PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------------ ~~Fixed Rate Preferred Securities of 1st Source Capital Trust I............................................. 1,100,000~~ ~~$25.00 $27,500,000~~ ~~$8,333.33~~ ~~- ------------------------------------------------------------------------------------------------------------------------------------ Fixed Rate Subordinated Debentures~~ ~~of 1st Source Corporation.........................................~~ -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Guarantees of Fixed Rate Preferred Securities~~.....~~ -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate Preferred Securities of 1st Source Capital Trust II.................................... 1,100,000 ~~$25.00 $27,500,000~~ ~~$8,333.33~~ ~~- ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate Subordinated Debentures~~ ~~of 1st Source Corporation.........................................~~ -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Guarantees of Floating Rate Preferred Securities~~...~~ ~~-- -- -- ====================================================================================================================================~~ ~~Includes 100,000 Fixed Rate Preferred Securities which may be sold by 1st Source Capital Trust I to cover over-allotments.~~ ~~The registration fee is calculated~~
Large accelerated filer	r	Accelerated filer	x
Non-accelerated filer	r	Smaller reporting company	r
(Do not check if a smaller reporting company)

(3)	Pursuant to ~~Public and Proceeds to each of 1st Capital I and 1st Capital II will be $27,500,000. See "Underwriting."~~

----------------------------------------- The Preferred Securities are offered by the Underwriters subject to receipt and acceptance by them, prior sale and the Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of certificates for the Preferred Securities will be made on or about , 1997. STIFEL, NICOLAUS & COMPANY INCORPORATED , 1997 3 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) Corporation, an Indiana corporation (the "Company")Rule 457(g), will Corporation, an Indiana corporation (the "Company"), will own all the common securities (the "Fixed Rate Common own all the common securities (the "Floating Rate Common Securities" and, together with the Fixed Rate Preferred Securities" and, together with the Floating Rate Preferred Securities, the "Fixed Rate Trust Securities") representing Securities, the "Floating Rate Trust Securities") undivided beneficial interests in the assets of 1st Capital I. representing undivided beneficial interests in the assets of 1st Capital II. State Street Bank and Trust Companyno separate registration fee is the Fixed Rate State Street Bank and Trust Company is the Floating Rate Property Trustee (as defined herein) of 1st Capital I. 1st Property Trustee (as defined herein) of 1st Capital II. 1st Capital I exists for the purpose of issuing the Fixed Rate Capital II exists for the purpose of issuing the Floating Rate Preferred Securities and investing the proceeds thereof in an Preferred Securities and investing the proceeds thereof in an equivalent amount of % Subordinated Debentures (the equivalent amount of Floating Rate Subordinated Debentures "Fixed Rate Subordinated Debentures") of the Company. The (the "Floating Rate Subordinated Debentures") of the Fixed Rate Subordinated Debentures will mature on March 31, Company. The Floating Rate Subordinated Debentures will mature 2027, which date may be (i) shortened to a date not earlier on March 31, 2027, which date may be (i) shortened to a date than March 31, 2002 (subject to certain exceptions regarding not earlier than March 31, 2002 (subject to certain earlier redemption described herein), or (ii) extended to a exceptions regarding earlier redemption described herein), date not later than March 31, 2046, in each case if certain or (ii) extended to a date not later than March 31, 2046, conditions are met (including, in the case of shorterning the in each case if certain condition are met (including, in the Stated Maturity (as defined herein) of the Fixed Rate case of shortening the Stated Maturity (as defined herein) Subordinated Debentures, the Company having received prior of the Floating Rate Subordinated Debentures, the Company approval of the Board of Governors of the Federal Reserve having received prior approval of the Board of Governors System ("Federal Reserve") to do so if then required under of the Federal Reserve System ("Federal Reserve") to do so applicable capital guidelines or policies of the Federal if then required under applicable capital guidelines or Reserve). The Fixed Rate Preferred Securities will have a policies of the Federal Reserve). The Floating Rate preference under certain circumstances with respect to cash Preferred Securities will have a preference under certain distributions and amounts payable on liquidation, circumstances with respect to cash distributions and redemption or otherwise over the Fixed Rate amounts payable on liquidation, redemption or otherwise Common Securities. See "Description of the Preferred over the Floating Rate Common Securities. See Securities--Subordination of Common Securities." "Description of the Preferred Securities--Subordination of Common Securities." Holders of Fixed Rate Preferred Securities are entitled to Holders of Floating Rate Preferred Securities are entitled receive preferential cumulative cash distributions (the to receive preferential cumulative cash distributions (the "Fixed Rate Distributions") from 1st Capital I, at the "Floating Rate Distributions") from 1st Capital II, at the annual rate of % of the liquidation amount of $25 per annual rate equal to the sum of the 3- Month Treasury (as Preferred Security (the "Fixed Rate Liquidation Amount"), defined herein) plus % (the "Floating Distribution accruing from the date of original issuance and payable Rate") of the liquidation amount of $25 per Floating Rate quarterly in arrears on the last day of March, June, September Preferred Security (the "Floating Rate Liquidation Amount"), and December of each year, with the first Fixed Rate accruing from the date of original issuance and payable Distribution payable on June 30, 1997. The Company has the quarterly in arrears on the last day of March, June, September right, so long as no Debenture Event of Default (as defined and December of each year, with the first Floating Rate herein) with respect to the ~~Fixed Rate Subordinated Debentures Distribution payable on June 30, 1997; provided, however, has occurred and~~warrant as it is ~~continuing, to defer payment of interest that~~being registered in the ~~Floating Distribution Rate for~~same registration statement as the ~~Floating Rate on~~common stock offered pursuant thereto.
(4) Calculated in accordance with Rule 457(g) based upon the Fixed Rate Subordinated Debentures at any time or from Distribution Period (as defined herein) ending on (but time to time for a period not to exceed 20 consecutive quarters excluding) March 31, 1997 will be %. The Company has the with respect o each deferral period (each, an "Extended right, so long as no Debenture Event of Default (as defined Payment Period"); provided that no Extended Interest Payment herein) with respect to the Floating Rate Debentures has Period may extend beyond the Stated Maturityper share exercise price of the ~~Fixed Rate occurred~~warrant of $19.87.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. The securities described in this prospectus cannot be sold until the registration statement filed with the Securities and Exchange Commission is ~~continuing,~~effective. This prospectus is not an offer to ~~defer payment of interest on Subordinated Debentures. Upon~~sell these securities and it is not soliciting an offer to buy these securities in any state where the ~~termination of any such the Floating Rate Subordinated Debentures at any time~~offer or ~~from Extended Interest Payment Period~~sale is not permitted.

PROSPECTUS
Subject to Completion, Dated February 20, 2009
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, without par value
Warrant to Purchase 837,947 Share of Common Stock, without par value
837,947 Shares of Common Stock, without par value
    This prospectus relates to the potential resale from time to time by selling securityholders of some or all of our fixed rate cumulative perpetual preferred stock, series A, without par value, referred to as the series A preferred stock, some or all of a warrant to purchase 837,947 shares of common stock, referred to as the warrant, and any shares of common stock issuable from time to time upon exercise of the warrant. In addition, this prospectus covers the issuance by us of common stock upon the exercise of the warrant by the holders other than the initial selling securityholder. In this prospectus, we refer to the shares of series A preferred stock, the warrant and the shares of common stock issuable upon exercise of the warrant, collectively, as the securities. We originally issued the series A preferred stock and the warrant pursuant to the Letter Agreement, dated January 23, 2009, and the related Securities Purchase Agreement - - Standard Terms, between us and the United States Department of the Treasury, which we refer to as the Treasury or the initial selling securityholder, as part of the Treasury’s Troubled Asset Relief Program Capital Purchase Program, in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, referred to as the Securities Act.
    The initial selling securityholder and its successors, including transferees, which we collectively refer to as the selling securityholders, may offer the securities from time to time directly or through underwriters, broker-dealers or agents and in one or more public or private transactions and at fixed prices, prevailing market prices, at prices related to prevailing market prices or at negotiated prices. If these securities are sold through underwriters, broker-dealers or agents, the selling securityholders will be responsible for underwriting discounts or commissions or agents’ commissions.
    We will not receive any proceeds from the sale of securities by the selling securityholders. If the warrant is exercised in full for cash, we will receive proceeds of approximately $16,650,000.
    Neither the series A preferred stock nor the warrant is listed on an exchange, and, unless requested by the initial selling securityholder, we do not intend to list the series A preferred stock or the warrant on any exchange.
    Our common stock trades on the Nasdaq Global Select Market under the symbol “SRCE.” On February 19, 2009, the closing price of our common stock on the Nasdaq Global Select Market was $17.57 per share. You are urged to obtain current market quotations of the common stock.
    This investment involves risks. See “Risk Factors” on page 4.
    Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is             .

TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
1
SUMMARY
3
RISK FACTORS
4
USE OF PROCEEDS
4
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
4
DETERMINATION OF OFFERING PRICE
4
DESCRIPTION OF SERIES A PREFERRED STOCK
4
DESCRIPTION OF WARRANT TO PURCHASE COMMON STOCK
10
DESCRIPTION OF COMMON STOCK
11
PLAN OF DISTRIBUTION
12
SELLING SECURITYHOLDERS
14
LEGAL MATTERS
14
EXPERTS
14
WHERE YOU CAN FIND MORE INFORMATION
15
INCORPORATION BY REFERENCE
15

i

ABOUT THIS PROSPECTUS
    This prospectus is part of a registration statement we filed with the Securities and Exchange Commission, referred to as the SEC, using a “shelf” registration, or continuous offering, process. Under this shelf registration process, the selling securityholders may, from time to time, offer and sell, in one or more offerings, the securities described in this prospectus. In addition, this prospectus covers our issuance of common stock upon the exercise of the warrant by the holders other than the initial selling securityholder.
    We may provide a prospectus supplement containing specific information about the terms of a particular offering by the selling securityholders. The prospectus supplement may add, update or change information in this prospectus. If the information in this prospectus is inconsistent with a prospectus supplement, you should rely on the information in the prospectus supplement. You should read both this prospectus and, if applicable, any prospectus supplement. You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and any underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it.
    We are not offering to sell shares of common stock or seeking offers to buy shares of common stock in any jurisdiction where offers and sales are not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common stock offered hereby. As used in this prospectus, “1st Source,” “we,” “our,” “ours” and “us” refer to 1st Source Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    This prospectus, including information incorporated into this prospectus by reference, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
    All statements other than statements of historical fact are statements that could be forward-looking statements.  Words such as “believe”, “contemplate”, “seek”, “estimate”, “plan”, “project”, “anticipate”, “assume”, “expect”, “intend”, “targeted”, “continue”, “remain”, “will”, “should”, “indicate”, “would”, “may,” “possible” and other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.  Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date.  The forward-looking statements are based on our expectations and are subject to a number of risks and uncertainties.
    All written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by this cautionary notice.  We have no obligation and do not undertake to update, revise, or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made.  We have expressed our expectations, beliefs, and projections in good faith and we believe they have a reasonable basis.  However, we make no assurances that our expectations, beliefs, or projections will be achieved or accomplished.  These forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following:

1

·   Local, regional, national, and international economic conditions and the ~~payment~~impact they may have on us and our clients and our assessment of all amounts time to time for a period not to exceed 20 consecutive then due, the Company may elect to begin a new Extended quarters with respect to each deferral period (each, an Interest Payment Period "Extended Interest Payment Period"); provided that ~~(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) ii~~ 4 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) subject to the requirements set forth herein. If interest no Extended Interest Payment Period may extend beyond payments on the Fixed Rate Subordinated Debentures are so the Stated Maturity of the Floating Rate Subordinated so deferred, Fixed Rate Distributions on the Fixed Rate Debentures. Upon the termination of any such Extended Preferred Securities will also be deferred, and the Company Interest Payment Period and the payment of all amounts will not be permitted, subject to certain exceptions then due, the Company may elect to begin a new Extended described herein, to declare or pay any cash distributions Interest Payment Period subject to the requirements set forth with respect to its capital stock or debt securities herein. If interest payments on the Floating Rate Subordinated that rank pari passu with or junior to the Fixed Debentures are so deferred, Floating Rate Distributions on the Rate Subordinated Debentures (including the Floating Floating Rate Preferred Securities will also be deferred, and Rate Subordinated Debentures (as defined herein)). DURING AN the Company will not be permitted, subject to certain ex- EXTENDED INTEREST PAYMENT PERIOD, INTEREST ON THE FIXED RATE ceptions described herein, to declare or pay any cash SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE distributions with respect to its capital stock or debt AMOUNT OF FIXED RATE DISTRIBUTIONS TO WHICH HOLDERS OF THE securities that rank pari passu with or junior to the Floating FIXED RATE PREFERRED SECURITIES ARE ENTITLED WILL ACCUMULATE) Rate Subordinated Debentures (including the Fixed Rate AT THE RATE OF %, COMPOUNDED QUARTERLY, AND HOLDERS OF Subordinated Debentures (as defined herein)). DURING AN THE FIXED RATE PREFERRED SECURITIES WILL BE REQUIRED TO EXTENDED INTEREST PAYMENT PERIOD, INTEREST ON THE FLOATING INCLUDE INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED RATE SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE STATES FEDERAL INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF AMOUNT OF FLOATING RATE DISTRIBUTIONS TO WHICH HOLDERS OF THE THE CASH DISTRIBUTIONS WITH RESPECT TO SUCH DEFERRED INTEREST FLOATING RATE PREFERRED SECURITIES ARE ENTITLED WILL PAYMENTS. A HOLDER OF FIXED RATE PREFERRED SECURITIES THAT ACCUMULATE) AT THE FLOATING DISTRIBUTION RATE, COMPOUNDED DISPOSES OF ITS FIXED RATE PREFERRED SECURITIES BETWEEN RECORD QUARTERLY, AND HOLDERS OF THE FLOATING RATE PREFERRED SECUR- DATES FOR PAYMENTS OF FIXED RATE DISTRIBUTIONS (AND ITIES WILL BE REQUIRED TO INCLUDE INTEREST INCOME IN THEIR CONSEQUENTLY DOES NOT RECEIVE A FIXED RATE DISTRIBUTION FROM GROSS INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES IN 1ST CAPITAL I FOR THE PERIOD PRIOR TO SUCH DISPOSITION) WILL ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH RESPECT TO NEVERTHELESS BE REQUIRED TO INCLUDE ACCRUED BUT UNPAID SUCH DEFERRED INTEREST PAYMENTS. A HOLDER OF FLOATING RATE INTEREST ON THE FIXED RATE SUBORDINATED DEBENTURES THROUGH THE PREFERRED SECURITIES THAT DISPOSES OF ITS FLOATING RATE DATE OF DISPOSITION IN INCOME AS ORDINARY INCOME AND TO ADD PREFERRED SECURITIES BETWEEN RECORD DATES FOR PAYMENTS OF SUCH AMOUNT TO ITS ADJUSTED TAX BASIS IN ITS PRO RATA SHARE OF FLOATING RATE DISTRIBUTIONS (AND CONSEQUENTLY DOES NOT RECEIVE THE UNDERLYING FIXED RATE SUBORDINATED DEBENTURES DEEMED DIS- A FLOATING RATE DISTRIBUTION FROM 1ST CAPITAL II FOR THE POSED OF. See "Description of the Subordinated PERIOD PRIOR TO SUCH DISPOSITION) WILL NEVERTHELESS BE Debentures--Option to Extend Interest Payment Period," REQUIRED TO INCLUDE ACCRUED BUT UNPAID INTEREST ON THE "Certain Federal Income Tax Consequences--Potential Extension FLOATING RATE SUBORDINATED DEBENTURES THROUGH THE DATE OF of Interest Payment Period and Original Issue Discount" and DISPOSITION IN INCOME AS ORDINARY INCOME AND TO ADD SUCH "--Disposition of Preferred Securities." AMOUNT TO ITS ADJUSTED TAX BASIS IN ITS PRO RATA SHARE OF THE UNDERLYING FLOATING RATE SUBORDINATED DEBENTURES DEEMED DISPOSED OF. See "Description of the Subordinated Debentures--Option to Extend Interest Payment Period," "Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount" and "--Disposition of Preferred Securities." The Company and 1st Capital I believe that, taken The Company and 1st Capital II believe that, taken together, together, the obligations of the Company under the Fixed Rate the obligations of the Company under the Floating Rate Guarantee, the Fixed Rate Trust Agreement, the Fixed Rate Guarantee, the Floating Rate Trust Agreement, the Floating Subordinated Debentures, the Fixed Rate Indenture and the Rate Subordinated Debentures, the Floating Rate Indenture and related Expense Agreement (each as defined herein) provide,impact.
