the provisions of this -------- ------- Section 5.9 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than 10% in principal amount of the Debentures outstanding, or to any suit instituted by any 25 Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Debenture against the Company on or after the same shall have become due and payable. ARTICLE VI. CONCERNING THE TRUSTEE ---------------------- Section 6.1. Duties and Responsibilities of Trustee. With respect to the -------------------------------------- holders of Debentures issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the Debentures and after the curing or waiving of all Events of Default which may have occurred, with respect to the Debentures, undertakes to perform 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 with respect to the Debentures has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. 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: (a) prior to the occurrence of an Event of Default with respect to Debentures and after the curing or waiving of all Events of Default which may have occurred (1) the duties and obligations of the Trustee with respect to Debentures 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 with respect to the Debentures as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and (2) 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 which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) 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 Securityholders pursuant to Section 5.7, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. 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 ground for believing that the repayment of such funds or liability is not assured to it under the terms of this Indenture or indemnity satisfactory to the Trustee against such risk is not reasonably assured to it. 26 Section 6.2. Reliance on Documents, Opinions, etc. Except as otherwise ------------------------------------ provided in Section 6.1: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, note, debenture 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 an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c) the Trustee may consult with counsel of its selection and any advice or Opinion of 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 accordance with such advice or Opinion of Counsel; (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 which may be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken or omitted 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; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default with respect to the Debentures (that has not been cured or waived) to exercise with respect to Debentures such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (f) the Trustee shall not be 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, coupon or other paper or document, unless requested in writing to do so by the holders of not less than a majority in aggregate principal amount of the outstanding Debentures affected thereby; 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 expense or liability as a condition to so proceeding; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents (including any Authenticating Agent) or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care; and (h) with the exceptions of defaults under Sections 5.1(a) or 5.1(b), the Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Debentures unless a written notice of such Default or Event of Default shall have been given to the Trustee by the Company or any other obligor on the Debentures or by any holder of the Debentures. Section 6.3. No Responsibility for Recitals, etc. The recitals contained ----------------------------------- herein and in the Debentures (except in the certificate of authentication of the Trustee or the Authenticating Agent) shall be 27 taken as the statements of the Company, and the Trustee and the Authenticating Agent assume no responsibility for the correctness of the same. The Trustee and the Authenticating Agent make no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee and the Authenticating Agent shall not be accountable for the use or application by the Company of any Debentures or the proceeds of any Debentures authenticated and delivered by the Trustee or the Authenticating Agent in conformity with the provisions of this Indenture. Section 6.4. Trustee, Authenticating Agent, Paying Agents, Transfer Agents ------------------------------------------------------------- or Registrar May Own Debentures. The Trustee or any Authenticating Agent or any - ------------------------------- paying agent or any transfer agent or any Debenture registrar, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, Authenticating Agent, paying agent, transfer agent or Debenture registrar. Section 6.5. Moneys to be Held in Trust. Subject to the provisions of -------------------------- Section 12.4, all moneys received by the Trustee or any paying agent shall, until used or applied as herein provided, be held in trust for the purpose for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee and any paying agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon the written order of the Company, signed by the Chairman of the Board of Directors, the President, a Managing Director, a Vice President the Treasurer or an Assistant Treasurer of the Company. Section 6.6. Compensation and Expenses of Trustee. The Company covenants ------------------------------------ and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as shall be agreed to in writing between the Company and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and 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 willful misconduct. The Company also covenants to indemnify each of the Trustee or any predecessor Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any and all loss, damage, claim, liability or expense including taxes (other than taxes based on the income of the Trustee) incurred without negligence or willful misconduct 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. The obligations of the Company under this Section 6.6 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(d), Section 5.1(e) or Section 5.1(f), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the resignation or removal of the Trustee and the defeasance or other termination of this Indenture. 28 Notwithstanding anything in this Indenture or any Debenture to the contrary, the Trustee shall have no obligation whatsoever to advance funds to pay any principal of or interest on or other amounts with respect to the Debentures or otherwise advance funds to or on behalf of the Company. Section 6.7. Officers' Certificate as Evidence. Except as otherwise --------------------------------- provided in Sections 6.1 and 6.2, 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 omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct 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 willful misconduct on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. Section 6.8. Eligibility of Trustee. The Trustee hereunder 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 authorized under such laws to exercise corporate trust powers, having (or whose obligations under this Indenture are guaranteed by an affiliate having) a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000.00) 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 6.8 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 records of condition so published. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.8, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.9. If the Trustee has or shall acquire any "conflicting interest" within the meaning of section310(b) of the Trust Indenture Act of 1939, the Trustee shall either eliminate such interest or resign, to the extent and in the manner described by this Indenture. Section 6.9. Resignation or Removal of Trustee --------------------------------- (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice of such resignation to the Company and by mailing notice thereof, at the Company's expense, to the holders of the Debentures at their addresses as they shall appear on the Debenture Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee or trustees by written instrument, in duplicate, executed by order of its 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 to the affected Securityholders, 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 a Debenture or Debentures for at least six months may, subject to the provisions of Section 5.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee. 29 (b) In case at any time any of the following shall occur -- (1) the Trustee shall fail to comply with the provisions of Section 6.8 after written request therefor by the Company or by any Securityholder who has been a bona fide holder of a Debenture or Debentures for at least 6 months, or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.8 and shall fail to resign after written request therefor by the Company or by any such Securityholder, or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, 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 5.9, any Securityholder who has been a bona fide holder of a Debenture or Debentures for at least 6 months may, on behalf of himself and all others similarly situated, 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 successor Trustee. (c) Upon prior written notice to the Company and the Trustee, the holders of a majority in aggregate principal amount of the Debentures at the time outstanding may at any time remove the Trustee and nominate a successor Trustee, which shall be deemed appointed as successor Trustee unless within 10 Business Days after such nomination the Company objects thereto, in which case, or in the case of a failure by such holders to nominate a successor Trustee, the Trustee so removed or any Securityholder, upon the terms and conditions and otherwise as in subsection (a) of this Section 6.9 provided, may petition any court of competent jurisdiction for an appointment of a successor. (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 6.10. Section 6.10. Acceptance by Successor Trustee. Any successor Trustee ------------------------------- appointed as provided in Section 6.9 shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment hereunder, 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, duties and obligations with respect to the Debentures of its predecessor hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Company or of the successor Trustee, the Trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 6.6, execute and deliver an instrument transferring to such successor Trustee all the rights and powers of the Trustee so ceasing to act and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee thereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such Trustee to secure any amounts then due it pursuant to the provisions of Section 6.6. 30 If a successor Trustee is appointed, the Company, the retiring Trustee and the successor Trustee shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures as to which the predecessor Trustee is not retiring shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the Trust hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee. No successor Trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor Trustee shall be eligible under the provisions of Section 6.8. In no event shall a retiring Trustee be liable for the acts or omissions of any successor Trustee hereunder. Upon acceptance of appointment by a successor Trustee as provided in this Section 6.10, the Company shall mail notice of the succession of such Trustee hereunder to the holders of Debentures at their addresses as they shall appear on the Debenture Register. If the Company fails to mail such notice within 10 Business Days after the acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Company. Section 6.11. Succession by Merger, etc. 