·   Changes in the ~~related Expense Agreement (each as defined herein) provide,~~level of nonperforming assets and charge-offs.
·   Changes in estimates of future cash reserve requirements based upon the ~~aggregate, a full, irrevocable~~periodic review thereof under relevant regulatory and ~~unconditional guaranty,~~accounting requirements.
·   The effects of and changes in trade and monetary and fiscal policies and laws, including the aggregate, a full, irrevocable and unconditional on a subordinated basis, of all of the obligations of 1st guaranty, on a subordinated basis, of all of the obligations Capital I under the Fixed Rate Preferred Securities. See of 1st Capital II under the Floating Rate Preferred Relationship Among the Preferred Securities, the Securities. See "Relationship Among the Preferred Securities, Subordinated Debentures and the Guarantee--Full and the Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee." The Fixed Rate Guar- Unconditional Guarantee." The Floating (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) iii 5 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) antee of the Company guarantees the payment of Fixed Rate Rate Guarantee of the Company guarantees the payment of Distributions and payments on liquidation or redemption Floating Rate Distributions and payments on liquidation of the Fixed Rate Preferred Securities, but only in each or redemption of the Floating Rate Preferred Securities, case to the extent of funds held by 1st Capital I, as but only in each case to the extent of funds held described herein. See "Description of the Guarantee-- by 1st Capital II, as described herein. See "Description of General." If the Company does not make interest payments the Guarantees--General." If the Company does not make on the Fixed Rate Subordinated Debentures held by 1st Capital interest payments on the Floating Rate Subordinated Debentures I , 1st Capital I will have insufficient funds to pay Fixed held by 1st Capital II, 1st Capital II will have insufficient Rate Distributions on the Fixed Rate Preferred Securities. The funds to pay Floating Rate Distributions on the Floating Rate Fixed Rate Guarantee does not cover payments of Fixed Rate Dis- Preferred Securities. The Floating Rate Guarantee does not tributions when 1st Capital I does not have sufficient funds cover payments of Floating Rate Distributions when 1st Capital to pay such Fixed Rate Distributions. In such event, a holder II does not have sufficient funds to pay such Floating Rate of Fixed Rate Preferred Securities may institute a legal Distributions. In such event, a holder of Floating Rate proceeding directly against the Company pursuant to the terms Preferred Securities may institute a legal proceeding directly of the Fixed Rate Indenture to enforce payments of amounts against the Company pursuant to the terms of the Floating Rate equal to such Fixed Rate Distributions to such holder. See Indenture to enforce payments of amounts equal to such "Description of the Subordinated Debentures--Enforcement of Floating Rate Distributions to such holder. See "Description Certain Rights by Holders of the Preferred Securities." The of the Subordinated Debentures--Enforcement of Certain Rights obligations of the Company under the Fixed Rate Guarantee and by Holders of the Preferred Securities." The obligations of the Fixed Rate Preferred Securities are subordinate and junior the Company under the Floating Rate Guarantee and the Floating in right of payment to all Senior Debt, Subordinated Debt and Rate Preferred Securities are subordinate and junior in right Additional Senior Obligations (each as defined herein) of the of payment to all Senior Debt, Subordinated Debt and Company. The Fixed Rate Subordinated Debentures are unsecured Additional Senior Obligations (each as defined herein) of the obligations of the Company and are subordinated to all Senior Company. The Floating Rate Subordinated Debentures are Debt, Subordinated Debt and Additional Senior Obligations of unsecured obligations of the Company and are subordinated to the Company. all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company. The Fixed Rate Preferred Securities are subject to The Floating Rate Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of mandatory redemption, in whole or in part, upon repayment of the Fixed Rate Subordinated Debentures at maturity or their the Floating Rate Subordinated Debentures at maturity or their earlier redemption. Subject to Federal Reserve approval, if earlier redemption. Subject to Federal Reserve approval, if then required under applicable capital guidelines or policies then required under applicable capital guidelines orrate policies of the Federal Reserve ~~the Fixed Rate Subordinated Debentures~~Board.
·   Inflation, interest rate, securities market, and monetary fluctuations.
·   Political instability.
·   Acts of ~~the Federal Reserve, the Floating Rate Subordinated are redeemable prior to maturity at the option of the Company Debentures are redeemable prior to maturity at the option of (i) on~~war or ~~after March 31, 2002, in whole at any time or~~terrorism.
·   Substantial increases in the cost of fuel.
·   The timely development and acceptance of new products and services and perceived overall value of these products and services by others.
·   Changes in consumer spending, borrowings, and savings habits.
·   Changes in the financial performance and/or condition of our borrowers.
·   Technological changes.
·   Acquisitions and integration of acquired businesses.
·   The ability to increase market share and control expenses.
·   Changes in the competitive environment among bank holding companies.
·   The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which we and our subsidiaries must comply.
·   The effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company ~~(i) on~~Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters.
·   Changes in our organization, compensation, and benefit plans.
·   The costs and effects of legal and regulatory developments including the resolution of legal proceedings or ~~after March 31, 2002, in whole at any part from time to time,~~regulatory or ~~(ii) at any time, in whole (but not time~~other governmental inquires and the results of regulatory examinations or ~~in part from time to time,~~reviews.
·   Greater than expected costs or (ii) at any time, in in part), within 180 days following the occurrence of a Tax whole (but not in part), within 180 days following the occur- Event, a Capital Treatment Event or an Investment Company rence of a Tax Event, a Capital Treatment Event or an Event (each as defined herein), in each case at a redemption Investment Company Event (each as defined herein), in each price equaldifficulties related to the ~~accrued~~integration of new products and ~~unpaid interest on~~lines of business.
·   Our success at managing the ~~Fixed case at a redemption price equal to~~risks described under the accrued and unpaid Rate Subordinated Debentures so redeemed to the date fixed for interest on the Floating Rate Subordinated Debentures so redemption, plus 100% of the principal amount thereof. See redeemed to the date fixed for redemption, plus 100% of the "Description of the Preferred Securities--Redemption or principal amount thereof. See "Description of the Preferred Exchange." Securities--Redemption or Exchange." The Company has the right at any time to dissolve, wind-up The Company has the right at any time to dissolve, wind-up or terminate 1st Capital I subject to the Company having or terminate 1st Capital II subject to the Company having received prior approval of the Federal Reserve to do so if received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies then required under applicable capital guidelines or policies of the Federal Reserve. In the event of the voluntary or of the Federal Reserve. In the event of the voluntary or involuntary dissolution, involuntary dissolution, (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) iv 6 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) winding up or termination of 1st Capital I, after winding up or termination of 1st Capital II, after satisfaction of liabilities to creditors of 1st Capital satisfaction of liabilities to creditors of 1st Capital I as required by applicable law, the holders of Fixed Rate II as required by applicable law, the holders of Floating Preferred Securities will be entitled to receive a Fixed Rate Preferred Securities will be entitled to receive a Rate Liquidation Amount of $25 per Fixed Rate Preferred Floating Rate Liquidation Amount of $25 per Floating Rate Security, plus accumulated and unpaid Fixed Rate Dis- Preferred Security, plus accumulated and unpaid Floating Rate tributions thereon to the date of payment, which may be in the Distributions thereon to the date of payment, which may be in form of a Fixed Rate Subordinated Debenture having an the form of a Floating Rate Subordinated Debenture having an aggregate principal amount equal to the Fixed Rate Liquidation aggregate principal amount equal to the Floating Rate Amount of such Fixed Rate Preferred Securities (and carrying Liquidation Amount of such Floating Rate Preferred Securities with it accumulated interest in an amount equal to the (and carrying with it accumulated interest in an amount equal accumulated and unpaid Fixed Rate Distributions then due on to the accumulated and unpaid Floating Rate Distributions then such Fixed Rate Preferred Securities), subject to certain ex- due on such Floating Rate Preferred Securities), subject to ceptions. See "Description of the Preferred Securi- certain exceptions. See "Description of the Preferred ties--Redemption or Exchange" and "--Liquidation Securities--Redemption or Exchange" and "--Liquidation Distribution Upon Termination." Distribution Upon Termination." caption “Risk Factors.”
~~-------------------------------- The Company will provide~~
    Additional factors that could cause our results to differ materially from those described in the ~~holders of the Preferred Securities quarterly reports containing unaudited financial~~forward-looking statements if such reports are furnished to the holders of the Company's common stock, and annual reports containing financial statements audited by the Company's independent auditors. The Company will also furnish annual reportscan be found in our Annual Report on Form 10-K, ~~and quarterly reports~~Quarterly Reports on Form 10-Q ~~free of charge to holders of~~and Current Reports on Form 8-K filed with the Preferred Securities who so request in writing addressed to the Treasurer of the Company. -------------------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. v ~~7 [MAP]~~ ~~8 PROSPECTUS~~ SEC.

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SUMMARY The following summary is qualified in its entirety by the more detailed information appearing elsewhere (or incorporated by reference) in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment options will not be exercised. Prospective investors should carefully consider the information set forth under the heading "Risk Factors." All textual information contained in
    We are a left-hand column of this Prospectus is applicable only to the Fixed Rate Preferred Securities and all textual information contained in a right-hand column of this Prospectus is applicable only to the Floating Rate Preferred Securities. All information contained in a full-width text portion of this Prospectus, which is not otherwise identified as applicable to a specific type of security, should be read as applicable to either or both of the Fixed Rate Preferred Securities and the Floating Rate Preferred Securities. Defined terms usedbank holding company incorporated in the ~~full-width text portion~~State of ~~this Prospectus are not, therefore, preceded by the words "Fixed Rate" or "Floating Rate"~~Indiana and the term 1st Capital is not followed by the designation "I" or "II." THE COMPANY GENERAL 1st Source Corporation (the "Company") is an Indiana corporation and registered bank holding company headquartered in South Bend, Indiana.  ~~At December 31, 1996, the Company had assets~~We provide, through our subsidiaries a broad array of ~~$2.08 billion, deposits of $1.63 billion~~financial products and ~~total shareholders' equity of $171.8 million. The Company, through its~~services. Our principal subsidiary, 1st Source Bank, ~~(the "Bank"), delivers a comprehensive range of~~offers commercial and consumer ~~and commercial~~ banking services, trust and investment management services, and insurance to individual and business ~~customers~~clients through 42most of its 79 banking center locations in ~~the northern Indiana/southwestern~~17 counties in Indiana and Michigan, ~~market area. The Bank also competes for business~~seven Trust and Wealth Management locations and seven 1st Source Insurance offices. 1st Source Bank’s Specialty Finance Group, with 24 locations nationwide, ~~by offering~~offers specialized financing services for new and used private and cargo aircraft, automobiles and light trucks for leasing and rental agencies, medium and heavy duty trucks, construction equipment, and ~~construction~~environmental equipment.  ~~The Company's other subsidiaries include 1st Source Leasing, Inc., an originator~~While concentrated in certain equipment types, we enjoy serving a very diverse client base.  We are not dependent upon any single industry or client.
    Our executive and servicer of personal property leases to businesses nationwide, 1st Source Insurance, Inc., a general property and casualty insurance agency in South Bend, 1st Source Capital Corporation, a licensed small business investment company, and Trustcorp Mortgage Company, a mortgage banking company with threeadministrative offices ~~in Indiana and one each in Ohio, Illinois and Missouri. The principal executive office of the Company is~~are located at 100 North Michigan Street, South Bend, Indiana 46601 and ~~its~~our telephone number is ~~(219)~~(574) 235-2000. Over the past five years, the Company has experienced strong, consistent growth in its shareholders' equity, net income and earnings per share. Since December 31, 1992, total shareholders' equity has increased by 59.4%. During the same time frame net income and earnings per share have grown by a compounded annual rate of 13.6% and 13.3% to $23.2 million and $1.45, respectively. Over the past five years, the Company's return on average assets has averaged 1.17% and its return on average equity has averaged 14.38%.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net Income................................... $ 23,203 $ 21,042 $ 18,465 $ 16,722 $ 13,918 Net Income per share......................... 1.45 1.31 1.16 1.05 .88 Shareholders' equity......................... 171,833 152,601 129,082 125,539 107,797 Return on average equity..................... 14.38% 14.75% 14.49% 14.52% 13.76% Return on average assets..................... 1.22% 1.25% 1.19% 1.16% 1.05%
~~BUSINESS STRATEGY AND OBJECTIVES~~
The Company has identified several business objectives and strategies which focus on growth and customer service. The principal objectives of the Company have been to (i) increase financial performance and market share, (ii) provide exceptional customer service, (iii) enhance credit quality, and (iv) maintain cost controls. The Company has employed the following strategies in furtherance of its business objectives: 2 9 * INCREASE MARKET SHARE IN EACH MARKET SERVED AND AS A PERCENTAGE OF EACH CUSTOMER'S RELATIONSHIP. The Company opened ten new banking locations in 1996 as part of its banking center expansion program designed to maintain its position as one of the dominant financial institutions in the South Bend/Elkhart market area -- which includes eight counties in northern Indiana and two counties in southwestern lower Michigan. Management believes that such a strategy allows the most effective and efficient use of the Company's marketing resources and assures that the Company's banking offices are accessible to a majority of the people residing in the markets served. The Company's goal is to deliver highly personal and superior customer services through each of its banking facilities and to meet a higher percentage of each customer's financial needs through personal relationship management. * EXPAND FEE-BASED BUSINESSES. The Company currently provides a number of fee-based services to its clients, the major services being trust, mortgage banking, equipment leasing, property and casualty insurance, and securitized loan servicing. The Company believes that additional sources of fee income are available from existing relationships and that the existing fee-based product line can be used effectively in developing new relationships with customers. The Company also believes that customers are more loyal and responsive to its products and services when a large percentage of a customer's financial services are provided directly by the Company. The Company's fee-based businesses are designed to deepen the strength of the relationship between the Company and its customers. Fee income (excluding securities and other non-recurring gains and losses) has increased from $13 million for the year ended December 31, 1992 (or 18.0% of total revenue) to $25 million for the year ended December 31, 1996 (or 24.2% of total revenue). * EXPAND THE NATIONAL NICHE BUSINESSES ACROSS THE UNITED STATES TAKING ADVANTAGE OF SPECIALIZED OPPORTUNITIES. The Company caters to specialized national market niches that management believes are not being well served by either the credit subsidiaries of manufacturers or by other financial institutions. Asset-based lending and personal relationship management of the customer base, together with an efficient method of operation, is the focus of the Bank's Transportation and Equipment Financing Group, which provides such services. Additional experienced sales people have been and will be added to ensure better geographic coverage in areas of opportunity. The Company has also pursued a strategy of securitizing loan receivables so that business growth is not totally dependent on deposit funding. Loans of approximately $552 million, or 37.9% of the Company's consolidated total loans, were attributable to the Group at December 31, 1996, compared to loans of approximately $340 million, or 35.6% of the Company's consolidated total loans, which were attributable to the Group at December 31, 1992. * ACTIVELY MANAGING CREDIT QUALITY. The Company has adopted a proactive credit management process with loan officers maintaining responsibility for the quality of the credits they originate and manage. The credit management process is supported by a collective and collaborative review and approval process and is balanced by a review, evaluation and grading process undertaken by the Company's independent loan review department. Senior management is actively involved in the management of the process and incentive compensation is impacted by the Company's overall credit experience. BANKING AND FINANCIAL SERVICES The organization provides financial services through the following groups: Personal and Small Business Banking Group. The Bank's Personal and Small Business Banking Group serves individuals and small businesses with direct lending, credit cards, auto leasing, personal trust, brokerage services, and a wide range of deposit products. Besides traditional branch locations, alternative delivery systems are in place to enhance customer service. Certificates of deposit are offered on the Internet and customers also can use their telephone to check their account balances and transfer funds 24 hours a day. A centralized "loan by phone" system provides customers with immediate loan decisions while they are on the phone and coordinates product delivery through the local banking offices. The organization's goal is to continue to improve the match between a customer's individual needs and the Bank's products and services. Commercial Banking Group. The Bank's Commercial Banking Group provides a wide range of services to business customers, including loans and leases, investments, international services, corporate cash management and employee benefit trust services. Customers can initiate deposit and loan transactions, check balances and account 3 10 clearings, and transfer funds among accounts on a daily basis using a direct-access PC to communicate with the Bank. The Group's primary focus is privately-held or closely-controlled firms, which have annual sales between $2 million and $100 million and are doing business or are located within an 80-mile radius of South Bend. Transportation and Equipment Financing Group. The Bank's Transportation and Equipment Financing Group offers specialized financing services nationwide. The Group serves a limited number of high-quality automobile leasing and rental companies, truck leasing companies and manufacturers of specialized truck bodies, finances used aircraft nationwide, and provides lending services to dealers, contractors and other end users of construction equipment. The Group has employees located in Georgia, Indiana, Kansas, Michigan, Pennsylvania, Texas, Washington and Wisconsin. Mortgage Banking Group. Trustcorp Mortgage Company, a subsidiary of the Company, is a mortgage banking company operating on a regional basis. Locations include three offices in Indiana, one in Columbus, Ohio and newly opened offices in suburban St. Louis and Chicago. The following table sets forth the distribution of net loans among each of the Company's operating Groups as of December 31, 1996: Offering:
DECEMBER 31, 1996 ------------------------ % OF OPERATING GROUP NET LOANS NET LOANS --------------- --------- --------- (DOLLARS IN THOUSANDS) Transportation and Equipment Financing............ $551,876 38% Commercial Banking................................ 472,730 33% Personal and Small Business Banking............... 366,786 25% Trustcorp Mortgage Company........................ 64,171 4%
OWNERSHIP As of February 14, 1997, the directors and executive officers of the Company and their immediate families owned approximately 43.5% of the Company's common stock and, as a result, exercise substantial control over the Company. ~~1ST CAPITAL TRUSTS~~ 1ST CAPITAL I 1ST CAPITAL II (FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES) 1st Capital I is a statutory business trust 1st Capital II is a statutory business trust formed formed under Delaware law pursuant
Shares of fixed rate cumulative perpetual preferred stock, series A, without par value, offered in this prospectus 111,000 shares
Warrant offered in this prospectus Warrant to ~~(i) a trust under Delaware law pursuant to (i) a trust agreement, agreement, dated~~purchase 837,947 shares of common stock
Common stock offered in this prospectus 837,947 shares of common stock issuable upon exercise of the warrant
Common stock outstanding as of February ~~20, 1997, executed dated as~~19, 2009 24,945,647 shares
Use of February 27, 1997, executed by the Com- by the Company, as depositor, and the trustees of pany, as depositor, and the trustees of 1st Capital II 1st Capital I (together with the Fixed Rate (together with the Floating Rate Property Trustee, the Property Trustee, the "Fixed Rate Trustees") and "Floating Rate Trustees"), and (ii) a certificate of trust amended and restated as of February 27, 1997, and filed with the Secretary of State of the State of Dela- (ii) a certificate of trust filed with the ware on February 27, 1997. The initial trust agreement Secretary of State of the State of Delaware on will be amended and restated in its entirety (as so February 20, 1997 and amended and restated as of amended and restated, the "Floating Rate Trust Agree- February 27, 1997. The initial trust agreement ment") substantially in the form filed as an exhibit to will be amended and restated in its entirety (as the Registration Statement (as defined herein) of which so amended and restated, the "Fixed Rate Trust this Prospectus forms a part. The Floating Rate Trust Agreement") substantially in the form filed as an Agreement will be qualified as an indenture under the exhibit to the Registration Statement (as defined Trust Indenture Act of 1939, as amended (the "Trust herein) of which this Prospectus forms a part. The Indenture Act"). Upon issuance of the Floating Rate Fixed Rate Trust Agreement will be qualified as an Preferred Securities, the purchasers thereof will own all indenture under the Trust Indenture Act of 1939, of the Floating Rate Preferred Securities. The Com- as amended (the "Trust Indenture Act"). Upon pany will acquire all of the Floating Rate Common issuance of the Fixed Rate Preferred Securities, Securities which will represent an aggregate liquidation the purchasers thereof will own all of the Fixed amount equal to at least 3% of the total capital of 1st Rate Preferred Securities. The Company will ac- quire all of the Fixed Rate Common Securities which (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 4 11 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) will represent an aggregate liquidation amount equal to at Capital II. The Floating Rate Common Securities will rank pari least 3% of the total capital of 1st Capital I. The Fixed Rate passu, and payments will be made thereon pro rata, with the Common Securities will rank pari passu, and payments will be Floating Rate Preferred Securities, except that upon the made thereon pro rata, with the Fixed Rate Preferred occurrence and during the continuance of an Event of Default Securities, except that upon the occurrence and during the (as defined herein) under the Floating Rate Trust Agreement continuance of an Event of Default (as defined herein) under resulting from a Debenture Event of Default, the rights of the the Fixed Rate Trust Agreement resulting from a Debenture Company as holder of the Floating Rate Common Securities to Event of Default, the rights of the Company as holder of the payment in respect of Floating Rate Distributions and pay- Fixed Rate Common Securities to payment in respect of Fixed ments upon liquidation, redemption or otherwise will be Rate Distributions and payments upon liquidation, redemption subordinated to the rights of the holders of the Floating Rate or otherwise will be subordinated to the rights of the holders Preferred Securities. See "Description of the Preferred of the Fixed Rate Preferred Securities. See "Description of Securities--Subordination of Common Securities." 1st Capital the Preferred Securities--Subordination of Common II exists for the exclusive purposes of (i) issuing the Securities." 1st Capital I exists for the exclusive purposes Floating Rate Trust Securities representing undivided of (i) issuing the Fixed Rate Trust Securities representing beneficial interests in the assets of 1st Capital II, (ii) undivided beneficial interests in the assets of 1st Capital I, investing the gross proceeds of the Floating Rate Trust (ii) investing the gross proceeds of the Fixed Rate Trust Securities in the Floating Rate Subordinated Debentures issued Securities in the Fixed Rate Subordinated Debentures issued by by the Company, and (iii) engaging in only those other the Company, and (iii) engaging in only those other activities activities necessary, advisable, or incidental thereto. The necessary, advisable, or incidental thereto. The Fixed Rate Floating Rate Subordinated Debentures and payments thereunder Subordinated Debentures and payments thereunder will be the will be the only assets of 1st Capital II and payments under only assets of 1st Capital I and payments under the Fixed Rate the Floating Rate Subordinated Debentures will be the only Subordinated Debentures will be the only revenue of 1st revenue of 1st Capital II. 1st Capital II has a term of 55 Capital I. 1st Capital I has a term of 55 years, but may years, but may terminate earlier as provided in the Floating terminate earlier as provided in the Fixed Rate Trust Rate Trust Agreement. The principal executive office of 1st Agreement. The principal executive office of 1st Capital I is Capital II is 100 North Michigan Street, South Bend, Indiana 100 North Michigan Street, South Bend, Indiana 46601, and its 46601, and its telephone number is (219) 235-2000. telephone number is (219) 235-2000. The number of Fixed Rate Trustees will, pursuant to the The number of Floating Rate Trustees will, pursuant to the Fixed Rate Trust Agreement, initially be five. Three of the Floating Rate Trust Agreement, initially be five. Three of the Fixed Rate Trustees (the "Fixed Rate Administrative Floating Rate Trustees (the "Floating Rate Administrative Trustees") will be persons who are employees or officers of, Trustees") will be persons who are employees or officers of, or who are affiliated with, the Company. The fourth trustee or who are affiliated with, the Company. The fourth trustee will be a financial institution that is unaffiliated with the will be a financial institution that is unaffiliated with the Company, which trustee will serve as institutional trustee Company, which trustee will serve as institutional trustee under the Fixed Rate Trust Agreement and as indenture trustee under the Floating Rate Trust Agreement and as indenture for the purposes of compliance with the provisions of the trustee for the purposes of compliance with the provisions of Trust Indenture Act (the "Fixed Rate Property Trustee"). the Trust Indenture Act (the "Floating Rate Property State Street Bank and Trust Company, a state chartered trust Trustee"). State Street Bank and Trust Company, a state company organized under the laws of the Commonwealth of chartered trust company organized under the laws of the Com- Massachusetts, will be the Fixed Rate Property Trustee until monwealth of Massachusetts, will be the Floating Rate Property removed or replaced by the holder of the Fixed Rate Common Trustee until removed or replaced by the holder of the Securities. For purposes of compliance with the provisions of Floating Rate Common Securities. For purposes of compliance the Trust Indenture Act, State Street Bank and Trust Company with the provisions of the Trust Indenture Act, State Street will also act as trustee (the "Fixed Rate Guarantee Bank and Trust Company will also act as trustee (the Trustee") under the Fixed Rate Guarantee and as "Floating Rate Guarantee Trustee") under the Floating Rate Guarantee and as (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 5 12 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) Fixed Rate Debenture Trustee (as defined herein) under the Floating Rate Debenture Trustee (as defined herein) under the Fixed Rate Indenture. The fifth trustee will be an entity that Floating Rate Indenture. The fifth trustee will be an entity maintains its principal place of business in the State of that maintains its principal place of business in the State of Delaware (the "Fixed Rate Delaware Trustee"). Wilmington Delaware (the "Floating Rate Delaware Trustee"). Wilmington Trust Company, a Delaware chartered trust company, will act as Trust Company, a Delaware chartered trust company, will act as Fixed Rate Delaware Trustee. Floating Rate Delaware Trustee. The Fixed Rate Property Trustee will hold title to the The Floating Rate Property Trustee will hold title to the Fixed Rate Subordinated Debentures for the benefit of the Floating Rate Subordinated Debentures for the benefit of the holders of the Fixed Rate Trust Securities and holders of the Floating Rate Trust Securities and in such in such capacity will have the power to exercise all rights, capacity will have the power to exercise all rights, powers powers and privileges under the Fixed Rate Indenture. The and privileges under the Floating Rate Indenture. The Floating Fixed Rate Property Trustee will also maintain exclusive Rate Property Trustee will also maintain exclusive control of control of a segregated non-interest-bearing bank account (the a segregated non-interest-bearing bank account (the "Fixed Rate Property Account") to hold all payments made in "Floating Rate Property Account") to hold all payments made respect of the Fixed Rate Subordinated Debentures for the in respect of the Floating Rate Subordinated Debentures for benefit of the holders of the Fixed Rate Trust Securities. The the benefit of the holders of the Floating Rate Trust Fixed Rate Property Trustee will make payments of Fixed Rate Securities. The Floating Rate Property Trustee will make Distributions and payments on liquidation, redemption and payments of Floating Rate Distributions and payments on otherwise to the holders of the Fixed Rate Trust Securities liquidation, redemption and otherwise to the holders of the out of funds from the Fixed Rate Property Account. The Fixed Floating Rate Trust Securities out of funds from the Floating Rate Guarantee Trustee will hold the Fixed Rate Guarantee for Rate Property Account. The Floating Rate Guarantee Trustee the benefit of the holders of the Fixed Rate Preferred will hold the Floating Rate Guarantee for the benefit of the Securities. The Company, as the holder of all the Fixed Rate holders of the Floating Rate Preferred Securities. The Common Securities, will have the right to appoint, remove or Company, as the holder of all the Floating Rate Common replace any Fixed Rate Trustee and to increase or decrease the Securities, will have the right to appoint, remove or replace number of Fixed Rate Trustees. The Company will pay all fees any Floating Rate Trustee and to increase or decrease the and expenses related to 1st Capital I and the offering of the number of Floating Rate Trustees. The Company will pay all Fixed Rate Trust Securities. fees and expenses related to 1st Capital II and the offering of the Floating Rate Trust Securities. The rights of the holders of the Fixed Rate Preferred The rights of the holders of the Floating Rate Preferred Securities, including economic rights, rights to information Securities, including economic rights, rights to information and voting rights, are set forth in the Fixed Rate Trust and voting rights, are set forth in the Floating Rate Trust Agreement, the Delaware Business Trust Act (the "Trust Act") Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the and the Trust Indenture Act. See "Description of the Preferred Securities." Preferred Securities."
6 13 THE OFFERING The Fixed Rate Preferred Securities and the Floating Rate Preferred Securities are being offered hereby separately and not as units. Neither the sale of the Fixed Rate Preferred Securities nor the sale of the Floating Rate Preferred Securities is contingent upon the sale of the other security.
~~(FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES)~~ Fixed Rate Floating Rate Securities Securities Offered.........1,000,000 Fixed Rate Preferred Securities Offered.........1,000,000 Floating Rate Preferred Securities having a Fixed Rate Liquidation Amount of $25 having a Floating Rate Liquidation Amount of per Fixed Rate Preferred Security. The Fixed $25 per Floating Rate Preferred Security. The Rate Preferred Securities represent pre- Floating Rate Preferred Securities represent ferred undivided beneficial interests in the preferred undivided beneficial interests in assets of 1st Capital I, which will consist the assets of 1st Capital II, which will solely of the Fixed Rate Subordinated consist solely of the Floating Rate Subordi- Debentures and payments thereunder. 1st nated Debentures and payments thereunder. 1st Capital I has granted the Underwriters an Capital II has granted the Underwriters an option, exercisable within 30 days after the option, exercisable within 30 days after the date of this Prospectus, to purchase up to an date of this Prospectus, to purchase up to an additional 100,000 Fixed Rate Preferred additional 100,000 Floating Rate Preferred Securities at the initial offering price, Securities at the initial offering price, solely to cover over-allotments, if any. solely to cover over-allotments, if any. Fixed Rate Floating Rate Distributions...The Fixed Rate Distributions payable on each Distributions...The Floating Rate Distributions payable on Fixed Rate Preferred Security will be fixed each Floating Rate Preferred Security will at a rate per annum of % of the Fixed Rate float at the Floating Distribution Rate Liquidation Amount of $25 per Fixed Rate applied to the Liquidation Amount of $25 per Preferred Security, will be cumulative, will Floating Rate Preferred Security, will be accrue from , 1997, the date of cumulative, will accrue from , issuance of the Fixed Rate Preferred Se- 1997, the date of issuance of the Floating curities, and will be payable quarterly in Rate Preferred Securities, and will be arrears, on March 31, June 30, September 30 payable quarterly in arrears, on March 31, and December 31 of each year, with the first June 30, September 30 and December 31 of each Fixed Rate Distribution payable on June 30, year, with the first Floating Rate 1997. See "Description of the Preferred Distribution payable on June 30, 1997. The Securities--Distributions--Payment of Floating Distribution Rate is equal to the Distributions." sum of the 3-month Treasury (determined as provided herein) plus %; provided, however, that the Floating Distribution Rate for the Floating Rate Distribution Period ending on (but excluding) March 31, 1997 will be %. See "Description of the Preferred Securities-- Distributions-- Payment of Distributions." ~~(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 7~~ 14 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) Nasdaq National Nasdaq National Market Market Symbol..........Application has been made to have the Fixed Symbol..........Application has been made to have the Rate Preferred Securities approved for Floating Rate Preferred Securities approved quotation on The Nasdaq Stock Market's for quotation on The Nasdaq Stock Market's National Market under the symbol "SRCEP." National Market under the symbol "SRCEO."