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 all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided such corporation -------- shall be otherwise eligible and qualified under this Article. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Debentures shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Debentures so authenticated; and in case at that time any of the Debentures shall not have been authenticated, any successor to the Trustee may authenticate such Debentures either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Debentures or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the -------- ------- right to adopt the certificate of authentication of any predecessor Trustee or authenticate Debentures in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 6.12. Authenticating Agents. There may be one or more --------------------- Authenticating Agents appointed by the Trustee upon the request of the Company with power to act on its behalf and subject to its direction in the authentication and delivery of Debentures issued upon exchange or registration of transfer thereof as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized to authenticate and deliver Debentures; provided, however, that the Trustee shall have no liability to the -------- ------- Company for any acts or omissions of the Authenticating Agent with respect to the authentication and delivery of Debentures. Any such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States or of any state or territory thereof or of the District of Columbia authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least $50,000,000.00 and being 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 the requirements of such authority, then for the purposes of 31 this Section 6.12 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. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect herein specified in this Section. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section 6.12 without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent with respect to the Debentures by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 6.12, the Trustee may, and upon the request of the Company shall, promptly appoint a successor Authenticating Agent eligible under this Section 6.12, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all holders of Debentures as the names and addresses of such holders appear on the Debenture Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities with respect to the Debentures of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein. The Company agrees to pay to any Authenticating Agent from time to time reasonable compensation for its services. Any Authenticating Agent shall have no responsibility or liability for any action taken by it as such in accordance with the directions of the Trustee. ARTICLE VII. CONCERNING THE SECURITYHOLDERS ------------------------------ Section 7.1. Action by Securityholders. Whenever in this Indenture it is ------------------------- provided that the holders of a specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of such holders of Debentures voting in favor thereof at any meeting of such Securityholders duly called and held in accordance with the provisions of Article VIII, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Securityholders or (d) by any other method the Trustee deems satisfactory. If the Company shall solicit from the Securityholders any request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for such Debentures for the determination of Securityholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, 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 or revocation of the same 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 32 for the purposes of determining whether Securityholders of the requisite proportion of outstanding Debentures have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, and for that purpose the outstanding 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 6 months after the record date. Section 7.2. Proof of Execution by Securityholders. Subject to the ------------------------------------- provisions of Section 6.1, 6.2 and 8.5, proof of the execution of any instrument by a Securityholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Debentures shall be proved by the Debenture Register or by a certificate of the Debenture registrar. The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. The record of any Securityholders' meeting shall be proved in the manner provided in Section 8.6. Section 7.3. Who Are Deemed Absolute Owners. Prior to due presentment for ------------------------------ registration of transfer of any Debenture, the Company, the Trustee, any Authenticating Agent, any paying agent, any transfer agent and any Debenture registrar may deem the Person in whose name such Debenture shall be registered upon the Debenture Register to be, and may treat him as, the absolute owner of such Debenture (whether or not such Debenture shall be overdue) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Debenture and for all other purposes; and neither the Company nor the Trustee nor any Authenticating Agent nor any paying agent nor any transfer agent nor any Debenture registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being or upon his order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Debenture. Section 7.4. Debentures Owned by Company Deemed Not Outstanding. In -------------------------------------------------- determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent or waiver under this Indenture, Debentures which are owned by the Company or any other obligor on the Debentures or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided, however, that for the purposes of -------- ------- determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debentures which a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 7.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Debentures and that the pledgee is not the Company or any such other obligor or Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 7.5. Revocation of Consents; Future Holders Bound. At any time -------------------------------------------- prior to (but not after) the evidencing to the Trustee, as provided in Section 7.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder (in cases where no record date has been set pursuant to Section 7.1) or any holder as of an applicable record date (in cases where a record date has been set pursuant to Section 7.1) of a Debenture (or any Debenture issued in whole or in part in exchange or substitution therefor) the serial number of which is shown by the evidence to be included in the 33 Debentures the holders of which have consented to such action may, by filing written notice with the Trustee at the Principal Office of the Trustee and upon proof of holding as provided in Section 7.2, revoke such action so far as concerns such Debenture (or so far as concerns the principal amount represented by any exchanged or substituted Debenture). Except as aforesaid any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange or substitution therefor or on registration of transfer thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture or any Debenture issued in exchange or substitution therefor. ARTICLE VIII. SECURITYHOLDERS' MEETINGS ------------------------- Section 8.1. Purposes of Meetings. A meeting of Securityholders may be -------------------- called at any time and from time to time pursuant to the provisions of this Article VIII for any of the following purposes: (a) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article V; (b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VI; (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.2; or (d) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of such Debentures under any other provision of this Indenture or under applicable law. Section 8.2. Call of Meetings by Trustee. The Trustee may at any time call --------------------------- a meeting of Securityholders to take any action specified in Section 8.1, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Securityholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to holders of Debentures affected at their addresses as they shall appear on the Debentures Register and, if the Company is not a holder of Debentures, to the Company. Such notice shall be mailed not less than 20 nor more than 180 days prior to the date fixed for the meeting. Section 8.3. Call of Meetings by Company or Securityholders. In case at any ---------------------------------------------- time the Company pursuant to a Board Resolution, or the holders of at least 10% in aggregate principal amount of the Debentures, as the case may be, then outstanding, shall have requested the Trustee to call a meeting of Securityholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or such Securityholders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 8.1, by mailing notice thereof as provided in Section 8.2. Section 8.4. Qualifications for Voting. To be entitled to vote at any ------------------------- meeting of Securityholders a Person shall (a) be a holder of one or more Debentures with respect to which the meeting is being held or (b) a Person appointed by an instrument in writing as proxy by a holder of one or more such Debentures. The only Persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. 34 Section 8.5. Regulations. Notwithstanding any other provisions of this ----------- Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Debentures and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 8.3, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote of the meeting. Subject to the provisions of Section 7.4, at any meeting each holder of Debentures with respect to which such meeting is being held or proxy therefor shall be entitled to one vote for each $1,000.00 principal amount of Debentures held or represented by him; provided, however, that no vote shall be cast or -------- ------- counted at any meeting in respect of any Debenture challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Debentures held by him or instruments in writing as aforesaid duly designating him as the Person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 8.2 or 8.3 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 8.6. Voting. The vote upon any resolution submitted to any meeting ------ of holders of Debentures with respect to which such meeting is being held shall be by written ballots on which shall be subscribed the signatures of such holders or of their representatives by proxy and the serial number or numbers of the Debentures held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 8.2. The record shall show the serial numbers of the Debentures voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 8.7. Quorum; Actions. The Persons entitled to vote a majority in --------------- principal amount of the Debentures then outstanding shall constitute a quorum for a meeting of Securityholders; provided, however, that if any action is to be -------- ------- taken at such meeting with respect to a consent, waiver, request, demand, notice, authorization, direction or other action which may be given by the holders of not less than a specified percentage in principal amount of the Debentures then outstanding, the Persons holding or representing such specified percentage in principal amount of the Debentures then outstanding will constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Securityholders, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the permanent 35 chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the permanent chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.2, except that such notice need be given only once not less than 5 days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Debentures then outstanding which shall constitute a quorum. Except as limited by the provisos in the first paragraph of Section 9.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the holders of a majority in principal amount of the Debentures then outstanding; provided, however, that, except as limited by the provisos in the ----------------- first paragraph of Section 9.2, any resolution with respect to any consent, waiver, request, demand, notice, authorization, direction or other action which this Indenture expressly provides may be given by the holders of not less than a specified percentage in principal amount of the Debentures then outstanding may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid only by the affirmative vote of the holders of a not less than such specified percentage in principal amount of the Debentures then outstanding. Any resolution passed or decision taken at any meeting of holders of Debentures duly held in accordance with this Section shall be binding on all the Securityholders, whether or not present or represented at the meeting. ARTICLE IX. SUPPLEMENTAL INDENTURES ----------------------- Section 9.1. Supplemental Indentures without Consent of Securityholders. ---------------------------------------------------------- The Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto, without the consent of the Securityholders, for one or more of the following purposes: (a) to evidence the succession of another Person to the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of the Company, pursuant to Article XI hereof; (b) to add to the covenants of the Company such further covenants, restrictions or conditions for the protection of the holders of Debentures as the Board of Directors shall consider to be for the protection of the holders of such Debentures, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, -------- however, that in respect of any such additional covenant restriction or - ------- condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (c) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture; provided that any such action shall not materially -------- adversely affect the interests of the holders of the Debentures; 36 (d) to add to, delete from, or revise the terms of Debentures, including, without limitation, any terms relating to the issuance, exchange, registration or transfer of Debentures, including to provide for transfer procedures and restrictions substantially similar to those applicable to the Capital Securities as required by Section 2.5 (for purposes of assuring that no registration of Debentures is required under the Securities Act); provided, however, that any -------- ------- such action shall not adversely affect the interests of the holders of the Debentures then outstanding (it being understood, for purposes of this proviso, that transfer restrictions on Debentures substantially similar to those that were applicable to Capital Securities shall not be deemed to materially adversely affect the holders of the Debentures); (e) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debentures and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; (f) to make any change (other than as elsewhere provided in this paragraph) that does not adversely affect the rights of any Securityholder in any material respect; or (g) to provide for the issuance of and establish the form and terms and conditions of the Debentures, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or the Debentures, or to add to the rights of the holders of Debentures. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 9.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 9.2. Section 9.2. Supplemental Indentures with Consent of Securityholders. With ------------------------------------------------------- the consent (evidenced as provided in Section 7.1) of the holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding affected by such supplemental indenture (voting as a class), the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto 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 the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall without -------- ------- the consent of the holders of each Debenture then outstanding and affected thereby (i) change the fixed maturity of any Debenture, or reduce the principal amount thereof or any premium thereon, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest or premium thereon payable in any coin or currency other than that provided in the Debentures, or impair or affect the right of any Securityholder to institute suit for payment thereof or impair the right of repayment, if any, at the option of the holder, or (ii) reduce the aforesaid percentage of Debentures the holders of which are required to consent to any such supplemental indenture; provided further, however, that if the -------- ------- ------- Debentures are held by a trust or a trustee of such trust, such supplemental indenture shall not be effective until the holders of a majority in Liquidation Amount of Trust Securities shall have consented to such supplemental indenture; provided further, however, that if the consent of the Securityholder of each - -------- ------- ------- outstanding Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities shall have consented to such supplemental indenture. 37 Upon the request of the Company accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders 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. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first class postage prepaid, a notice, prepared by the Company, setting forth in general terms the substance of such supplemental indenture, to the Securityholders as their names and addresses appear upon the Debenture Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. It shall not be necessary for the consent of the Securityholders under this Section 9.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 9.3. Effect of Supplemental Indentures. Upon the execution of any --------------------------------- supplemental indenture pursuant to the provisions of this Article IX, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.4. Notation on Debentures. Debentures authenticated and delivered ---------------------- after the execution of any supplemental indenture pursuant to the provisions of this Article IX may bear a notation as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Debentures so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company, authenticated by the Trustee or the Authenticating Agent and delivered in exchange for the Debentures then outstanding. Section 9.5. Evidence of Compliance of Supplemental Indenture to be ------------------------------------------------------ Furnished to Trustee. The Trustee, subject to the provisions of Sections 6.1 and - -------------------- 6.2, shall, in addition to the documents required by Section 14.6, receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article IX. The Trustee shall receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article IX is authorized or permitted by, and conforms to, the terms of this Article IX and that it is proper for the Trustee under the provisions of this Article IX to join in the execution thereof. ARTICLE X. REDEMPTION OF SECURITIES ------------------------ Section 10.1. Optional Redemption. The Company shall have the right ------------------- (subject to the receipt by the Company of prior approval (i) if the Company is a bank holding company, from the Federal Reserve, if then required under applicable capital guidelines or policies of the Federal Reserve or (ii) if the Company is a savings and loan holding company, from the OTS if then required under applicable capital guidelines or policies of the OTS), to redeem the Debentures, in whole or in part, but in all cases 38 in a principal amount with integral multiples of $1,000.00, on any March 18, June 18, September 18 or December 18 on or after December 18, 2006 (the "Redemption Date"), at the Redemption Price. --------------- Section 10.2. Special Event Redemption. If a Special Event shall occur and ------------------------ be continuing, the Company shall have the right (subject to the receipt by the Company of prior approval (i) if the Company is a bank holding company, from the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve or (ii) if the Company is a savings and loan holding company, from the OTS if then required under applicable capital guidelines or policies of the OTS) to redeem the Debentures in whole, but not in part, at any Interest Payment Date, within 120 days following the occurrence of such Special Event (the "Special Redemption Date") at the Special Redemption Price. ----------------------- Section 10.3. Notice of Redemption; Selection of Debentures. In case the --------------------------------------------- Company shall desire to exercise the right to redeem all, or, as the case may be, any part of the Debentures, it shall cause to be mailed a notice of such redemption at least 30 and not more than 60 days prior to the Redemption Date or the Special Redemption Date to the holders of Debentures so to be redeemed as a whole or in part at their last addresses as the same appear on the Debenture Register. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Debenture designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Debenture. Each such notice of redemption shall specify the CUSIP number, if any, of the Debentures to be redeemed, the Redemption Date or the Special Redemption Date, as applicable, the Redemption Price or the Special Redemption Price, as applicable, at which Debentures are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. If less than all the Debentures are to be redeemed the notice of redemption shall specify the numbers of the Debentures to be redeemed. In case the Debentures are to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof will be issued. Prior to 10:00 a.m. New York City time on the Redemption Date or Special Redemption Date, as applicable, the Company will deposit with the Trustee or with one or more paying agents an amount of money sufficient to redeem on the Redemption Date or the Special Redemption Date, as applicable, all the Debentures so called for redemption at the appropriate Redemption Price or Special Redemption Price, together with accrued interest to the Redemption Date or Special Redemption Date, as applicable. If all, or less than all, the Debentures are to be redeemed, the Company will give the Trustee notice not less than 45 nor more than 60 days, respectively, prior to the Redemption Date or Special Redemption Date, as applicable, as to the aggregate principal amount of Debentures to be redeemed and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Debentures or portions thereof (in integral multiples of $1,000.00) to be redeemed. Section 10.4. Payment of Debentures Called for Redemption. If notice of ------------------------------------------- redemption has been given as provided in Section 10.3, the Debentures or portions of Debentures with respect to which such notice has been given shall become due and payable on the Redemption Date or Special Redemption Date, as applicable, and at the place or places stated in such notice at the applicable Redemption Price or Special Redemption Price, together with interest accrued to the Redemption Date or Special Redemption Date, as applicable, and on and after said date (unless the Company shall default in the payment of such Debentures at the Redemption Price or Special Redemption Price, as applicable, together with interest 39 accrued to said date) interest on the Debentures or portions of Debentures so called for redemption shall cease to accrue. On presentation and surrender of such Debentures at a place of payment specified in said notice, such Debentures or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price or Special Redemption Price, together with interest accrued thereon to the Redemption Date or Special Redemption Date, as applicable. Upon presentation of any Debenture redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Debenture