Option to Extend Interest Payment Period.............. The Company has the right, at any time, so long as no Debenture Event of Default has occurred and is continuing, to defer payments of interest on the Subordinated Debentures for a period not exceeding 20 consecutive quarters; provided, that no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of the extension by the Company of the interest payment period, quarterly Distributions on the Preferred Securities will be deferred (though such Distributions would continue to accrue with interest thereon compounded quarterly, since interest will continue to accrue and compound on the Subordinated Debentures) during any such Extended Interest Payment Period. During an Extended Interest Payment Period, the Company will be prohibited, subject to certain exceptions described herein, from declaring or paying any cash distributions with respect to its capital stock or debt securities that rank pari passu with or junior to the Subordinated Debentures. Although the Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures will rank pari passu and, therefore, if the Company elects to defer the payment of interest on one, it would not be permitted to make interest payments with respect to the other. Upon the termination of any Extended Interest Payment Period and the payment of all amounts then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. See "Description of the Preferred Securi- ties--Distributions--Extension Period" and "Description of the Subordinated Debentures--Option to Extend Interest Payment Period." Should an Extended Interest Payment Period occur, holders of Preferred Securities will be required to include deferred interest income in their gross income for United States federal income tax purposes in advance of receipt of the cash distributions with respect to such deferred interest payments. See "Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount." 8 15 Optional Redemption........... The Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures at maturity or their earlier redemption. Subject to Federal Reserve approval, if then required under applicable capital guidelines or policies of the Federal Reserve, the Subordinated Debentures are redeemable prior to maturity at the option of the Company (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event, a Capital Treatment Event or an Investment Company Event, in each case at the redemption price equal to 100% of the principal amount of the Subordinated Debenture, together with any accrued but unpaid interest to the date fixed for redemption. The Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, and vice versa. See "Description of the Subordinated Debentures--Redemption or Exchange." Distribution of Subordinated Debentures.................. The Company has the right at any time to terminate the Preferred Securities and cause the Subordinated Debentures to be distributed to holders of Preferred Securities in liquidation of 1st Capital, subject to the Company having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. The Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, and vice versa. See "Description of the Preferred Securities--Redemption or Exchange" and "Description of the Preferred Securities--Liquidation Distribution Upon Termination." Guarantee..................... The Company has guaranteed the payment of Distributions and payments on liquidation or redemption of the Preferred Securities, but only in each case to the extent of funds held by 1st Capital, as described herein. The Company and 1st Capital believe that, taken together, the obligations of the Company under the Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and the Expense Agreement provide, in the aggregate, a full, irrevocable and unconditional guaranty, on a subordinated basis, of all of the obligations of 1st Capital under the Preferred Securities. The obligations of the Company under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company. If the Company does not make principal or interest payments on the Subordinated Debentures, 1st Capital
We will not have sufficient funds to make distributions on the Preferred Securities; in which event, the Guarantee will not apply to such Distributions until 1st Capital has sufficient funds available therefor. The Fixed Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Fixed Rate Preferred Securities and the Floating Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Floating Rate Preferred Securities. Holders of Fixed Rate Preferred Securities will, therefore, have no rights under the Floating Rate Guarantee, and holders of Floating Rate Preferred Securities will have no rights under the Fixed Rate Guarantee. See "Description of the Guarantee." 9 16 Voting Rights................. The holders of the Preferred Securities generally will have no voting rights except in limited circumstances. See "Description of the Preferred Securities--Voting Rights; Amendment of Trust Agreement." Use of Proceeds............... Thereceive any proceeds from the sale of the ~~Preferred Securities offered hereby will be used by 1st Capital to purchase the Subordinated Debentures issued~~securities by the ~~Company. The Company intends~~selling securityholders. If the warrant is exercised in full for cash, we will receive proceeds of approximately $16,650,000, which we intend to use ~~the net proceeds from the sale of the Subordinated Debentures~~ for general corporate purposes. ~~These may include, without limitation, the repurchase~~See “Use of Proceeds.”
Risk factors The warrant and shares of common stock ~~the repayment~~offered in this prospectus involve a high degree of long term debt, the funding of investments in or extensions of credit to the Company's subsidiaries and the making of investments in or possibly acquiring businesses which enhance the Company's long-term growth or improve or expand the Company's products, services or markets. Pending their applicationrisk. See “Risk Factors.”
Nasdaq Global Select Market for ~~any or all of such purposes, the net proceeds may be invested in investment grade financial instruments. See "Use of Proceeds."~~ our common stock “SRCE”
10 17 ~~SELECTED CONSOLIDATED FINANCIAL DATA~~
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SELECTED RESULTS OF OPERATIONS: Interest income.......... $ 148,820 $ 135,115 $ 112,942 $ 104,104 $ 106,319 Interest expense......... 73,429 64,946 47,709 44,578 50,227 ---------- ---------- ---------- ---------- ---------- Net interest income...... 75,391 70,169 65,233 59,526 56,092 Provision for loan losses................. 4,649 2,757 4,197 3,533 3,724 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses................. 70,742 67,412 61,036 55,993 52,368 Other noninterest income................. 25,479 19,492 14,874 14,301 12,216 Noninterest expense...... 60,622 54,861 49,577 46,428 43,674 ---------- ---------- ---------- ---------- ---------- Income before income tax expense.......... 35,599 32,043 26,333 23,866 20,910 Income tax expense....... 12,396 11,001 7,868 7,144 6,296 ---------- ---------- ---------- ---------- ---------- Net income before cumulative effect of accounting change.... 23,203 21,042 18,465 16,722 14,614 Cumulative effect of accounting change...... -- -- -- -- (696) ---------- ---------- ---------- ---------- ---------- Net income............. $ 23,203 $ 21,042 $ 18,465 $ 16,722 $ 13,918 ========== ========== ========== ========== ========== PER SHARE DATA: Net income (primary and fully diluted)......... $ 1.45 $ 1.31 $ 1.16 $ 1.05 $ 0.88 Cash dividends declared............... 0.264 0.229 0.203 0.175 0.148 Book value............... 11.02 9.80 8.22 7.96 6.90 Dividend payout ratio.... 18.21% 17.48% 17.50% 16.67% 16.82% SELECTED BALANCE SHEET DATA: Assets................... $2,079,767 $1,799,257 $1,583,027 $1,488,123 $1,400,249 Securities........... 423,096 396,375 349,885 360,154 343,956 Loans and leases......... 1,455,563 1,259,415 1,100,713 1,019,813 956,416 Allowance for loan and lease losses........... 29,516 27,470 23,868 22,350 19,141 Deposits................. 1,633,978 1,441,749 1,301,337 1,179,363 1,154,887 Long term debt........... 18,596 21,819 28,084 25,473 16,368 Shareholders' equity..... 171,833 152,601 129,082 125,539 107,797 PERFORMANCE RATIOS: Return on average equity................. 14.38% 14.75% 14.49% 14.52% 13.76% Return on average assets................. 1.22% 1.25% 1.19% 1.16% 1.05% Net interest margin (fully taxable equivalent)............ 4.48% 4.71% 4.80% 4.71% 4.79% ASSET QUALITY RATIOS: Allowance for loan losses to loans............... 2.03% 2.18% 2.17% 2.19% 2.00% Nonperforming assets to loans.................. 0.53% 0.52% 0.43% 0.52% 1.00% Net loan losses to average loans.......... 0.13% (0.07)% 0.12% 0.03% 0.20% CAPITAL RATIOS: Average equity to average assets................. 8.51% 8.46% 8.24% 8.00% 7.60% Tier 1 capital ratio..... 10.93% 11.43% 11.69% 11.30% 10.48% Total risk based capital ratio.................. 12.45% 13.03% 14.07% 14.00% 13.38% Leverage ratio........... 8.48% 8.44% 8.33% 8.09% 7.43% RATIO OF EARNINGS TO FIXED CHARGES: Including interest on deposits............... 1.48x 1.49x 1.55x 1.54x 1.42x Excluding interest on deposits............... 4.86x 4.66x 5.62x 5.95x 5.26x ~~- ---------~~ ~~Per share data has been restated to reflect a five-for-four stock split declared on January 21, 1997.~~ ~~Includes market value adjustment on Available for Sale securities.~~ ~~Earnings consist of income before income tax plus interest expense. Fixed charges consist of interest expense. The Company does not currently have any preferred stock outstanding.~~
11 18 All textual information contained in a left-hand column of this Prospectus is applicable only to the Fixed Rate Preferred Securities and all textual information contained in a right-hand column of this Prospectus is applicable only to the Floating Rate Preferred Securities. All information contained in a full-width text portion of this Prospectus, which is not otherwise identified as applicable to a specific type of security, should be read as applicable to either or both of the Fixed Rate Preferred Securities and the Floating Rate Preferred Securities. Defined terms used in the full-width text portion of this Prospectus are not, therefore, preceded by the words "Fixed Rate" or "Floating Rate" and the term 1st Capital is not followed by the designation "I" or "II."

3

RISK FACTORS ~~Prospective investors should carefully consider, together with~~
    Investing in our securities involves a high degree of risk. Please see the ~~other information contained and incorporated by reference in this Prospectus, the following~~ risk factors before purchasing the Preferred Securities offered hereby. Prospective investors should note, in particular, that this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Act of 1934, as amended (the "Exchange Act"), and that actual results could differ materially from those contemplated by such statements. Prospective investors should also refer to the factors discussed under "Business -- Forward-Looking Statements" set forth in the Company's annual report on Form 10-K for the year ended December 31, 1996, which is incorporated herein by reference. See "Incorporation of Certain Documents by Reference." These considerations are not intended to represent a complete list of the general or specific risks that may affect the Preferred Securities, the Subordinated Debentures or the Company and 1st Capital. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect the Preferred Securities, the Subordinated Debentures or the Company and 1st Capital to a greater extent than indicated. RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED DEBENTURES The obligations of the Company under the Guarantee issued for the benefit of the holders of Preferred Securities and under the Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company. At December 31, 1996, the aggregate outstanding Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company was approximately $18.6 million. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of the Bank upon the Bank's liquidation or reorganization or otherwise (and thus the ability of holders of the Preferred Securities to benefit indirectly from such distribution) is subject to the prior claims of creditors of the Bank, except to the extent that the Company may itself be recognized as a creditor of the Bank. The Subordinated Debentures, therefore, will be effectively subordinated to all existing and future liabilities of the Bank and holders of Subordinated Debentures and Preferred Securities should look only to the assets of the Company for payments on the Subordinated Debentures. Neither the Indenture, the Guarantee nor the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior Debt, Subordinated Debt and Additional Senior Obligations, that may be incurred by the Company. See "Description of the Guarantee--Status of the Guarantee" and "Description of the Subordinated Debentures--Subordination." The ability of 1st Capital to pay amounts due on the Preferred Securities is solely dependent upon the Company making payments on the Subordinated Debentures as and when required. OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES The Company has the right under the Indenture, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest on the Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each Extended Interest Payment Period; provided that no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of any such deferral, quarterly Distributions on the Preferred Securities by 1st Capital will be deferred (and the amount of Distributions to which holders of the Preferred Securities are entitled will accumulate additional Distributions thereon at the rate of % per annum (in the case of the Fixed Rate Preferred Securities) or at the Floating Distribution Rate (in the case of the Floating Rate Preferred Securities), compounded quarterly from the relevant payment date for such Distributions) during any such Extended Interest Payment Period. During any such Extended Interest Payment Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock (other 12 19 than (a) dividends or distributions in common stock of the Company, any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (b) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Although the Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures will rank pari passu and, therefore, if the Company elects to defer the payment of interest on one, it would not be permitted to make interest payments with respect to the other. Prior to the termination of any such Extended Interest Payment Period, the Company may further defer the payment of interest; provided that no Extended Interest Payment Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any Extended Interest Payment Period and the payment of all interest then accrued and unpaid (together with interest thereon at the rate of % per annum (in the case of the Fixed Rate Preferred Securities) or at the Floating Distribution Rate (in the case of the Floating Rate Preferred Securities) compounded quarterly, to the extent permitted by applicable law), the Company may elect to begin a new Extended Interest Payment Period, subject to the above requirements. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extended Interest Payment Period. See "Description of the Preferred Securities--Distributions--Extension Period" and "Description of the Subordinated Debentures--Option to Extend Interest Payment Period." Should an Extended Interest Payment Period occur, each holder of Preferred Securities will be required to accrue and recognize income (in the form of original issue discount ("OID")) in respect of its pro rata share of the interest accruing on the Subordinated Debentures held by 1st Capital for United States federal income tax purposes. A holder of Preferred Securities must, as a result, include such income in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash related to such income from 1st Capital if the holder disposes of the Preferred Securities prior to the record date for the payment of the related Distributions. See "Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount." The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. Should the Company elect, however, to exercise such right in the future, the market price of the Preferred Securities is likely to be adversely affected. A holder that disposes of its Preferred Securities during an Extended Interest Payment Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. As a result of the existence of the Company's right to defer interest payments, the market price of the Preferred Securities may be more volatile than the market prices of other securities on which original issue discount accrues that are not subject to such optional deferrals. TAX EVENT, CAPITAL TREATMENT EVENT OR INVESTMENT COMPANY EVENT; REDEMPTION The Company has the right to redeem the Subordinated Debentures in whole (but not in part) within 180 days following the occurrence of a Tax Event, Capital Treatment Event or Investment Company Event (whether occurring before or after March 31, 2002), and, therefore, cause a mandatory redemption of the Preferred Securities. The exercise of such right is subject to the Company having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. The Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, and vice versa. It is also possible that a Tax Event, Capital Treatment Event or Investment Company Event could occur with respect to the Fixed Rate Subordinated Debentures but not with respect to the Floating Rate Subordinated Debentures, and vice versa. "Tax Event" means the receipt by 1st Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in the laws (or any 13 20 regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) 1st Capital is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Subordinated Debentures, (ii) interest payable by the Company on the Subordinated Debentures is not, or, within 90 days of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, or (iii) 1st Capital is, or will be within 90 days of the date of the opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. The Company must request and receive an opinion with regard to such matters within a reasonable period of time after it becomes aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. A "Capital Treatment Event" means the receipt by 1st Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such proposed change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk of impairment of the Company's ability to treat the aggregate Liquidation Amount of the Preferred Securities (or any substantial portion thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. "Investment Company Event" means the receipt by 1st Capital of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, 1st Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), which change becomes effective on or after the date of original issuance of the Preferred Securities. See "--Proposed Tax Legislation" for a discussion of certain potential legislative developments that, if adopted, could give rise to a Tax Event, which may permit the Company to cause a redemption of the Preferred Securities prior to March 31, 2002. SHORTENING OR EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES The Company has the right, at any time, to shorten the maturity of the Subordinated Debentures to a date not earlier than March 31, 2002. The exercise of such right is subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company also has the right to extend the maturity of the Subordinated Debentures (whether or not 1st Capital is terminated and the Subordinated Debentures are distributed to holders of the Preferred Securities) to a date no later than March 31, 2046, a date approximately 49 years after the initial issuance of the Preferred Securities. Such right may only be exercised, however, if at the time such election is made and at the time of such extension (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in default in the payment of any interest or principal on the Subordinated Debentures, and (iii) 1st Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated. The Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, and vice versa. See "Description of the Subordinated Debentures--General." RIGHTS UNDER THE GUARANTEE The Guarantee