or Debentures of authorized denominations, in principal amount equal to the unredeemed portion of the Debenture so presented. ARTICLE XI. CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE ------------------------------------------------- Section 11.1. Company May Consolidate, etc., on Certain Terms. Nothing ----------------------------------------------- contained in this Indenture or in the Debentures shall prevent any consolidation or merger of the Company with or into any other Person (whether or not affiliated with the Company) or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property or capital stock of the Company or its successor or successors as an entirety, or substantially as an entirety, to any other Person (whether or not affiliated with the Company, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and -------- ------- agrees that, upon any such consolidation, merger (where the Company is not the surviving corporation), sale, conveyance, transfer or other disposition, the due and punctual payment of the principal of (and premium, if any) and interest on all of the Debentures in accordance with their terms, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company, shall be expressly assumed by supplemental indenture satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company shall have been merged, or by the entity which shall have acquired such property. Section 11.2. Successor Entity to be Substituted. In case of any such ---------------------------------- consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor entity, 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 premium, if any, and interest on all of the Debentures and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, such successor entity shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company, and thereupon the predecessor entity shall be relieved of any further liability or obligation hereunder or upon the Debentures. Such successor entity thereupon may cause to be signed, and may issue in its own name, any or all of the Debentures issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee or the Authenticating Agent; and, upon the order of such successor entity instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Debentures which previously shall have been signed and delivered by the officers of the Company, to the Trustee or the Authenticating Agent for authentication, and any Debentures which such successor entity thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. All the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. 40 Section 11.3. Opinion of Counsel to be Given to Trustee. The Trustee, ----------------------------------------- subject to the provisions of Sections 6.1 and 6.2, shall receive, in addition to the Opinion of Counsel required by Section 9.5, an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale, conveyance, transfer or other disposition, and any assumption, permitted or required by the terms of this Article XI complies with the provisions of this Article XI. ARTICLE XII. SATISFACTION AND DISCHARGE OF INDENTURE --------------------------------------- Section 12.1. Discharge of Indenture. When ---------------------- (a) the Company shall deliver to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) and not theretofore canceled, or (b) all the Debentures not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within 1 year or are to be called for redemption within 1 year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds, which shall be immediately due and payable, sufficient to pay at maturity or upon redemption all of the Debentures (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of, and premium, if any, or interest on the Debentures (1) theretofore repaid to the Company in accordance with the provisions of Section 12.4, or (2) paid to any state or to the District of Columbia pursuant to its unclaimed property or similar laws, and if in the case of either clause (a) or clause (b) the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect except for the provisions of Sections 2.5, 2.6, 2.8, 3.1, 3.2, 3.4, 6.6, 6.8, 6.9 and 12.4 hereof shall survive until such Debentures shall mature and be paid. Thereafter, Sections 6.6 and 12.4 shall survive, and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with, and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. The Company agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Debentures. Section 12.2. Deposited Moneys to be Held in Trust by Trustee. Subject to ----------------------------------------------- the provisions of Section 12.4, all moneys deposited with the Trustee pursuant to Section 12.1 shall be held in trust in a non-interest bearing account and applied by it to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Debentures for the payment of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal, and premium, if any, and interest. Section 12.3. Paying Agent to Repay Moneys Held. Upon the satisfaction and --------------------------------- discharge of this Indenture all moneys then held by any paying agent of the Debentures (other than the Trustee) shall, 41 upon demand of the Company, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such moneys. Section 12.4. Return of Unclaimed Moneys. Any moneys deposited with or paid -------------------------- to the Trustee or any paying agent for payment of the principal of, and premium, if any, or interest on Debentures and not applied but remaining unclaimed by the holders of Debentures for 2 years after the date upon which the principal of, and premium, if any, or interest on such Debentures, as the case may be, shall have become due and payable, shall, subject to applicable escheatment laws, be repaid to the Company by the Trustee or such paying agent on written demand; and the holder of any of the Debentures shall thereafter look only to the Company for any payment which such holder may be entitled to collect, and all liability of the Trustee or such paying agent with respect to such moneys shall thereupon cease. ARTICLE XIII. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, --------------------------------------- OFFICERS AND DIRECTORS ---------------------- Section 13.1. Indenture and Debentures Solely Corporate Obligations. No ----------------------------------------------------- recourse for the payment of the principal of or premium, if any, or interest on any Debenture, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture, or in any such Debenture, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, officer or director, as such, past, present or future, of the Company or of any successor Person of the Company, either directly or through the Company or any successor Person of the Company, 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 all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Debentures. ARTICLE XIV. MISCELLANEOUS PROVISIONS ------------------------ Section 14.1. Successors. All the covenants, stipulations, promises and ---------- agreements of the Company in this Indenture shall bind its successors and assigns whether so expressed or not. Section 14.2. Official Acts by Successor Entity. 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 like board, committee, officer or other authorized Person of any entity that shall at the time be the lawful successor of the Company. Section 14.3. Surrender of Company Powers. The Company by instrument in --------------------------- writing executed by authority of at least 2/3 (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 permitted successor. Section 14.4. Addresses for Notices, etc. Any notice, consent, direction, -------------------------- request, authorization, waiver or demand which by any provision of this Indenture is required or permitted to be given, made, furnished or served by the Trustee or by the Securityholders on or to the Company may be given or served in writing by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company, with the Trustee for the purpose) to the Company, Attention: William E. Matthews, V. Any notice, consent, direction, request, authorization, waiver or demand by any Securityholder or the Company to or upon the Trustee shall be 42 deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the office of the Trustee, addressed to the Trustee, 225 Asylum Street, Goodwin Square, Hartford, Connecticut 06103 Attention: Vice President, Corporate Trust Department, with a copy to State Street Bank and Trust Company, P.O. Box 778, Boston, Massachusetts 02102-0778, Attention: Paul D. Allen, Corporate Trust Department. Any notice, consent, direction, request, authorization, waiver or demand on or to any Securityholder shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the address set forth in the Debenture Register. Section 14.5. Governing Law. This Indenture and each Debenture shall be ------------- deemed to be a contract made under the law of the State of New York, and for all purposes shall be governed by and construed in accordance with the law of said State, without regard to conflict of laws principles thereof. Section 14.6. Evidence of Compliance with Conditions Precedent. 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 in the opinion of the signers all conditions precedent, if any, 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. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not in the opinion of such person, such condition or covenant has been complied with. Section 14.7. Non-Business Days. In any case where the date of payment of ----------------- interest on or principal of the Debentures will be a day that is not a Business Day, the payment of such interest on or principal of the Debentures need not be made on such date but may be made on the next succeeding Business Day, 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 original date of payment, and no interest shall accrue for the period from and after such date. Section 14.8. Table of Contents, Headings, etc. The table of contents and -------------------------------- the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 14.9. Execution in Counterparts. This Indenture may be executed in ------------------------- any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Section 14.10. Separability. In case any one or more of the provisions ------------ contained in this Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Debentures, but this Indenture and such Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. 43 Section 14.11. Assignment. The Company will have the right at all times to ---------- assign any of its 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 hereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties hereto. Section 14.12. Acknowledgment of Rights. The Company agrees that, with ------------------------ respect to any Debentures held by the Trust or the Institutional Trustee of the Trust, if the Institutional Trustee of the Trust fails to enforce its rights under this Indenture as the holder of Debentures held as the assets of such Trust after the holders of a majority in Liquidation Amount of the Capital Securities of such Trust have so directed such Institutional Trustee, a holder of record of such Capital Securities may, to the fullest extent permitted by law, institute legal proceedings directly against the Company to enforce such Institutional Trustee's rights under this Indenture without first instituting any legal proceedings against such trustee or any other Person. 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 premium, if any) or principal on the Debentures on the date such interest (or premium, if any) or principal is otherwise payable (or in the case of redemption, on the redemption date), the Company agrees that a holder of record of Capital Securities of the Trust may directly institute a proceeding against the Company for enforcement of payment to such holder directly of the principal of (or premium, if any) or interest on the Debentures having an aggregate principal amount equal to the aggregate Liquidation Amount of the Capital Securities of such holder on or after the respective due date specified in the Debentures. ARTICLE XV. SUBORDINATION OF DEBENTURES --------------------------- Section 15.1. Agreement to Subordinate. The Company covenants and agrees, ------------------------ and each holder of Debentures by such Securityholder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article XV; and each holder of a Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, and premium, if any, and interest on all Debentures 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 Indebtedness of the Company, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article XV shall prevent the occurrence of any default or Event of Default hereunder. Section 15.2. Default on Senior Indebtedness. In the event and during the ------------------------------ continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company following any grace period, or in the event that the maturity of any Senior Indebtedness of the Company has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption) of, or premium, if any, or interest on the Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 15.2, such payment shall, subject to Section 15.7, be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective 44 interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. Section 15.3. 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 Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company, on account of the principal (and premium, if any) or interest on the Debentures. 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, which the Securityholders or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XV, 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 Securityholders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Securityholders 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 Indebtedness is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. For purposes of this Article XV, 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 XV with respect to the Debentures to the payment of all Senior Indebtedness, that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization 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 XI of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the 45 conditions stated in Article XI of this Indenture. Nothing in Section 15.2 or in this Section shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6 of this Indenture. Section 15.4. Subrogation. Subject to the payment in full of all Senior ----------- Indebtedness, the Securityholders shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company, applicable to such Senior Indebtedness until the principal of (and premium, if any) and interest on the Debentures shall be paid in full. For the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the Securityholders or the Trustee would be entitled except for the provisions of this Article XV, and no payment over pursuant to the provisions of this Article XV to or for the benefit of the holders of such Senior Indebtedness by Securityholders or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Debentures be deemed to be a payment or distribution by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article XV are and are intended solely for the purposes of defining the relative rights of the holders of the Securities, on the one hand, and the holders of such Senior Indebtedness, on the other hand. Nothing contained in this Article XV or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of (and premium, if any) and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company, other than the holders of Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XV of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article XV, the Trustee, subject to the provisions of Article VI of this Indenture, and the Securityholders 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 Securityholders, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XV. Section 15.5. Trustee to Effectuate Subordination. Each Securityholder by ----------------------------------- such Securityholder's acceptance thereof authorizes and directs the Trustee on such Securityholder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XV and appoints the Trustee such Securityholder's attorney-in-fact for any and all such purposes. Section 15.6. Notice by the Company. The Company shall give prompt written --------------------- notice to a Responsible Officer of the Trustee at the Principal Office of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XV. Notwithstanding the provisions of this Article XV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XV, unless and until a Responsible 46 Officer of the Trustee at the Principal Office of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article VI of this Indenture, 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 at least 2 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 premium, if any) or interest on any Debenture), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within 2 Business Days prior to such date. The Trustee, subject to the provisions of Article VI of this Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee or representative on behalf of such holder), to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or representative on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article XV, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XV, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 15.7. Rights of the Trustee; Holders of Senior Indebtedness. The ----------------------------------------------------- Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XV in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XV, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Article VI of this Indenture, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to Securityholders, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article XV or otherwise. Nothing in this Article XV shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6. Section 15.8. Subordination May Not Be Impaired. No right of any present or --------------------------------- future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Securityholders, without incurring responsibility to the Securityholders and without impairing or 47 releasing the subordination provided in this Article XV or the obligations hereunder of the holders of the Debentures to the holders of such Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company, and any other Person. signatures appear on the following page 48 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. ALABAMA NATIONAL BANCORPORATION By: /s/ William E. Matthews, V -------------------------------------- Name: William E. Matthews, V Title: Executive Vice President and CFO STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as Trustee By: /s/ Paul D. Allen ---------------------------------------- Name: Paul D. Allen Title: Vice President 49 FORM OF JUNIOR SUBORDINATED DEBENTURE [FORM OF FACE OF SECURITY] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY A-1-1 EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $500,000.00 AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $500,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. Floating Rate Junior Subordinated Deferrable Interest Debenture of Alabama National BanCorporation December 18, 2001 Alabama National BanCorporation, a Delaware corporation (the "Company" which term includes any successor Person under the Indenture hereinafter referred to), for value received promises to pay to State Street Bank and Trust Company of Connecticut, National Association, not in its individual capacity but solely as Institutional Trustee for Alabama National BanCorporation Statutory Trust I (the "Holder") or registered assigns, the principal sum of fifteen million four hundred sixty-four thousand dollars ($15,464,000) on December 18, 2031, and to pay interest on said principal sum from December 18, 2001, 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 18, June 18, September 18 and December 18 of each year commencing March 18, 2002, at an annual rate equal to 5.60% beginning on (and including) the date of original issuance and ending on (but excluding) March 18, 2002 and at an annual rate for each successive period beginning on (and including) March 18, 2002, and each succeeding Interest Payment Date, and ending on (but excluding) the next succeeding Interest Payment Date (each a "Distribution Period"), equal to 3-Month LIBOR, determined as described below, plus 3.60% (the "Coupon Rate"); provided, however, that prior -------- ------- to December 18, 2006, the Coupon Rate shall not exceed 12.50%, applied to the principal amount hereof, until the principal hereof is paid or duly provided for or made available for payment, and on any overdue principal and (without duplication) on any overdue installment of interest at the same rate per annum, compounded quarterly, from the dates such amounts are due until they are paid or made available for payment. The amount of interest payable for any period will be computed on the basis of the actual number of days in the Distribution Period concerned divided by 360. In the event that any date on which interest is payable on this Debenture is not a Business Day, then a payment of the 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 the date the payment was originally payable. The interest installment so payable, and A-1-2 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 Debenture (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest installment, which shall be fifteen days prior to the day on which the relevant Interest Payment Date occurs. Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on a special record date. "3-Month LIBOR" as used herein, means the London interbank offered interest rate for three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of priority: (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date ("Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four major New York City banks to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period. If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date. As used herein, "Determination Date" means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the commencement of the relevant Distribution Period. The Coupon Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law. All percentages resulting from any calculations on the Debentures will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% or .09876545 being rounded to 9.87655% or .0987655, and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)). The principal of and interest on this Debenture shall be payable at the office or agency of the Trustee (or other paying agent appointed by the Company) 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 by check -------- ------- mailed to the registered holder at such address as shall appear in the Debenture Register if a request for a wire transfer by such holder has not been received by the Company or by wire transfer to an account appropriately A-1-3 designated by the holder hereof. Notwithstanding the foregoing, so long as the holder of this Debenture is the Institutional Trustee, the payment of the principal of and interest on this Debenture will be made in immediately available funds at such place and to such account as may be designated by the Trustee. So long as no Event of Default has occurred and is continuing, the Company shall have the right, from time to time, and without causing an Event of Default, to defer payments of interest on the Debentures by extending the interest payment period on the Debentures at any time and from time to time during the term of the Debentures, for up to 20 consecutive quarterly periods (each such extended interest payment period, an "Extension