guarantees to the holders of the Preferred Securities, to the extent not paid by 1st Capital, (i) any accrued and unpaid Distributions required to be paid on the Preferred Securities, to the extent that 1st Capital has funds available therefor at such time, (ii) the Redemption Price (as defined herein) with respect to any Preferred Securities called for redemption, to the extent that 1st Capital has funds available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of 1st Capital (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all of the Preferred 14 21 Securities), the lesser of (a) the amount of the Liquidation Distribution (as defined herein), to the extent 1st Capital has funds available therefor at such time, and (b) the amount of assets of 1st Capital remaining available for distribution to holders of the Preferred Securities in liquidation of 1st Capital. The Fixed Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Fixed Rate Preferred Securities and the Floating Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Floating Rate Preferred Securities. Holders of Fixed Rate Preferred Securities will, therefore, have no rights under the Floating Rate Guarantee, and holders of Floating Rate Preferred Securities will have no rights under the Fixed Rate Guarantee. The holders of not less than a majority in Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against 1st Capital, the Guarantee Trustee or any other Person (as defined in the Guarantee). If the Company were to default on its obligation to pay amounts payable under the Subordinated Debentures, 1st Capital would lack funds for the payment of Distributions or amounts payable on redemption of the Preferred Securities or otherwise, and, in such event, holders of Preferred Securities would not be able to rely upon the Guarantee for such amounts. In the event, however, that a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest on or principal of the Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Preferred Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such holder (a "Direct Action"). The exercise by the Company of its right, as described herein, to defer the payment of interest on the Subordinated Debentures does not constitute a Debenture Event of Default. In connection with such Direct Action, the Company will have a right of set-off under the Indenture to the extent of any payment made by the Company to such holder of Preferred Securities in the Direct Action. Except as described herein, holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Subordinated Debentures or assert directly any other rights in respect of the Subordinated Debentures. See "Description of the Subordinated Debentures--Enforcement of Certain Rights by Holders of the Preferred Securities," "Description of the Subordinated Debentures--Debenture Events of Default" and "Description of the Guarantee." The Trust Agreement provides that each holder of Preferred Securities by acceptance thereof agrees to the provisions of the Guarantee and the Indenture. NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES Holders of Preferred Securities will have no voting rights except in limited circumstances relating only to the modification of the Preferred Securities and the exercise of the rights of 1st Capital as holder of the Subordinated Debentures and the Guarantee. Holders of Preferred Securities will not be entitled to vote to appoint, remove or replace the Property Trustee or the Delaware Trustee, as such voting rights are vested exclusively in the holder of the Common Securities (except upon the occurrence of certain events described herein). The Property Trustee, the Administrative Trustees and the Company may amend the Trust Agreement without the consent of holders of Preferred Securities to ensure that 1st Capital will be classified for United States federal income tax purposes as a grantor trust even if such action adversely affects the interests of such holders. See "Description of the Preferred Securities--Voting Rights; Amendment of Trust Agreement" and "Description of the Preferred Securities--Removal of 1st Capital Trustees." PROPOSED TAX LEGISLATION On March 19, 1996, President Clinton proposed certain tax law changes that would, among other things, generally deny corporate issuers a deduction for interest in respect of certain debt obligations issued on or after December 7, 1995 (the "1996 Proposed Legislation") if such debt obligations have a maximum term in excess of 20 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint statement (the "Joint Statement") indicating their intent that certain legislative proposals initiated by the Clinton administration, including the 1996 Proposed Legislation, that may be adopted by either of the tax-writing committees of Congress would have an effective date that is no earlier than the date of "appropriate 15 22 Congressional action." In addition, subsequent to the publication of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials concurring with the views expressed in the Joint Statement. Neither the 1996 Proposed Legislation nor similar legislation was enacted during the 104th Congress. On February 6, 1997, President Clinton proposed in the administration's fiscal year 1998 budget certain tax law changes (the "1997 Proposed Legislation") that would, among other things, generally deny corporate issuers a deduction for interest or OID in respect of certain debt obligations if such debt obligations have a maximum term in excess of 15 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. The 1997 Proposed Legislation also contains a provision that would deny a deduction to corporate issuers for interest or OID with respect to debt instruments that have a maximum term of more than 40 years (including rights to extend, renew or relend), or are payable in stock of the issuer or a related party. The U.S. Treasury Department's summary of the 1997 Proposed Legislation states that the above provisions regarding the deduction of interest would generally be effective for instruments issued on or after the date of first Congressional committee action with respect to the 1997 Proposed Legislation. The Ways and Means Committee began a full committee hearing on the President's fiscal 1998 budget on February 11, 1997. There can be no assurance that the effective date guidance in the 1997 Proposed Legislation will be adopted if the proposed change to the tax law is enacted, or that other legislation enacted after the date hereof will not otherwise adversely affect the ability of the Company to deduct the interest payable on the Subordinated Debentures. Consequently, there can be no assurance that a Tax Event will not occur. A Tax Event would permit the Company, upon approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, to cause a redemption of the Preferred Securities before, as well as after, March 31, 2002. See "Description of the Subordinated Debentures--Redemption or Exchange" and "Description of the Preferred Securities--Redemption or Exchange--Tax Event Redemption, Capital Treatment Event Redemption or Investment Company Event Redemption" and "Certain Federal Income Tax Consequences--Effect of Proposed Changes in Tax Laws." REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES The Company has the right at any time to dissolve, wind-up or terminate 1st Capital and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities in exchange therefor in liquidation of 1st Capital. The exercise of such right is subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company will have the right, in certain circumstances, to redeem the Subordinated Debentures in whole or in part, in lieu of a distribution of the Subordinated Debentures by 1st Capital, in which event 1st Capital will redeem the Trust Securities on a pro rata basis to the same extent as the Subordinated Debentures are redeemed by the Company. Any such distribution or redemption prior to the Stated Maturity will be subject to prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company may exercise the rights described herein with regard to 1st Capital I independent of such rights with regard to 1st Capital II, and vice versa. See "Description of the Preferred Securities--Redemption or Exchange--Tax Event Redemption, Capital Treatment Event Redemption or Investment Company Event Redemption." Under current United States federal income tax law, a distribution of Subordinated Debentures upon the dissolution of 1st Capital would not be a taxable event to holders of the Preferred Securities. If, however, 1st Capital is characterized as an association taxable as a corporation at the time of the dissolution of 1st Capital, the distribution of the Subordinated Debentures may constitute a taxable event to holders of Preferred Securities. Moreover, upon occurrence of a Tax Event, a dissolution of 1st Capital in which holders of the Preferred Securities receive cash may be a taxable event to such holders. See "Certain Federal Income Tax Consequences--Receipt of Subordinated Debentures or Cash Upon Liquidation of 1st Capital." There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities upon a dissolution or liquidation of 1st Capital. The Preferred Securities or the Subordinated Debentures, may, therefore, trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Subordinated Debentures, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debentures and should carefully review all the information regarding the Subordinated Debentures contained herein. 16 23 If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of 1st Capital, the Company will use its best efforts to list the Subordinated Debentures on The Nasdaq Stock Market's National Market or such stock exchanges, if any, on which the Preferred Securities are then listed. COMPANY MAY EXERCISE RIGHTS INDEPENDENTLY Although the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures will rank pari passu, the Company, as described herein, may, provided any applicable conditions precedent have been satisfied, take certain actions or exercise certain rights with regard to 1st Capital I and/or the Fixed Rate Preferred Securities and the Fixed Rate Subordinated Debentures without taking any corresponding or similar action with regard to 1st Capital II and/or the Floating Rate Preferred Securities and the Floating Rate Subordinated Debentures, and vice versa. TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES The Preferred Securities may trade at prices that do not fully reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder of Preferred Securities that disposes of its Preferred Securities between record dates for payments of Distributions (and consequently does not receive a Distribution from 1st Capital for the period prior to such disposition) will nevertheless be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income and to add such amount to its adjusted tax basis in its pro rata share of the underlying Subordinated Debentures deemed disposed of. Such holder will recognize a capital loss to the extent the selling price (which may not fully reflect the value of accrued but unpaid interest) is less than its adjusted tax basis (which will include all accrued but unpaid interest). Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences--Disposition of Preferred Securities." There is no current public market for the Preferred Securities. Although application has been made to have the Preferred Securities approved for quotation on The Nasdaq Stock Market's National Market, there can be no assurance that an active public market will develop for the Preferred Securities or that, if such market develops, the market price will equal or exceed the public offering price set forth on the cover page of this Prospectus. The public offering price for the Preferred Securities has been determined through negotiations between the Company and the Underwriters. Prices for the Preferred Securities will be determined in the marketplace and may be influenced by many factors, including prevailing interest rates, the liquidity of the market for the Preferred Securities, investor perceptions of the Company and general industry and economic conditions. PREFERRED SECURITIES ARE NOT INSURED The Preferred Securities are not insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or by any other governmental agency. 17 24 USE OF PROCEEDS 1st Capital will use the gross proceeds received from the sale of the Preferred Securities to purchase Subordinated Debentures from the Company. The Company intends to use the net proceeds from the sale of the Subordinated Debentures for general corporate purposes. These may include, without limitation, the repurchase of common stock, the repayment of long term debt, the funding of investments in or extensions of credit to the Company's subsidiaries and the making of investments in or possibly acquiring businesses which enhance the Company's long-term growth or improve or expand the Company's products, services or markets. Pending their application for any or all of such purposes, the net proceeds may be invested in investment grade financial instruments. MARKET FOR THE PREFERRED SECURITIES (FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES) Application has been made to have the Fixed Rate Preferred Application has been made to have the Floating Rate Preferred Securities approved for quotation on The Nasdaq Stock Market's Securities approved for quotation on The Nasdaq Stock Market's National Market under the symbol "SRCEP." Although Stifel, National Market under the symbol "SRCEO." Although Stifel, Nicolaus & Company, Incorporated has informed the Company that Nicolaus & Company, Incorporated has informed the Company that it presently intends to make a market in the Fixed Rate it presently intends to make a market in the Floating Rate Preferred Securities, there can be no assurance that an active Preferred Securities, there can be no assurance that an active and liquid trading market will develop or, if developed, that and liquid trading market will develop or, if developed, that such a market will continue. The offering price and such a market will continue. The offering price and distribution rate have been determined by negotiations among distribution rate have been determined by negotiations among representatives of the Company and the Underwriters, and the representatives of the Company and the Underwriters, and the offering price of the Fixed Rate Preferred Securities may not offering price of the Floating Rate Preferred Securities may be indicative of the market price following the offering. See not be indicative of the market price following the offering. "Underwriting." See "Underwriting."
ACCOUNTING TREATMENT 1st Capital will be treated, for financial reporting purposes, as a subsidiary of the Company and, accordingly, the accounts of 1st Capital will be included in the consolidated financial statements of the Company. The Preferred Securities will be presented as a separate line item in the consolidated balance sheet of the Company under the caption ~~"Guaranteed Preferred Beneficial Interests~~“Risk Factors” in the Company's Subordinated Debentures," and appropriate disclosures about the Preferred Securities, the Guarantee and the Subordinated Debentures will be included in the notes to consolidated financial statements. The Company will record Distributions payable on the Preferred Securities as an expense in the consolidated statements of operations for financial reporting purposes. All future reports of the Company filed under the Exchange Act will (a) present the Trust Securities issued by 1st Capital on the balance sheet as a separate line-item entitled "Guaranteed preferred beneficial interests in the Company's subordinated debentures," (b) include in a footnote to the financial statements disclosure that the sole assets of 1st Capital are the Subordinated Debentures (including the outstanding principal amount, interest rate and maturity date of such Subordinated Debentures), and (c) include in an audited footnote to the financial statements disclosure that the Company owns all of the Common Securities of 1st Capital, the sole assets of 1st Capital are the Subordinated Debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of 1st Capital under the Preferred Securities. 18 25 CAPITALIZATION The following table sets forth (i) the consolidated capitalization of the Company at December 31, 1996 and (ii) the consolidated capitalization of the Company giving effect to the issuance of the Fixed Rate Preferred Securities and the Floating Rate Preferred Securities hereby offered by 1st Capital I and 1st Capital II, respectively, and receipt by the Company of the proceeds from the corresponding sale of the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures to 1st Capital I and 1st Capital II, respectively, as if such sale had been consummated on December 31, 1996, and assuming the Underwriters' over-allotment options were not exercised.
DECEMBER 31, 1996 ------------------------ ACTUAL AS ADJUSTED ------ ----------- (DOLLARS IN THOUSANDS) LONG-TERM DEBT: Notes payable......................................................................... $ 18,596 $ 18,596 -------- --------- GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S SUBORDINATED DEBENTURES: Guaranteed preferred beneficial interests in the Company's subordinated debentures....................................................................... 0 50,000 -------- --------- SHAREHOLDERS' EQUITY: Preferred stock, 10,000,000 shares authorized; no shares issued....................... 0 0 Common stock, no par value; 40,000,000 shares authorized; 12,936,120 shares issued and outstanding...................................................................... 5,700 5,700 Capital surplus....................................................................... 69,947 69,947 Retained earnings..................................................................... 102,399 102,399 Cost of common stock in treasury; 345,622 shares.................................. (6,670) (6,670) Unrealized gain on available-for-sale securities...................................... 457 457 -------- --------- Total shareholders' equity.................................................... 171,833 171,833 -------- --------- Total capitalization.......................................................... $190,429 $ 240,429 ======== ========= CAPITAL RATIOS: Shareholders' equity to total assets~~.......................................... 8.26% 8.07% Leverage ratio........................................................ 8.48 11.01 Risk-based capital ratios:~~ ~~Tier 1 capital to risk-weighted assets........................................ 10.93 14.19 Total risk-based capital to risk-weighted assets.............................. 12.45 15.70~~ ~~- --------~~ ~~Shares not restated for five-for-four stock split declared January 21, 1997.~~ The ratio of shareholders' equity to total assets, as adjusted, is calculated based upon the assumption that the proceeds from the sale of the Subordinated Debentures would be reinvested in new assets of the Company. See "Use of Proceeds." ~~The leverage ratio is Tier 1 capital divided by average quarterly assets, after deducting intangible assets and net deferred tax assets in excess of regulatory maximum limits.~~ ~~The capital ratios, as adjusted, are computed including the total estimated proceeds from the sale of the Preferred Securities, in a manner consistent with Federal Reserve guidelines.~~ Federal Reserve guidelines for calculation of Tier 1 capital to risk-weighted assets limits the amount of cumulative preferred stock which can be included in Tier 1 capital to 25% of total Tier 1 capital. The Fixed Rate Preferred Securities ($25 million) and the Floating Rate Preferred Securities ($25 million) are being offered hereby separately and not as units. Neither the sale of the Fixed Rate Preferred Securities nor the sale of the Floating Rate Preferred Securities is contingent upon completion of the sale of the other security. In the event only one of the Preferred Securities offered hereby is sold, the ratio of shareholders' equity to total assets, as adjusted, would be 8.16%, the leverage ratio, as adjusted, would be 9.75%, the Tier 1 capital to risk-weighted assets ratio, as adjusted, would be 12.56%, and the total risk-based capital to risk-weighted assets ratio, as adjusted, would be 14.07%.