Period"), during which Extension Period no interest (including Additional Interest) shall be due and payable. No Extension Period may end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no Extension Period may extend beyond -------- ------- the Maturity Date; provided further, however, that during any such Extension -------- ------- ------- Period, the Company shall not and shall not permit any Affiliate to (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 or such Affiliate's capital stock (other than payments of dividends or distributions to the Company) or make any guarantee payments with respect to the foregoing or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (i) and (ii) above, (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of any exchange or conversion of any class or series of the Company's capital stock (or any capital stock of a subsidiary of the Company) for any class or series of the Company's capital stock or of any class or series of the Company's indebtedness for any class or series of the Company's capital stock, (c) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholders' rights plan, or the issuance of rights, stock or other property under any stockholders' rights plan, or the redemption or repurchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (f) payments under the Capital Securities Guarantee). Prior to the termination of any Extension Period, the Company may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest. The Company must give the Trustee notice of its election to begin or extend such Extension Period at least 5 Business Days prior to the earlier of (i) the date interest on the Debentures would have been payable except for the election to begin such Extension Period or (ii) the date such interest is payable, but in any event not less than 5 Business Days prior to such record date. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this A-1-4 Debenture is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee. Capitalized terms used and not defined in this Debenture shall have the meanings assigned in the Indenture dated as of the date of original issuance of this Debenture between the Trustee and the Company. IN WITNESS WHEREOF, the Company has duly executed this certificate. ALABAMA NATIONAL BANCORPORATION By -------------------------------------------------- Name: Title: CERTIFICATE OF AUTHENTICATION ----------------------------- This is one of the Debentures referred to in the within-mentioned Indenture. State Street Bank and Trust Company of Connecticut, National Association, as Trustee By: ------------------------------------------------- Authorized Officer A-1-5 EX-10.49 7 dex1049.txt GUARANTEE AGREEMENT EXHIBIT 10.49 ================================================= GUARANTEE AGREEMENT by and between ALABAMA NATIONAL BANCORPORATION and STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION Dated as of December 18, 2001 ================================================= GUARANTEE AGREEMENT ------------------- This GUARANTEE AGREEMENT (this "Guarantee"), dated as of December 18, 2001, is executed and delivered by Alabama National BanCorporation, a Delaware corporation (the "Guarantor"), and State Street Bank and Trust Company of Connecticut, National Association, a national banking association, organized under the laws of the United States of America, as trustee (the "Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of Alabama National Statutory Trust I, a Connecticut statutory trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of the date hereof among State Street Bank and Trust Company of Connecticut, National Association, not in its individual capacity but solely as institutional trustee, the administrators of the Issuer named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof those undivided beneficial interests, having an aggregate liquidation amount of $15,000,000.00 (the "Capital Securities"); and WHEREAS, as incentive for the Holders (as defined herein) to purchase the Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee, to pay to the Holders of Capital Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the purchase by each Holder of the Capital Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION Section 1.1. Definitions and Interpretation. In this Guarantee, unless the ------------------------------ context otherwise requires: (a) capitalized terms used in this Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Guarantee has the same meaning throughout; (c) all references to "the Guarantee" or "this Guarantee" are to this Guarantee as modified, supplemented or amended from time to time; (d) all references in this Guarantee to "Articles" or "Sections" are to Articles or Sections of this Guarantee, unless otherwise specified; (e) terms defined in the Declaration as at the date of execution of this Guarantee have the same meanings when used in this Guarantee, unless otherwise defined in this Guarantee or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the --------- Securities Act of 1933, as amended, or any successor rule thereunder. "Beneficiaries" means any Person to whom the Issuer is or hereafter becomes ------------- indebted or liable. "Capital Securities" has the meaning set forth in the recitals to this ------------------ Guarantee. "Common Securities" means the common securities issued by the Issuer to the ----------------- Guarantor pursuant to the Declaration. "Corporate Trust Office" means the office of the Guarantee Trustee at which ---------------------- the corporate trust business of the Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Guarantee is located at 225 Asylum Street, Goodwin Square, Hartford, Connecticut 06103. "Covered Person" means any Holder of Capital Securities. -------------- "Debentures" means the debt securities of the Guarantor designated the ---------- Floating Rate Junior Subordinated Deferrable Interest Debentures due 2031 held by the Institutional Trustee (as defined in the Declaration) of the Issuer. "Declaration Event of Default" means an "Event of Default" as defined in ---------------------------- the Declaration. "Event of Default" has the meaning set forth in Section 2.4(a). ---------------- "Guarantee Payments" means the following payments or distributions, without ------------------ duplication, with respect to the Capital Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the Declaration) which are required to be paid on such Capital Securities to the extent the Issuer shall have funds available therefor, (ii) the Redemption Price to the extent the Issuer has funds available therefor, with respect to any Capital Securities called for redemption by the Issuer, (iii) the Special Redemption Price to the extent the Issuer has funds available therefor, with respect to Capital Securities redeemed upon the occurrence of a Special Event, and (iv) upon a voluntary or involuntary liquidation, dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to the Holders of the Capital Securities in exchange therefor as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Capital Securities to the date of payment, to the extent the Issuer shall have funds available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "Liquidation Distribution"). "Guarantee Trustee" means State Street Bank and Trust Company of ----------------- Connecticut, National Association, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee and thereafter means each such Successor Guarantee Trustee. "Guarantor" means Alabama National BanCorporation and each of its --------- successors and assigns. "Holder" means any holder, as registered on the books and records of the ------ Issuer, of any Capital Securities; provided, however, that, in determining -------- ------- whether the Holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Guarantee Trustee, any Affiliate of the ------------------ Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Guarantee Trustee. 2 "Indenture" means the Indenture dated as of the date hereof between the --------- Guarantor and State Street Bank and Trust Company of Connecticut, National Association, not in its individual capacity but solely as trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued to the institutional trustee of the Issuer. "Issuer" has the meaning set forth in the opening paragraph to this ------ Guarantee. "Liquidation Distribution" has the meaning set forth in the definition of ------------------------ "Guarantee Payments" herein. "Majority in liquidation amount of the Capital Securities" means Holder(s) -------------------------------------------------------- of outstanding Capital Securities, voting together as a class, but separately from the holders of Common Securities, of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all Capital Securities then outstanding. "Obligations" means any costs, expenses or liabilities (but not including ----------- liabilities related to taxes) of the Issuer other than obligations of the Issuer to pay to holders of any Trust Securities the amounts due such holders pursuant to the terms of the Trust Securities. "Officer's Certificate" means, with respect to any Person, a certificate --------------------- signed by one Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee shall include: (a) a statement that each officer signing the Officer's Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officer's Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, ------ estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Redemption Price" has the meaning set forth in the Indenture. ---------------- "Responsible Officer" means, with respect to the Guarantee Trustee, any ------------------- officer within the Corporate Trust Office of the Guarantee Trustee including any Vice President, Assistant Vice President, Secretary, Assistant Secretary or any other officer of the Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Special Event" has the meaning set forth in the Indenture. ------------- 3 "Special Redemption Price" has the meaning set forth in the Indenture. ------------------------ "Successor Guarantee Trustee" means a successor Guarantee Trustee --------------------------- possessing the qualifications to act as Guarantee Trustee under Section 3.1. "Trust Securities" means the Common Securities and the Capital Securities. ---------------- ARTICLE II POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE Section 2.1. Powers and Duties of the Guarantee Trustee. ------------------------------------------ (a) This Guarantee shall be held by the Guarantee Trustee for the benefit of the Holders of the Capital Securities, and the Guarantee Trustee shall not transfer this Guarantee to any Person except a Holder of Capital Securities exercising his or her rights pursuant to Section 4.4(b) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit of the Holders of the Capital Securities. (c) The Guarantee Trustee, before the occurrence of any Event of Default and after curing all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee, and no implied covenants shall be read into this Guarantee against the Guarantee Trustee. In case an Event of Default has occurred (that has not been waived pursuant to Section 2.4) and is actually known to a Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Guarantee shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee, and no implied covenants or obligations shall be read into this Guarantee against the Guarantee Trustee; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished 4 to the Guarantee Trustee and conforming to the requirements of this Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee; (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that such Responsible Officer of the Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee; and (iv) no provision of this Guarantee shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds is not reasonably assured to it under the terms of this Guarantee or security and indemnity, reasonably satisfactory to the Guarantee Trustee, against such risk or liability is not reasonably assured to it. Section 2.2. Certain Rights of Guarantee Trustee. ----------------------------------- (a) Subject to the provisions of Section 2.1: (i) The Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Guarantee shall be sufficiently evidenced by an Officer's Certificate. (iii) Whenever, in the administration of this Guarantee, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer's Certificate of the Guarantor which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any re-recording, refiling or re-registration thereof). (v) The Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and 5 in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee from any court of competent jurisdiction. (vi) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such security and indemnity, reasonably satisfactory to the Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided, however, -------- ------- that nothing contained in this Section 2.2(a)(vi) shall relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee. (vii) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders of the Capital Securities, and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Guarantee the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Capital Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (xi) The Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Guarantee. (b) No provision of this Guarantee shall be deemed to impose any duty or obligation on the Guarantee 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 Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty. 6 Section 2.3. Not Responsible for Recitals or Issuance of Guarantee. The ----------------------------------------------------- recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representation as to the validity or sufficiency of this Guarantee. Section 2.4. Events of Default; Waiver. ------------------------- (a) An Event of Default under this Guarantee will occur upon the failure of the Guarantor to perform any of its payment or other obligations hereunder. (b) The Holders of a Majority in liquidation amount of the Capital Securities may, voting or consenting as a class, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and shall be deemed to have been cured, for every purpose of this Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 2.5. Events of Default; Notice. ------------------------- (a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Capital Securities and the Guarantor, notices of all Events of Default actually known to a Responsible Officer of the Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, however, -------- ------- that the Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Capital Securities. (b) The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice from the Guarantor or a Holder of the Capital Securities (except in the case of a payment default), or a Responsible Officer of the Guarantee Trustee charged with the administration of this Guarantee shall have obtained actual knowledge thereof. ARTICLE III GUARANTEE TRUSTEE Section 3.1. Guarantee Trustee; Eligibility. ------------------------------ (a) There shall at all times be a Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor, and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or Person authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 3.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. 7 (b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 3.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 3.2(c). (c) If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee shall either eliminate such interest or resign to the extent and in the manner provided by, and subject to this Guarantee. Section 3.2. Appointment, Removal and Resignation of Guarantee Trustee. --------------------------------------------------------- (a) Subject to Section 3.2(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except during an Event of Default. (b) The Guarantee Trustee shall not be removed in accordance with Section 3.2(a) until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor. (c) The Guarantee Trustee appointed to office shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by an instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. (d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 3.2 within 60 days after delivery of an instrument of removal or resignation, the Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee. (e) No Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Guarantee Trustee. (f) Upon termination of this Guarantee or removal or resignation of the Guarantee Trustee pursuant to this Section 3.2, the Guarantor shall pay to the Guarantee Trustee all amounts owing to the Guarantee Trustee under Sections 7.2 and 7.3 accrued to the date of such termination, removal or resignation. ARTICLE IV GUARANTEE Section 4.1. Guarantee. --------- (a) The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense (except the defense of payment by the Issuer), right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. 8 (b) The Guarantor hereby also agrees to assume any and all Obligations of the Issuer and in the event any such Obligation is not so assumed, subject to the terms and conditions hereof, the Guarantor hereby irrevocably and unconditionally guarantees to each Beneficiary the full payment, when and as due, of any and all Obligations to such Beneficiaries. 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 4.2. Waiver of Notice and Demand. The Guarantor hereby waives --------------------------- notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. Section 4.3. Obligations Not Affected. The obligations, covenants, ------------------------ agreements and duties of the Guarantor under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Capital Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Capital Securities or the extension of time for the performance of any other obligation under, arising out of or in connection with, the Capital Securities (other than an extension of time for payment of Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) 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 Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Capital Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 4.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. 9 Section 4.4. Rights of Holders. ----------------- (a) The Holders of a Majority in liquidation amount of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee; provided, however, that (subject to -------- ------- Section 2.1) the Guarantee Trustee shall have the right to decline to follow any such direction if the Guarantee Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if the Guarantee Trustee in good faith by its board of directors or trustees, executive committees or a trust committee of directors or trustees and/or Responsible Officers shall determine that the action or proceedings so directed would involve the Guarantee Trustee in personal liability. (b) Any Holder of Capital Securities may institute a legal proceeding directly against the Guarantor to enforce the Guarantee Trustee's rights under this Guarantee, without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person. The Guarantor waives any right or remedy to require that any such action be brought first against the Issuer, the Guarantee Trustee or any other Person before so proceeding directly against the Guarantor. Section 4.5. Guarantee of Payment. This Guarantee creates a guarantee of -------------------- payment and not of collection. Section 4.6. Subrogation. The Guarantor shall be subrogated to all (if any) ----------- rights of the Holders of Capital Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee; provided, -------- however, that the Guarantor shall not (except to the extent required by - ------- mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, after giving effect to any such payment, any amounts are due and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. Section 4.7. Independent Obligations. The Guarantor acknowledges that its ----------------------- obligations hereunder are independent of the obligations of the Issuer with respect to the Capital Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 4.3 hereof. Section 4.8. Enforcement by a Beneficiary. A Beneficiary may enforce the ---------------------------- obligations of the Guarantor contained in Section 4.1(b) directly against the Guarantor and the Guarantor waives any right or remedy to require that any action be brought against the Issuer or any other person or entity before proceeding against the Guarantor. The Guarantor shall be subrogated to all rights (if any) of any Beneficiary against the Issuer in respect of any amounts paid to the Beneficiaries by the Guarantor under this Agreement; provided, -------- however, that the Guarantor shall not (except to the extent required by - ------- mandatory provisions of law) be entitled to enforce or exercise any rights that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Agreement, if at the time of any such payment, and after giving effect to such payment, any amounts are due and unpaid under this Agreement. 10 ARTICLE V LIMITATION OF TRANSACTIONS; SUBORDINATION Section 5.1. Limitation of Transactions. So long as any Capital Securities -------------------------- remain outstanding, if (a) there shall have occurred and be continuing an Event of Default or a Declaration Event of Default or (b) the Guarantor shall have selected an Extension Period as provided in the Declaration and such period, or any extension thereof, shall have commenced and be continuing, then the Guarantor shall not and shall not permit any Affiliate to (x) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Guarantor's or such Affiliate's capital stock (other than payments of dividends or distributions to the Guarantor) or make any guarantee payments with respect to the foregoing or (y) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Guarantor or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (x) and (y) above, (i) repurchases, redemptions or other acquisitions of shares of capital stock of the Guarantor in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Guarantor (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the occurrence of the Event of Default, Declaration Event of Default or Extension Period, as applicable, (ii) as a result of any exchange or conversion of any class or series of the Guarantor's capital stock (or any capital stock of a subsidiary of the Guarantor) for any class or series of the Guarantor's capital stock or of any class or series of the Guarantor's indebtedness for any class or series of the Guarantor's capital stock, (iii) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iv) any declaration of a dividend in connection with any stockholders' rights plan, or the issuance of rights, stock or other property under any stockholders' rights plan, or the redemption or repurchase of rights pursuant thereto, (v) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (vi) payments under this Guarantee). Section 5.2. Ranking. This Guarantee will constitute an unsecured ------- obligation of the Guarantor and will rank subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined in the Indenture) of the Guarantor. By their acceptance thereof, each Holder of Capital Securities agrees to the foregoing provisions of this Guarantee and the other terms set forth herein. The right of the Guarantor to participate in any distribution of assets of any of its subsidiaries upon any such subsidiary's liquidation or reorganization or otherwise is subject to the prior claims of creditors of that subsidiary, except to the extent the Guarantor may itself be recognized as a creditor of that subsidiary. Accordingly, the Guarantor's obligations under this Guarantee will be effectively subordinated to all existing and future liabilities of the Guarantor's subsidiaries, and claimants should look only to the assets of the Guarantor for payments hereunder. This Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of the Guarantor, including Senior Indebtedness of the Guarantor, under any indenture that the Guarantor may enter into in the future or otherwise. 