19 ~~26 DESCRIPTION OF THE PREFERRED SECURITIES~~ (FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES) The Fixed Rate Preferred Securities will The Floating Rate Preferred Securities will be issued pursuant be issued pursuant to the terms of the Fixed Rate to the terms of the Floating Rate Trust Agreement. The Floating Trust Agreement. The Fixed Rate Trust Agreement will Rate Trust Agreement will be qualified as an indenture under be qualified as an indenture under the Trust the Trust Indenture Act. The Floating Rate Property Trustee, Indenture Act. The Fixed Rate Property State Street Bank and Trust Company, will act as indenture Trustee, State Street Bank and trustee for the Floating Rate Preferred Securities under and Trust Company, will act as the Floating Rate Trust Agreement for purposes indenture trustee for the Fixed Rate Preferred Securities of complying with the provisions of the Trust under the Fixed Rate Trust Agreement for purposes of complying Indenture Act. The terms of the Floating Rate Preferred with the provisions of the Trust Indenture Act. The terms of Securities will include those stated in the Floating Rate the Fixed Rate Preferred Securities will include those stated Trust Agreement and those made part of the Floating Rate Trust in the Fixed Rate Trust Agreement and those made part of the Agreement by the Trust Indenture Act. The following summary of Fixed Rate Trust Agreement by the Trust Indenture Act. The the material terms and provisions of the Floating Rate following summary of the material terms and provisions of the Preferred Securities and the Floating Rate Trust Agreement Fixed Rate Preferred Securities and the Fixed Rate Trust does not purport to be complete and is subject to, and is Agreement does not purport to be complete and is subject to, qualified in its entirety by reference to, the Floating Rate and is qualified in its entirety by reference to, the Fixed Trust Agreement, the Trust Act, and the Trust Indenture Act. Rate Trust Agreement, the Trust Act, and the Trust Indenture Wherever particular defined terms of the Floating Rate Trust Act. Wherever particular defined terms of the Fixed Rate Trust Agreement are referred to, but not defined herein, such Agreement are referred to, but not defined herein, such defined defined terms are incorporated herein by reference. The form terms are incorporated herein by reference. The form of the of the Floating Rate Trust Agreement has been filed as an Fixed Rate Trust Agreement has been filed as an exhibit to the exhibit to the Registration Statement of which this Prospectus Registration Statement of which this Prospectus forms a part. forms a part. GENERAL GENERAL Pursuant to the terms of the Fixed Rate Trust Agreement, Pursuant to the terms of the Floating Rate Trust Agreement, the Fixed Rate Trustees, on behalf of 1st Capital I, will the Floating Rate Trustees, on behalf of 1st Capital II, will issue the Fixed Rate Trust Securities. All of the Fixed issue the Floating Rate Trust Securities. All of the Floating Rate Common Securities will be owned by the Company. The Rate Common Securities will be owned by the Company. The Fixed Rate Preferred Securities will represent preferred Floating Rate Preferred Securities will represent preferred undivided beneficial interests in the assets of 1st Capital undivided beneficial interests in the assets of 1st Capital II I and the holders thereof will be entitled to a preference and the holders thereof will be entitled to a preference in in certain circumstances with respect to Fixed Rate certain circumstances with respect to Floating Rate Distributions and amounts payable on redemption or liquidation Distributions and amounts payable on redemption or liquidation over the Fixed Rate Common Securities, as well as other over the Floating Rate Common Securities, as well as other benefits as described in the Fixed Rate Trust AGreement. benefits as described in the Floating Rate Trust Agreement. Holders of Fixed Rate Preferred Securities will have no Holders of Floating Rate Preferred Securities will have no interest in the assets of 1st Capital II. The Fixed Rate interest in the assets of 1st Capital I. The Floating Rate Trust Agreement does not permit the issuance by 1st Capital I Trust Agreement does not permit issuance by 1st Capital II of of any securities other than the Fixed Rate Trust Securities any securities other than the Floating Rate Trust Securities or the incurrence of any indebtedness by 1st Capital I. or the incurrence of any indebtedness by 1st Capital II. The Fixed Rate Preferred Securities will rank pari passu, The Floating Rate Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Fixed Rate and payments will be made thereon pro rata, with the Floating Common Securities, except as described under "--Subordination Rate Common Securities, except as described under of Common Securi- "--Subordination of Common Securi- (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 20 27 (FIXED RATE PREFERRED SECURITIES--continued from previous page) (FLOATING RATE PREFERRED SECURITIES--continued from previous page) ties." Legal title to the Fixed Rate Subordinated Debentures ties." Legal title to the Floating Rate Subordinated will be held by the Fixed Rate Property Trustee in trust for Debentures will be held by the Floating Rate Property Trustee the benefit of the holders of the Fixed Rate Trust Securities. in trust for the benefit of the holders of the Floating Rate The Fixed Rate Guarantee executed by the Company for the Trust Securities. The Floating Rate Guarantee executed by the benefit of the holders of the Fixed Rate Preferred Securities Company for the benefit of the holders of the Floating Rate will be a guarantee on a subordinated basis with respect to Preferred Securities will be a guarantee on a subordinated the Fixed Rate Preferred Securities, but will not guarantee basis with respect to the Floating Rate Preferred Securities, payment of Fixed Rate Distributions or amounts payable on re- but will not guarantee payment of Floating Rate Distributions demption or liquidation of such Fixed Rate Preferred or amounts payable on redemption or liquidation of such Securities when 1st Capital I does not have funds on hand Floating Rate Preferred Securities when 1st Capital II does available to make such payments. State Street Bank and Trust not have funds on hand available to make such payments. State Company, as Fixed Rate Guarantee Trustee, will hold the Fixed Street Bank and Trust Company, as Floating Rate Guarantee Rate Guarantee for the benefit of the holders of the Fixed Trustee, will hold the Floating Rate Guarantee for the benefit Rate Preferred Securities. See "Description of the of the holders of the Floating Rate Preferred Securities. See Guarantee." "Description of the Guarantee." DISTRIBUTIONS DISTRIBUTIONS PAYMENT OF DISTRIBUTIONS. Fixed Rate Distributions PAYMENT OF DISTRIBUTIONS. Floating Rate Distributions on each on each Fixed Rate Preferred Security will by Floating Rate Preferred Security will be payable at the payable at the annual rate of % of the stated Floating Distribution Rate applied to the stated Floating Rate Fixed Rate Liquidation Amount of $25, payable quarterly Liquidation Amount of $25, payable quarterly in arrears on in arrears on March 31, June 30, September 30 and March 31, June 30, September 30 and December 31 of each year, December 31 of each year, to the holders of the Fixed Rate to the holders of the Floating Rate Preferred Securities on Preferred Securities on the relevant record dates (each date the relevant record dates (each date on which Floating Rate on which Fixed Rate Distributions are payable in accordance Distributions are payable in accordance with the foregoing, a with the foregoing, a "Fixed Rate Distribution Date"). The "Floating Rate Distribution Date"). The record date will be record date will be the 15th day of the month in which the the 15th day of the month in which the relevant Floating Rate relevant Fixed Rate Distribution Date occurs. Fixed Rate Distribution Date occurs. Floating Rate Distributions will Distributions will accumulate from the date of original accumulate from the date of original issuance. The first payment issuance. The first payment of Fixed Rate Distributions for of Floating Rate Distributions for the Floating Rate the Fixed Rate Preferred Securities will be June 30, 1997. The Preferred Securities will be June 30, 1997. The amount of amount of Fixed Rate Distributions payable for any period will Floating Rate Distributions payable for any period will be be computed on the basis of a 360-day year of twelve 30-day computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which Fixed Rate Distri- months. In the event that any date on which Floating Rate butions are payable on the Fixed Rate Preferred Securities is Distributions are payable on the Floating Rate Preferred not a Business Day, then payment of the Fixed Rate Securities is not a Business Day, then payment of the Floating Distributions payable on such date will be made on the next Rate Distributions payable on such date will be made on the succeeding day that is a Business Day (and without any next succeeding day that is a Business Day (and without any additional Fixed Rate Distributions, interest or other payment additional Floating Rate Distributions, interest or other in respect of any such delay) with the same force and effect payment in respect of any such delay) with the same force and as if made on the date such payment was originally due and effect as if made on the date such payment was originally due payable. "Business Day" means any day other than a Saturday and payable. "Business Day" means any day other than a or a Sunday, a day on which banking institutions in The City Saturday or a Sunday, a day on which banking institutions in of New York are authorized or required by law or executive The City of New York are authorized or required by law or order to remain closed or a day on which the corporate trust executive order to remain closed or a day on which the office of the Fixed Rate Property Trus- (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 21 28 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) tee or the Fixed Rate Debenture Trustee is closed for corporate trust office of the Floating Rate Property business. Trustee or the Floating Rate Debenture Trustee is closed for business. DETERMINATION OF 3-MONTH TREASURY. The Floating Distribution Rate for the period beginning on (and including) the date of original issuance, and ending on (but excluding) March 31, 1997 in respect of the Floating Rate Preferred Securities will be % and the Floating Distribution Rate for each successive period beginning on (and including) March 31, 1997 and each succeeding Floating Rate Distribution Date, and ending on (but excluding) the next succeeding Floating Rate Distribution Date (each, a "Floating Rate Distribution Period") in respect of the Floating Rate Preferred Securities will be a rate per annum determined by reference to the sum of the 3-Month Treasury, determined as described below, plus %. "3-Month Treasury" means the yield on United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, reported by the Federal Reserve. 3-Month Treasury, with respect to any Floating Rate Distribution Period (other than the Floating Rate Distribution Period ending on (but excluding) March 31, 1997) will be determined by the Floating Rate Debenture Trustee as follows: (a) On the second Business Day preceding the commencement of such Floating Rate Distribution Period (each, a "Floating Rate Determination Date"), the 3-Month Treasury will be [This Column Intentionally Blank] the current yield for United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, which appears on the applicable Federal Reserve Statistical Release Series H.15 (519) which includes data for such Floating Rate Determination Date, or as then currently furnished or made available by the Federal Reserve if such Series is no longer published. (b) If, with respect to any Floating Rate Determination Date, the Floating Rate Debenture Trustee is required but unable to determine the 3-Month Treasury in the manner provided in paragraph (a) above, the 3-Month Treasury for such Floating Rate Distribution Period will be the 3-Month Treasury as determined on the previous Floating Rate Determination Date. The Floating Distribution Rate for any Floating Rate Distribution Period will at no time be higher than the maximum rate then permitted by Missouri law as the same may be modified by United States law. (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 22 29 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) All percentages resulting from any calculations referred to above will be rounded, if necessary, to the nearest multiple of 1/100 of 1%. DETERMINATION OF DISTRIBUTION RATE AND CALCULATION OF DISTRIBUTION AMOUNT. The Floating Rate Debenture Trustee will, on each Floating Rate Determination Date, determine the Floating Distribution Rate and calculate the amount of Floating Rate Distributions payable in respect of the following Floating Rate Distribution Period (the "Floating Rate Distribution Amount"). The Floating Rate Distribution Amount will be calculated by applying the Floating Rate Distribution Rate to the Floating Rate Liquidation Amount of each Floating Rate Preferred Security outstanding at the commencement of the Floating Rate Distribution Period, and multiplying each such amount by the actual number of days in the Floating Rate Distribution Period concerned, and dividing by 360. The determination of the Floating Distribution Rate and the Floating Rate Distribution Amount by the Floating Rate Debenture Trustee will (in the absence of willful default, bad faith or manifest error) be final, conclusive and binding on all concerned. [This Column Intentionally Blank] Upon the request of a holder of a Floating Rate Preferred Security, the Floating Rate Debenture Trustee will provide the Floating Distribution Rate then in effect and, if determined, the Floating Rate Distribution Rate for the next Floating Rate Distribution Period with respect to the Floating Rate Preferred Securities. Each such Floating Distribution Rate may be obtained by telephoning the Floating Rate Debenture Trustee at (617) 664-5500. NOTIFICATION OF DISTRIBUTION RATE AND DISTRIBUTION DATE. The Floating Rate Debenture Trustee will notify the Floating Rate Property Trustee and any securities exchange or interdealer quotation system on which the Floating Rate Preferred Securities are listed of the Floating Distribution Rate and the Floating Rate Distribution Date for each Floating Rate Distribution Period, in each case as soon as practicable after the determination thereof but in no event later than the seventh Business Day of the relevant Floating Rate Distribution Period. Failure to notify the Floating Rate Property Trustee or any applicable 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 Floating Rate Debentures at the applicable Floating Distribution Rate. Any error in the calculation of the Floating Distribution Rate by the (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 23 30 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) Floating Rate Debenture Trustee may be corrected at any time by notice delivered as above provided. CERTIFICATES TO BE FINAL. 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 Floating Rate Distributions on the Floating Rate Preferred Securities by the Floating Rate Debenture Trustee will (in the absence of willful default, bad faith or manifest error) be binding on 1st Capital II, the Company, and all of the holders of the Floating Rate Preferred Securities, and no liability will (in the absence of willful default, bad faith or manifest error) attach to the Floating Rate Debenture Trustee or the Floating Rate Property Trustee in connection with the exercise or non-exercise by either of them of their respective powers, duties and discretion.
EXTENSION PERIOD. The Company has the right under the Indenture, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest on the Subordinated Debentures at any time, or from time to time (each, an "Extended Interest Payment Period"), which, if exercised, would defer quarterly Distributions on the Preferred Securities during any such Extended Interest Payment Period. Distributions to which holders of the Preferred Securities are entitled will accumulate additional Distributions thereon at the rate per annum of % thereof (in the case of the Fixed Rate Preferred Securities) or at the Floating Distribution Rate (in the case of the Floating Rate Preferred Securities), compounded quarterly from the relevant Distribution Date. "Distributions," as used herein, includes any such additional Distributions. The right to defer the payment of interest on the Subordinated Debentures is limited, however, to a period, in each instance, not exceeding 20 consecutive quarters and no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. During any such Extended Interest Payment Period, the Company, may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock (other than (a) dividends or distributions in common stock of the Company, any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (b) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Although the Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures will rank pari passu and, therefore, if the Company elects to defer the payment of interest on one, it would not be permitted to make interest payments with respect to the other. Prior to the termination of any such Extended Interest Payment Period, the Company may further defer the payment of interest; provided that such Extended Interest Payment Period may not exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extended Interest Payment Period and the payment of all amounts then due, the Company may elect to begin a new Extended Interest Payment Period, subject to the above requirements. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extended Interest Payment Period. 24 31 The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. SOURCE OF DISTRIBUTIONS. The funds of 1st Capital available for distribution to holders of its Preferred Securities will be limited to payments under the Subordinated Debentures in which 1st Capital will invest the proceeds from the issuance and sale of its Trust Securities. See "Description of the Subordinated Debentures." Distributions will be paid through the Property Trustee who will hold amounts received in respect of the Subordinated Debentures in the Property Account for the benefit of the holders of the Trust Securities. Holders of Floating Rate Preferred Securities have no claim or right to amounts received in respect of the Fixed Rate Subordinated Debentures in the Fixed Rate Property Account, and holders of Fixed Rate Preferred Securities have no claim or right to amounts received in respect of the Floating Rate Subordinated Debentures in the Floating Rate Property Account. If the Company does not make interest payments on the Subordinated Debentures, the Property Trustee will not have funds available to pay Distributions on the Preferred Securities. The payment of Distributions (if and to the extent 1st Capital has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed by the Company. See "Description of the Guarantee." Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the register of holders of the Preferred Securities on the relevant record dates, which will be the 15th day of the month in which the relevant Distribution Date occurs. REDEMPTION OR EXCHANGE GENERAL. The Subordinated Debentures will mature on March 31, 2027. The Company will have the right to redeem the Subordinated Debentures (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event, Capital Treatment Event or an Investment Company Event, in each case subject to receipt of prior approval by the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company will not have the right to purchase the Subordinated Debentures, in whole or in part, from 1st Capital until after March 31, 2002. The Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, and vice versa. It is also possible that a Tax Event, Capital Treatment Event or Investment Company Event could occur with respect to the Fixed Rate Subordinated Debentures but not with respect to the Floating Rate Subordinated Debentures, and vice versa. See "Description of the Subordinated Debentures--General." MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in part, of any Subordinated Debentures, whether at Stated Maturity or upon earlier redemption as provided in the Indenture, the proceeds from such repayment or redemption will be applied by the Property Trustee to redeem a Like Amount (as defined herein) of the Trust Securities, upon not less than 30 nor more than 60 days notice, at a redemption price (the "Redemption Price") equal to the aggregate Liquidation Amount of such Trust Securities plus accumulated but unpaid Distributions thereon to the date of redemption (the "Redemption Date"). See "Description of the Subordinated Debentures--Redemption or Exchange." If less than all of the Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds from such repayment or redemption will be allocated to the redemption of the Trust Securities pro rata. DISTRIBUTION OF SUBORDINATED DEBENTURES. Subject to the Company having received prior approval of the Federal Reserve if so required under applicable capital guidelines or policies of the Federal Reserve, the Company will have the right at any time to dissolve, wind-up or terminate 1st Capital and, after satisfaction of the liabilities of creditors of 1st Capital as provided by applicable law, cause the Subordinated Debentures to be distributed to the holders of Trust Securities in liquidation of 1st Capital. See "--Liquidation Distribution Upon Termination." TAX EVENT REDEMPTION, CAPITAL TREATMENT EVENT REDEMPTION OR INVESTMENT COMPANY EVENT REDEMPTION. If a Tax Event, Capital Treatment Event or an Investment Company Event in respect of the Trust Securities occurs and is continuing, the Company has the right to redeem the Subordinated Debentures in whole (but not in part) and thereby cause a mandatory redemption of such Trust Securities in whole (but not in part) at the Redemption Price within 180 days following the occurrence of such Tax Event, Capital Treatment Event or Investment Company Event. In the event a Tax Event, Capital Treatment Event or an Investment Company Event in respect of the Trust Securities has occurred and the Company does not elect to redeem the Subordinated Debentures and thereby cause a mandatory redemption of such Trust Securities or to liquidate 1st Capital and cause the Subordinated Debentures to be 25 32 distributed to holders of such Trust Securities in liquidation of 1st Capital as described below under "--Liquidation Distribution Upon Termination," such Preferred Securities will remain outstanding and Additional Interest (as defined herein) may be payable on the Subordinated Debentures. "Additional Interest" means the additional amounts as may be necessary in order that the amount of Distributions then due and payable by 1st Capital on the outstanding Trust Securities will not be reduced as a result of any additional taxes, duties and other governmental charges to which 1st Capital has become subject as a result of a Tax Event. "Like Amount" means (i) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to that portion of the principal amount of Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture, which will be used to pay the Redemption Price of such Trust Securities, and (ii) with respect to a distribution of Subordinated Debentures to holders of Trust Securities in connection with a dissolution or liquidation of 1st Capital, Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Subordinated Debentures are distributed. Each Subordinated Debenture distributed pursuant to clause (ii) above will carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Subordinated Debentures. "Liquidation Amount" means the stated amount of $25 per Trust Security. After the liquidation date fixed for any distribution of Subordinated Debentures for Preferred Securities (i) such Preferred Securities will no longer be deemed to be outstanding, and (ii) any certificates representing Preferred Securities will be deemed to represent the Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Preferred Securities, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on the Preferred Securities, until such certificates are presented to the Administrative Trustees or their agent for transfer or reissuance. There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities if a dissolution and liquidation of 1st Capital were to occur. The Preferred Securities that an investor may purchase, or the Subordinated Debentures that an investor may receive on dissolution and liquidation of 1st Capital, may, therefore, trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. REDEMPTION PROCEDURES Preferred Securities redeemed on each Redemption Date will be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of the Subordinated Debentures. Redemptions of the Preferred Securities will be made and the Redemption Price will be payable on each Redemption Date only to the extent that 1st Capital has funds on hand available for the payment of such Redemption Price. The Fixed Rate Preferred Securities may be redeemed independent of the Floating Rate Preferred Securities, and vice versa. See "--Subordination of Common Securities." If 1st Capital gives a notice of redemption in respect of its Preferred Securities, then, by 12:00 noon, eastern standard time, on the Redemption Date, to the extent funds are available, the Property Trustee will irrevocably deposit with the paying agent for the Preferred Securities funds sufficient to pay the aggregate Redemption Price and will give the paying agent for the Preferred Securities irrevocable instructions and authority to pay the Redemption Price to the holders thereof upon surrender of their certificates evidencing such Preferred Securities. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Preferred Securities called for redemption will be payable to the holders of such Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption will have been given and funds deposited as required, then upon the date of such deposit, all rights of the holders of such Preferred Securities so called for redemption will cease, except the right of the holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price, and such Preferred Securities will cease to be outstanding. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any additional Distribution, interest or other payment in respect of any such delay) with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of Preferred Securities called for redemption is improperly 26 33 withheld or refused and not paid either by 1st Capital, or by the Company pursuant to the Guarantee, Distributions on such Preferred Securities will continue to accrue at the then applicable rate, from the Redemption Date originally established by 1st Capital for such Preferred Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. See "Description of the Guarantee." Subject to applicable law (including, without limitation, United States federal securities law) and, further provided, that the Company has not and is not continuing to exercise its right to defer interest payments, the Company or its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. Payment of the Redemption Price on the Preferred Securities and any distribution of Subordinated Debentures to holders of Preferred Securities will be made to the applicable recordholders thereof as they appear on the register for the Preferred Securities on the relevant record date, which date will be the date 15 days prior to the Redemption Date or liquidation date, as applicable. If less than all of the Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such Trust Securities to be redeemed will be allocated pro rata to the Trust Securities based upon the relative Liquidation Amounts of such classes. The particular Preferred Securities to be redeemed will be selected by the Property Trustee from the outstanding Preferred Securities not previously called for redemption, by such method as the Property Trustee deems fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee will promptly notify the registrar for the Preferred Securities in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of the Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities will relate to the portion of the aggregate Liquidation Amount of Preferred Securities which has been or is to be redeemed. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each holder of Trust Securities to be redeemed at its registered address. Unless the Company defaults in payment of the redemption price on the Subordinated Debentures, on and after the Redemption Date interest will cease to accrue on such Subordinated Debentures or portions thereof (and Distributions will cease to accrue on the related Preferred Securities or portions thereof) called for redemption. SUBORDINATION OF COMMON SECURITIES Payment of Distributions on, and the Redemption Price of, the Preferred Securities and Common Securities, as applicable, will be made pro rata based on the Liquidation Amount of the Preferred Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture Event of Default has occurred and is continuing, no payment of any Distribution on, or Redemption Price of, any of the Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of such Common Securities, will be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all of the outstanding Preferred Securities then called for redemption, will have been made or provided for, and all funds available to the Property Trustee will first be applied to the payment in full in cash of all Distributions on, or Redemption Price of, the Preferred Securities then due and payable. In the case of any Event of Default resulting from a Debenture Event of Default, the Company as holder of the Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under the Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Events of Default under the Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee will act solely on behalf of the holders of the Preferred Securities and not on behalf of the Company, as holder of the Common Securities, and only the holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf. 27 34 LIQUIDATION DISTRIBUTION UPON TERMINATION The Company will have the right at any time to dissolve, wind-up or terminate 1st Capital and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities. Such right is subject, however, to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company may dissolve, wind-up or terminate 1st Capital I and cause the Fixed Rate Subordinated Debentures to be distributed to the holders of the Fixed Rate Preferred Securities without dissolving, winding-up or terminating 1st Capital II and causing the Floating Rate Subordinated Debentures to be distributed to the holders of the Floating Rate Preferred Securities, and vice versa. Pursuant to the Trust Agreement, 1st Capital will automatically terminate upon expiration of its term and will terminate earlier on the first to occur of (i) certain events of bankruptcy, dissolution or liquidation of the Company, (ii) the distribution of a Like Amount of the Subordinated Debentures to the holders of its Trust Securities, if the Company, as depositor, has given written direction to the Property Trustee to terminate 1st Capital (which direction is optional and wholly within the discretion of the Company, as depositor), (iii) redemption of all of the Preferred Securities as described under "--Redemption or Exchange--Mandatory Redemption," or (iv) the entry of an order for the dissolution of 1st Capital by a court of competent jurisdiction. If an early termination occurs as described in clause (i), (ii) or (iv) of the preceding paragraph, 1st Capital will be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of 1st Capital as provided by applicable law, to the holders of such Trust Securities a Like Amount of the Subordinated Debentures, unless such distribution is determined by the Property Trustee not to be practical, in which event such holders will be entitled to receive out of the assets of 1st Capital available for distribution to holders, after satisfaction of liabilities to creditors of 1st Capital as provided by applicable law, an amount equal to, in the case of holders of Preferred Securities, the aggregate of the Liquidation Amount plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If such Liquidation Distribution can be paid only in part because 1st Capital has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by 1st Capital on the Preferred Securities will be paid on a pro rata basis. The Company, as the holder of the Common Securities, will be entitled to receive distributions upon any such liquidation pro rata with the holders of the Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities. See "--Subordination of Common Securities." Under current United States federal income tax law and interpretations and assuming, as expected, that 1st Capital is treated as a grantor trust, a distribution of the Subordinated Debentures should not be a taxable event to holders of the Preferred Securities. Should there be a change in law, a change in legal interpretation, a Tax Event or other circumstances, however, the distribution could be a taxable event to holders of the Preferred Securities. See "Certain Federal Income Tax Consequences--Receipt of Subordinated Debentures or Cash Upon Liquidation of 1st Capital." If the Company elects neither to redeem the Subordinated Debentures prior to maturity nor to liquidate 1st Capital and distribute the Subordinated Debentures to holders of the Preferred Securities, the Preferred Securities will remain outstanding until the repayment of the Subordinated Debentures. If the Company elects to liquidate 1st Capital and thereby causes the Subordinated Debentures to be distributed to holders of the Preferred Securities in liquidation of 1st Capital, the Company will continue to have the right to shorten or extend the maturity of such Subordinated Debentures, subject to certain conditions. See "Description of the Subordinated Debentures--General." LIQUIDATION VALUE The amount of the Liquidation Distribution payable on the Preferred Securities in the event of any liquidation of 1st Capital is $25 per Preferred Security plus accrued and unpaid Distributions thereon to the date of payment, which may be in the form of a distribution of such amount in Subordinated Debentures, subject to certain exceptions. See "--Liquidation Distribution Upon Termination." 28 35 EVENTS OF DEFAULT; NOTICE Any one of the following events constitutes an event of default under the Trust Agreement (an "Event of Default") with respect to the Preferred Securities (whatever the reason for such Event of Default and whether voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the occurrence of a Debenture Event of Default (see "Description of the Subordinated Debentures--Debenture Events of Default"); or (ii) default by 1st Capital in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (iii) default by 1st Capital in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (iv) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in the Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clauses (ii) or (iii) above), and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Trustee(s) by the holders of at least 25% in aggregate Liquidation Amount of the outstanding Preferred Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" under the Trust Agreement; or (v) the occurrence of certain events of bankruptcy or insolvency with respect to the Property Trustee and the failure by the Company to appoint a successor Property Trustee within 60 days thereof. Within five Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee will transmit notice of such Event of Default to the holders of the Preferred Securities, the Administrative Trustees and the Company, as depositor, unless such Event of Default has been cured or waived. The Company, as depositor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a Debenture Event of Default has occurred and is continuing, the Preferred Securities will have a preference over the Common Securities upon termination of 1st Capital. See "--Liquidation Distribution Upon Termination." The existence of an Event of Default does not entitle the holders of Preferred Securities to accelerate the maturity thereof. The Fixed Rate Preferred Securities and the Floating Rate Preferred Securities are not cross-defaulted. An Event of Default under the Fixed Rate Trust Agreement will not constitute an Event of Default under the Floating Rate Trust Agreement, and vice versa. REMOVAL OF 1ST CAPITAL TRUSTEES Unless a Debenture Event of Default has occurred and is continuing, any Trustee may be removed at any time by the holder of the Common Securities. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Preferred Securities. In no event, however, will the holders of the Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Company as the holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee will be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement. CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE Unless an Event of Default has occurred and is continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property (as defined in the Trust Agreement) may at the time be located, the Company, as the holder of the Common Securities, will have 29 36 power to appoint one or more Persons (as defined in the Trust Agreement) either to act as a co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to act as separate trustee of any such Trust Property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of the Trust Agreement. In case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone will have power to make such appointment. MERGER OR CONSOLIDATION OF TRUSTEES Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Trustee is a party, or any Person succeeding to all or substantially all the corporate trust business of such Trustee, will be the successor of such Trustee under the Trust Agreement, provided such Person is otherwise qualified and eligible. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF 1ST CAPITAL 1st Capital may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described below. 1st Capital may, at the request of the Company, with the consent of the Administrative Trustees and without the consent of the holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of 1st Capital with respect to the Preferred Securities, or (b) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Company expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee in its capacity as the holder of the Subordinated Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed (including, if applicable, The Nasdaq Stock Market's National Market), if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, (v) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Company has received an opinion from independent counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither 1st Capital nor such successor entity will be required to register as an "investment company" under the Investment Company Act, and (vi) the Company owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, 1st Capital will not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause 1st Capital or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT Except as provided below and under "Description of the Guarantee--Amendments and Assignment" and as otherwise required by the Trust Act and the Trust Agreement, the holders of the Preferred Securities will have no voting rights. The Trust Agreement may be amended from time to time by the Company, the Property Trustee and the Administrative Trustees, without the consent of the holders of the Preferred Securities (i) with respect to acceptance 30 37 of appointment by a successor trustee, (ii) to cure any ambiguity, correct or supplement any provisions in such Trust Agreement that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement (provided such amendment is not inconsistent with the other provisions of the Trust Agreement), or (iii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as is necessary to ensure that 1st Capital will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that 1st Capital will not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (ii), such action may not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments of such Trust Agreement will become effective when notice thereof is given to the holders of Trust Securities. The Trust Agreement may be amended by the Trustees and the Company with (i) the consent of holders representing not less than a majority in the aggregate Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect 1st Capital's status as a grantor trust for United States federal income tax purposes or 1st Capital's exemption from status as an "investment company" under the Investment Company Act. Notwithstanding anything in this paragraph to the contrary, without the consent of each holder of Trust Securities, the Trust Agreement may not be amended to (a) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date, or (b) restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. The Trustees will not, so long as any Subordinated Debentures are held by the Property Trustee, (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Property Trustee with respect to the Subordinated Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures will be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Debentures, where such consent is required, without, in each case, obtaining the prior approval of the holders of a majority in aggregate Liquidation Amount of all outstanding Preferred Securities; provided, however, that where a consent under the Indenture requires the consent of each holder of Subordinated Debentures affected thereby, no such consent will be given by the Property Trustee without the prior consent of each holder of the Preferred Securities. The Trustees may not revoke any action previously authorized or approved by a vote of the holders of the Preferred Securities except by subsequent vote of the holders of the Preferred Securities. The Property Trustee will notify each holder of Preferred Securities of any notice of default with respect to the Subordinated Debentures. In addition to obtaining the foregoing approvals of the holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees must obtain an opinion of counsel experienced in such matters to the effect that 1st Capital will not be classified as an association taxable as a corporation for United States federal income tax purposes on account of such action. Any required approval of holders of Preferred Securities may be given at a meeting of holders of Preferred Securities convened for such purpose or pursuant to written consent. The Property Trustee will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of Preferred Securities in the manner set forth in the Trust Agreement. No vote or consent of the holders of Preferred Securities will be required for 1st Capital to redeem and cancel its Preferred Securities in accordance with the Trust Agreement. Notwithstanding the fact that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Company, the Trustees or any affiliate of the Company or any Trustee, will, for purposes of such vote or consent, be treated as if they were not outstanding. PAYMENT AND PAYING AGENCY Payments in respect of the Preferred Securities will be made by check mailed to the address of the holder entitled thereto as such address will appear on the register of holders of the Preferred Securities. The paying agent for the Preferred Securities will initially be the Property Trustee and any co-paying agent chosen by the Property Trustee and 31 38 acceptable to the Administrative Trustees and the Company. The paying agent for the Preferred Securities may resign as paying agent upon 30 days' written notice to the Property Trustee and the Company. In the event that the Property Trustee no longer is the paying agent for the Preferred Securities, the Administrative Trustees will appoint a successor (which must be a bank or trust company acceptable to the Administrative Trustees and the Company) to act as paying agent. REGISTRAR AND TRANSFER AGENT The Property Trustee will act as the registrar and the transfer agent for the Preferred Securities. Registration of transfers of Preferred Securities will be effected without charge by or on behalf of 1st Capital, but upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. 1st Capital will not be required to register or cause to be registered the transfer of Preferred Securities after such Preferred Securities have been called for redemption. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, other than upon the occurrence and during the continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in the Trust Agreement and, after such Event of Default, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no Event of Default has occurred and is continuing and the Property Trustee is required to decide between alternative causes of action, construe ambiguous provisions in the Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of Preferred Securities are entitled under the Trust Agreement to vote, then the Property Trustee will take such action as is directed by the Company and if not so directed, will take such action as it deems advisable and in the best interests of the holders of the Trust Securities and will have no liability except for its own bad faith, negligence or willful misconduct. MISCELLANEOUS The Administrative Trustees are authorized and directed to conduct the affairs of and to operate 1st Capital in such a way that 1st Capital will not be deemed to be an "investment company" required to be registered under the Investment Company Act or classified as an association taxable as a corporation for United States federal income tax purposes and so that the Subordinated Debentures will be treated as indebtedness of the Company for United States federal income tax purposes. The Company and the Administrative Trustees are authorized, in this connection, to take any action, not inconsistent with applicable law, the certificate of trust of 1st Capital or the Trust Agreement, that the Company and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes. Holders of the Preferred Securities have no preemptive or similar rights. The Trust Agreement and the Preferred Securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware. 32 39 ~~DESCRIPTION OF THE SUBORDINATED DEBENTURES~~ (FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES) Concurrently with the issuance of the Fixed Rate Preferred Concurrently with the issuance of the Floating Rate Preferred Securities, 1st Capital I will invest the proceeds thereof, Securities, 1st Capital II will invest the proceeds thereof, together with the consideration paid by the Company for the together with the consideration paid by the Company for the Fixed Rate Common Securities, in the Fixed Rate Subordinated Floating Rate Common Securities, in the Floating Rate Debentures issued by the Company. The Fixed Rate Subordinated Subordinated Debentures issued by the Company. The Floating Debentures will be issued as unsecured debt under the Rate Subordinated Debentures will be issued as unsecured debt Indenture, to be dated as of , 1997 (the under the Indenture, to be dated as of , 1997 "Fixed Rate Indenture"), between the Company and State (the "Floating Rate Indenture"), between the Company and Street Bank and Trust Company, as trustee (the "Fixed Rate State Street Bank and Trust Company, as trustee (the Debenture Trustee"). The Fixed Rate Indenture will be "Floating Rate Debenture Trustee"). The Floating Rate qualified as an indenture under the Trust Indenture Indenture will be qualified as an indenture under Act. The following summary of the material terms and the Trust Indenture Act. The following summary of provisions of the Fixed Rate Subordinated Debentures and the the material terms and provisions of the Floating Rate Fixed Rate Indenture does not purport to be complete and is Subordinated Debentures and the Floating Rate Indenture does subject to, and is qualified in its entirety by reference to, not purport to be complete and is subject to, and is qualified the Fixed Rate Indenture and to the Trust Indenture Act. in its entirety by reference to, the Floating Rate Indenture Wherever particular defined terms of the Fixed Rate Indenture and to the Trust Indenture Act. Wherever particular defined are referred to, but not defined herein, such defined terms terms of the Floating Rate Indenture are referred to, but not are incorporated herein by reference. The form of the Fixed defined herein, such defined terms are incorporated herein by Rate Indenture has been filed as an exhibit to the reference. The form of the Floating Rate Indenture has been Registration Statement of which this Prospectus forms a part. filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL GENERAL The Fixed Rate Subordinated Debentures will be limited in The Floating Rate Subordinated Debentures will be limited in aggregate principal amount to approximately $25,774,000 (or aggregate principal amount to approximately $25,774,000 (or $28,350,525 if the option described under the heading $28,350,525 if the option described under the heading "Underwriting" is exercised by the Underwriters), such "Underwriting" is exercised by the Underwriters), such amount being the sum of the aggregate stated Fixed Rate amount being the sum of the aggregate stated Floating Rate Liquidation Amount of the Fixed Rate Trust Securities. The Liquidation Amount of the Floating Rate Trust Securities. The Fixed Rate Subordinated Debentures will bear interest at the Floating Rate Subordinated Debentures will bear interest at annual rate of % of the principal amount thereof, payable the annual rate equal to the sum of the 3-Month Treasury quarterly in arrears on March 31, June 30, September 30, and (determined in the same manner as the Floating Distribution December 31 of each year (each, a "Fixed Rate Interest Rate, as described under "Description of the Preferred Secur- Payment Date"), beginning June 30, 1997, to the Person (as ities--Distributions--Determination of 3-Month Treasury") plus defined in the Fixed Rate Indenture) in whose name each Fixed % (the "Floating Interest Rate") of the principal amount Rate Subordinated Debenture is registered, subject to certain thereof, payable quarterly in arrears on March 31, June 30, exceptions, at the close of business on the fifteenth day of September 30, and December 31 of each year (each, a "Floating the last month of the calendar quarter. It is anticipated Rate Interest Payment Date"), beginning June 30, 1997, to the that, until the liquidation of 1st Capital I, the Fixed Rate Person (as defined in the Floating Rate Indenture) in whose name Subordinated Debentures will be held in the name of the Fixed each Floating Rate Subordinated Debenture is registered, subject Rate Property Trustee in trust for the benefit of the holders to certain exceptions, at the close of business on the fifteenth of the Fixed Rate Preferred Securities. The amount of interest day of the last month of the calendar quarter. The Floating payable for any period will be computed on the Interest Rate for the (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 33 40 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) basis of a 360-day year of twelve 30-day months. In the period beginning on (and including) the date of issuance event that any date on which interest is payable on the and ending on (but excluding) March 31, 1997, will, date on which interest is payable on the Fixed Rate notwithstanding the foregoing, be %. It is anticipated Subordinated Debentures is not a Business Day, then payment that, until the liquidation of 1st Capital II, the Floating of the interest payable on such date will be made on the Rate Subordinated Debentures will be held in the name of next succeeding day that is a Business Day (and without any the Floating Rate Property Trustee in trust for the benefit interest or other payment in respect of any such delay) with of the holders of the Floating Rate Preferred Securities. the same force and effect as if made on the date such payment The amount of interest payable for any period will be computed was originally due and payable. Accrued interest that is not on the basis of a 360-day year of twelve 30-day months. In the paid on the applicable Fixed Rate Interest Payment Date will event that any date on which interest is payable on the Floating bear additional interest on the amount thereof (to the extent Rate Subordinated Debentures is not a Business Day, then payment permitted by law) at the rate per annum of %, thereof, of the interest payable on such date will be made on the next compounded quarterly. The term "interest," as used herein, succeeding day that is a Business Day (and without any includes quarterly interest payments, interest on quarterly interest or other payment in respect of any such interest payments not paid on the applicable Fixed Rate delay) with the same force and effect as if made on the date Interest Payment Date and Additional Interest, as applicable. such payment was originally due and payable. Accrued interest that is not paid on the applicable Floating Rate Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at the Floating Interest Rate compounded quarterly. The term "interest," as used herein, includes quarterly interest payments, interest on quarterly interest payments not paid on the applicable Floating Rate Interest Payment Date and Additional Interest, as applicable.