11 ARTICLE VI TERMINATION Section 6.1. Termination. This Guarantee shall terminate as to the Capital ----------- Securities (i) upon full payment of the Redemption Price or Special Redemption Price of all Capital Securities then outstanding, (ii) upon the distribution of all of the Debentures to the Holders of all of the Capital Securities or (iii) upon full payment of the amounts payable in accordance with the Declaration upon dissolution of the Issuer. This Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Capital Securities must restore payment of any sums paid under the Capital Securities or under this Guarantee. ARTICLE VII INDEMNIFICATION Section 7.1. Exculpation. ----------- (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Issuer or the Guarantor and upon such information, opinions, reports or statements presented to the Issuer or the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who, if selected by such Indemnified Person, has been selected with reasonable care by such Indemnified Person, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Capital Securities might properly be paid. Section 7.2. Indemnification. --------------- (a) The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any and all loss, liability, damage, claim or expense incurred without negligence or willful misconduct on the part of the Indemnified Person, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including, but not limited to, the costs and expenses (including reasonable legal fees and expenses) of the Indemnified Person defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of the Indemnified Person's powers or duties hereunder. The obligation to indemnify as set forth in this Section 7.2 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee. (b) Promptly after receipt by an Indemnified Person under this Section 7.2 of notice of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is to be made against the Guarantor under this Section 7.2, notify the Guarantor in writing of the commencement thereof; but the failure so to notify the Guarantor (i) will not relieve the Guarantor from liability under 12 paragraph (a) above unless and to the extent that the Guarantor did not otherwise learn of such action and such failure results in the forfeiture by the Guarantor of substantial rights and defenses and (ii) will not, in any event, relieve the Guarantor from any obligations to any Indemnified Person other than the indemnification obligation provided in paragraph (a) above. The Guarantor shall be entitled to appoint counsel of the Guarantor's choice at the Guarantor's expense to represent the Indemnified Person in any action for which indemnification is sought (in which case the Guarantor shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the Indemnified Person or Persons except as set forth below); provided, however, -------- ------- that such counsel shall be reasonably satisfactory to the Indemnified Person. Notwithstanding the Guarantor's election to appoint counsel to represent the Guarantor in an action, the Indemnified Person shall have the right to employ separate counsel (including local counsel), and the Guarantor shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the Guarantor to represent the Indemnified Person would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the Indemnified Person and the Guarantor and the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it and/or other Indemnified Person(s) which are different from or additional to those available to the Guarantor, (iii) the Guarantor shall not have employed counsel satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time after notice of the institution of such action or (iv) the Guarantor shall authorize the Indemnified Person to employ separate counsel at the expense of the Guarantor. The Guarantor will not, without the prior written consent of the Indemnified Persons, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Persons are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Person from all liability arising out of such claim, action, suit or proceeding. Section 7.3. Compensation; Reimbursement of Expenses. The Guarantor agrees: --------------------------------------- (a) to pay to the Guarantee Trustee from time to time such compensation for all services rendered by it hereunder as the parties shall agree to from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and (b) except as otherwise expressly provided herein, to reimburse the Guarantee Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by it in accordance with any provision of this Guarantee (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 its negligence or willful misconduct. The provisions of this Section 7.3 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee. ARTICLE VIII MISCELLANEOUS Section 8.1. Successors and Assigns. All guarantees and agreements ---------------------- contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantor's assets to another entity, in each case, to the extent permitted under the Indenture, the 13 Guarantor may not assign its rights or delegate its obligations under this Guarantee without the prior approval of the Holders of at least a Majority in liquidation amount of the Capital Securities. Section 8.2. Amendments. Except with respect to any changes that do not ---------- adversely affect the rights of Holders of the Capital Securities in any material respect (in which case no consent of Holders will be required), this Guarantee may be amended only with the prior approval of the Holders of not less than a Majority in liquidation amount of the Capital Securities. The provisions of the Declaration with respect to amendments thereof apply to the giving of such approval. Section 8.3. Notices. All notices provided for in this Guarantee shall be ------- in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) If given to the Guarantee Trustee, at the Guarantee Trustee's mailing address set forth below (or such other address as the Guarantee Trustee may give notice of to the Holders of the Capital Securities and the Guarantor): State Street Bank and Trust Company of Connecticut, National Association 225 Asylum Street, Goodwin Square Hartford, Connecticut 06103 Attention: Corporate Trust Department Telecopy: 860-244-1889 With a copy to: State Street Bank and Trust Company P.O. Box 778 Boston, Massachusetts 02102-0778 Attention: Paul D. Allen, Corporate Trust Department Telecopy: 617-662-1462 (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Capital Securities and to the Guarantee Trustee): Alabama National BanCorporation 1927 1st Avenue North Birmingham, Alabama 35203-4009 Attention: William E. Matthews, V Telecopy: 205-583-3275 (c) If given to any Holder of the Capital Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. Section 8.4. Benefit. This Guarantee is solely for the benefit of the ------- Beneficiaries and, subject to Section 2.1(a), is not separately transferable from the Capital Securities. 14 Section 8.5. Governing Law. THIS GUARANTEE SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). Section 8.6. Counterparts. This Guarantee may be executed in one or more ------------ counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument. Section 8.7 Separability. In case one or more of the provisions contained ------------ in this Guarantee 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 Guarantee, but this Guarantee shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. Signatures appear on the following page 15 THIS GUARANTEE is executed as of the day and year first above written. ALABAMA NATIONAL BANCORPORATION, as Guarantor By: /s/ William E. Matthews, V --------------------------------------- Name: William E. Matthews, V Title: Executive Vice President and CFO STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as Guarantee Trustee By: /s/ Paul D. Allen ---------------------------------------- Name: Paul D. Allen Title: Vice President 16 EX-11.1 8 dex111.txt COMPUTATION OF PER SHARE EARNINGS Exhibit 11.1 Alabama National BanCorporation Computation of Earnings Per Share (In thousands, except per share amounts)
Per Share Income Shares Amount ------- ------ --------- Year ended December 31, 2001 Basic EPS net income................................... $28,415 11,853 $2.40 ===== Effect of dilutuve securities ......................... 288 ------- ------ Diluted EPS............................................ $28,415 12,141 $2.34 ======= ====== ===== Year ended December 31, 2000 Basic EPS net income................................... $25,518 11,792 $2.16 ===== Effect of dilutuve securities ......................... 181 ------- ------ Diluted EPS............................................ $25,518 11,973 $2.13 ======= ====== ===== Year ended December 31, 1999 Basic EPS net income................................... $23,306 11,814 $1.97 ===== Effect of dilutuve securities ......................... 194 ------- ------ Diluted EPS............................................ $23,306 12,008 $1.94 ======= ====== =====
EX-21.1 9 dex211.txt SUBSIDIARIES OF ANB Exhibit 21.1 SUBSIDIARIES OF ALABAMA NATIONAL
Name of Subsidiary State of Organization - ------------------ --------------------- National Bank of Commerce of Birmingham................... National Bank NBC Securities, Inc..................................... Alabama NBC Investments, Inc.................................... Nevada Bank of Dadeville......................................... Alabama TBD Investments, Inc.................................... Nevada Ashland Insurance, Inc.................................. Alabama Alabama Exchange Bank..................................... Alabama Tuskegee Loan Company, Inc.............................. Alabama AEB Investments, Inc.................................... Nevada First Gulf Bank........................................... Alabama First Citizens Bank....................................... Alabama Clay County Finance Company, Inc........................ Alabama FCB Investments, Inc.................................... Nevada First American Bank....................................... Alabama Corporate Billing, Inc.................................. Alabama FAB Investments, Inc.................................... Nevada Rankin Insurance, Inc................................... Alabama Citizens & Peoples Bank, National Association............. National Bank Public Bank............................................... Florida Georgia State Bank........................................ Georgia Community Bank of Naples, National Association............ National Bank CBN Investments, Inc.................................... Nevada Peoples State Bank of Groveland........................... Florida Alabama National Statutory Trust I........................ Connecticut
EX-23.1 10 dex231.txt CONSENT OF PRICEWATERHOUSECOOPERS L.L.P. Exhibit 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-07951), Form S-8 (File No. 333-27285), Form S-8 (File No. 333-47748), Form S-8 (File No. 333-59364), Form S-8 (File No. 333-70205), Form S-8 (File No. 333-70207), Form S-8 (File No. 333-70209), Form S-8 (File No. 333-76032), Form S-8 (File No. 333-76301), Form S-8 (File No. 333-76303), Form S-8 (File No. 333-76305), Form S-8 (File No. 333-76307), Form S-8 (File No. 333-76309), Form S-8 (File No. 333-76311), Form S-8 (File No. 333-76313), Form S-8 (File No. 333-76315), Form S-8 (File No. 333-76317) of Alabama National BanCorporation of our report dated January 17, 2002, relating to the financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Birmingham, Alabama March 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----