The Subordinated Debentures will mature on March 31, 2027 (such date, as it may be shortened or extended as hereinafter described, the "Stated Maturity"). Such date may be shortened at any time by the Company to any date not earlier than March 31, 2002, subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. Such date may also be extended at any time at the election of the Company but in no event to a date later than March 31, 2046, provided that at the time such election is made and at the time of extension (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in default in the payment of any interest or principal on the Subordinated Debentures, and (iii) 1st Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated. The Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, and vice versa. In the event that the Company elects to shorten or extend the Stated Maturity of the Subordinated Debentures, it will give notice thereof to the Debenture Trustee, 1st Capital and to the holders of the Subordinated Debentures no more than 180 days and no less than 90 days prior to the effectiveness thereof. The Company will not have the right to purchase the Subordinated Debentures, in whole or in part, from 1st Capital until after March 31, 2002, except if a Tax Event, a Capital Treatment Event or an Investment Company Event has occurred and is continuing. The Subordinated Debentures will be unsecured and will rank junior and be subordinate in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of the Bank, upon the Bank's liquidation or reorganization or otherwise (and thus the ability of holders of the Subordinated Debentures to benefit indirectly from such distribution), is subject to the prior claim of creditors of the Bank, except to the extent that the Company may itself be recognized as a creditor of the Bank. The Subordinated Debentures will, therefore, be effectively subordinated to all existing and future liabilities of the Bank, and holders of Subordinated Debentures should look only to the assets of the Company for payments on the Subordinated Debentures. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of the Company, including Senior Debt, 34 41 Subordinated Debt and Additional Senior Obligations, whether under the Indenture or any existing indenture or other indenture that the Company may enter into in the future or otherwise. See "--Subordination." The Indenture does not contain provisions that afford holders of the Subordinated Debentures protection in the event of a highly leveraged transaction or other similar transaction involving the Company that may adversely affect such holders. OPTION TO EXTEND INTEREST PAYMENT PERIOD The Company has the right under the Indenture at any time during the term of the Subordinated Debentures, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest at any time, or from time to time (each, an "Extended Interest Payment Period"). The right to defer the payment of interest on the Subordinated Debentures is limited, however, to a period, in each instance, not exceeding 20 consecutive quarters and no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. At the end of each Extended Interest Payment Period, the Company must pay all interest then accrued and unpaid (together with interest thereon at the Interest Rate, compounded quarterly, to the extent permitted by applicable law). During an Extended Interest Payment Period, interest will continue to accrue and holders of Subordinated Debentures (or the holders of Preferred Securities if such securities are then outstanding) will be required to accrue and recognize income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount." During any such Extended Interest Payment Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock (other than (a) dividends or distributions in common stock of the Company, any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (b) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Although the Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures will rank pari passu and, therefore, if the Company elects to defer the payment of interest on one, it would not be permitted to make interest payments with respect to the other. Prior to the termination of any such Extended Interest Payment Period, the Company may further defer the payment of interest; provided that no Extended Interest Payment Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extended Interest Payment Period and the payment of all amounts then due on any Interest Payment Date, the Company may elect to begin a new Extended Interest Payment Period subject to the above requirements. No interest will be due and payable during an Extended Interest Payment Period, except at the end thereof. The Company has no present intention of exercising its rights to defer payments of interest on the Subordinated Debentures. The Company must give the Property Trustee, the Administrative Trustees and the Debenture Trustee notice of its election of such Extended Interest Payment Period at least two Business Days prior to the earlier of (i) the next succeeding date on which Distributions on the Trust Securities would have been payable except for the election to begin such Extended Interest Payment Period, or (ii) the date 1st Capital is required to give notice of the record date, or the date such Distributions are payable, to The Nasdaq Stock Market's National Market (or other applicable self-regulatory organization) or to holders of the Preferred Securities, but in any event at least one Business Day before such record date. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extended Interest Payment Period. ADDITIONAL SUMS If 1st Capital or the Property Trustee is required to pay any additional taxes, duties or other governmental charges as a result of the occurrence of a Tax Event, the Company will pay as additional amounts (referred to herein 35 42 as "Additional Interest") on the Subordinated Debentures such additional amounts as may be required so that the net amounts received and retained by 1st Capital after paying any such additional taxes, duties or other governmental charges will not be less than the amounts 1st Capital would have received had such additional taxes, duties or other governmental charges not been imposed. REDEMPTION OR EXCHANGE The Company will have the right to redeem the Subordinated Debentures prior to maturity (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time in whole (but not in part), within 180 days following the occurrence of a Tax Event, a Capital Treatment Event or an Investment Company Event, in each case at a redemption price equal to the accrued and unpaid interest on the Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. Any such redemption prior to the Stated Maturity will be subject to prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company may exercise the rights described herein with regard to the Fixed Rate Subordinated Debentures independent of such rights with regard to the Floating Rate Subordinated Debentures, and vice versa. It is also possible that a Tax Event, Capital Treatment Event or Investment Company Event could occur with respect to the Fixed Rate Subordinated Debentures but not the Floating Rate Subordinated Debentures, and vice versa. "Tax Event" means the receipt by 1st Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) interest payable by the Company on the Subordinated 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, (ii) 1st Capital is, or will be within 90 days after the date of such opinion of counsel, subject to United States federal income tax with respect to income received or accrued on the Subordinated Debentures, or (iii) 1st Capital is, or will be within 90 days after the date of such opinion of counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. The Company must request and receive an opinion with regard to such matters within a reasonable period of time after it becomes aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. A "Capital Treatment Event" means the receipt by 1st Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such proposed change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk of impairment of the Company's ability to treat the aggregate Liquidation Amount of the Preferred Securities (or any substantial portion thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. "Investment Company Event" means the receipt by 1st Capital of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, 1st Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act, which change becomes effective on or after the date of original issuance of the Preferred Securities. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Subordinated Debentures to be redeemed at its registered address. Unless the Company defaults in payment of the redemption price for the Subordinated Debentures, on and after the redemption date interest ceases to accrue on such Subordinated Debentures or portions thereof called for redemption. The Subordinated Debentures will not be subject to any sinking fund. 36 43 DISTRIBUTION UPON LIQUIDATION As described under "Description of the Preferred Securities--Liquidation Distribution Upon Termination," under certain circumstances involving the termination of 1st Capital, the Subordinated Debentures may be distributed to the holders of the Preferred Securities in liquidation of 1st Capital after satisfaction of liabilities to creditors of 1st Capital as provided by applicable law. The rights described herein may be exercised by the Company with regard to 1st Capital I and the Fixed Rate Preferred Securities and the Fixed Rate Subordinated Debentures independent of such rights with regard to 1st Capital II and the Floating Rate Preferred Securities and the Floating Rate Subordinated Debentures, and vice versa. Any such distribution will be subject to receipt of prior approval by the Federal Reserve if then required under applicable policies or guidelines of the Federal Reserve. If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of 1st Capital, the Company will use its best efforts to list the Subordinated Debentures on The Nasdaq Stock Market's National Market or such stock exchanges, if any, on which the Preferred Securities are then listed. There can be no assurance as to the market price of any Subordinated Debentures that may be distributed to the holders of Preferred Securities. RESTRICTIONS ON CERTAIN PAYMENTS If at any time (i) there has occurred a Debenture Event of Default, (ii) the Company is in default with respect to its obligations under the Guarantee, or (iii) the Company has given notice of its election of an Extended Interest Payment Period as provided in the Indenture with respect to the Subordinated Debentures and has not rescinded such notice, or such Extended Interest Payment Period, or any extension thereof, is continuing, the Company will not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock (other than (a) dividends or distributions in common stock of the Company, any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (b) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees), (2) make any payment of principal, interest or premium, if any, on or repay or repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (3) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. The Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures will rank pari passu. SUBORDINATION The Indenture provides that the Subordinated Debentures issued thereunder are subordinated and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceedings of the Company, the holders of Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company will first be entitled to receive payment in full of principal of (and premium, if any) and interest, if any, on such Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company before the holders of Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest on the Subordinated Debentures. In the event of the acceleration of the maturity of any Subordinated Debentures, the holders of all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company outstanding at the time of such acceleration will first be entitled to receive payment in full of all amounts due thereon (including any amounts due upon acceleration) before the holders of the Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest on the Subordinated Debentures. No payments on account of principal or interest in respect of the Subordinated Debentures may be made if there has occurred and is continuing a default in any payment with respect to Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company or an event of default with respect to any Senior Debt, Subordinated 37 44 Debt or Additional Senior Obligations of the Company resulting in the acceleration of the maturity thereof, or if any judicial proceeding is pending with respect to any such default. "Debt" means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (v) every capital lease obligation of such Person, and (vi) and every obligation of the type referred to in clauses (i) through (v) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "Senior Debt" means, with respect to the Company, the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of the Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Subordinated Debentures or to other Debt which is pari passu with, or subordinated to, the Subordinated Debentures; provided, however, that Senior Debt will not be deemed to include (i) any Debt of the Company which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to the Company, (ii) any Debt of the Company to any of its subsidiaries, (iii) any Debt to any employee of the Company, (iv) any Debt which by its terms is subordinated to trade accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made to the holders of such Debt by the holders of the Subordinated Debentures as a result of the subordination provisions of the Indenture would be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such Debt is subject, and (v) Debt which constitutes Subordinated Debt. "Subordinated Debt" means, with respect to the Company, the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of the Indenture or thereafter incurred, which is by its terms expressly provided to be junior and subordinate to other Debt of the Company (other than the Subordinated Debentures). "Additional Senior Obligations" means, with respect to the Company, all indebtedness, whether incurred on or prior to the date of the Indenture or thereafter incurred, for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity contracts and similar arrangements; provided, however, that Additional Senior Obligations do not include claims in respect of Senior Debt or Subordinated Debt or obligations which, by their terms, are expressly stated to be not superior in right of payment to the Subordinated Debentures or to rank pari passu in right of payment with the Subordinated Debentures. "Claim," as used herein, has the meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978, as amended. The Indenture places no limitation on the amount of additional Senior Debt, Subordinated Debt or Additional Senior Obligations that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. As of December 31, 1996, the Company had aggregate Senior Debt, Subordinated Debt and Additional Senior Obligations of approximately $18.6 million. Because the Company is a holding company, the Subordinated Debentures are effectively subordinated to all existing and future liabilities of the Company's subsidiaries, including obligations to depositors of the Bank. PAYMENT AND PAYING AGENTS Payment of principal of and any interest on the Subordinated Debentures will be made at the office of the Debenture Trustee in Boston, Massachusetts, except that, at the option of the Company, payment of any interest may 38 45 be made (i) by check mailed to the address of the Person entitled thereto as such address appears in the register of holders of the Subordinated Debentures, or (ii) by transfer to an account maintained by the Person entitled thereto as specified in the register of holders of the Subordinated Debentures, provided that proper transfer instructions have been received by the regular record date. Payment of any interest on Subordinated Debentures will be made to the Person in whose name such Subordinated Debenture is registered at the close of business on the regular record date for such interest, except in the case of defaulted interest. The Company may at any time designate additional paying agents for the Subordinated Debentures or rescind the designation of any paying agent for the Subordinated Debentures; however, the Company will at all times be required to maintain a paying agent in each place of payment for the Subordinated Debentures. Any moneys deposited with the Debenture Trustee or any paying agent for the Subordinated Debentures, or then held by the Company in trust, for the payment of the principal of or interest on the Subordinated Debentures and remaining unclaimed for two years after such principal or interest has become due and payable will be repaid to the Company on May 31 of each year or (if then held in trust by the Company) will be discharged from such trust and the holder of such Subordinated Debenture will thereafter look, as a general unsecured creditor, only to the Company for payment thereof. REGISTRAR AND TRANSFER AGENT The Debenture Trustee will act as the registrar and the transfer agent for the Subordinated Debentures. Subordinated Debentures may be presented for registration of transfer (with the form of transfer endorsed thereon, or a satisfactory written instrument of transfer, duly executed) at the office of the registrar in Boston, Massachusetts. The Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts. The Company may at any time designate additional transfer agents with respect to the Subordinated Debentures. In the event of any redemption, neither the Company nor the Debenture Trustee will be required to (i) issue, register the transfer of or exchange Subordinated Debentures during a period beginning at the opening of business 15 days before the day of selection for redemption of Subordinated Debentures and ending at the close of business on the day of mailing of the relevant notice of redemption, or (ii) transfer or exchange any Subordinated Debentures so selected for redemption, except, in the case of any Subordinated Debentures being redeemed in part, any portion thereof not to be redeemed. MODIFICATION OF INDENTURE The Company and the Debenture Trustee may, from time to time without the consent of the holders of the Subordinated Debentures, amend, waive or supplement the Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting the Company and the Debenture Trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding Subordinated Debentures, to modify the Indenture; provided, that no such modification may, without the consent of the holder of each outstanding Subordinated Debenture affected by such proposed modification, (i) extend the fixed maturity of the Subordinated Debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or (ii) reduce the percentage of principal amount of Subordinated Debentures, the holders of which are required to consent to any such modification of the Indenture; provided that so long as any of the Preferred Securities remain outstanding, no such modification may be made that requires the consent of the holders of the Subordinated Debentures, and no termination of the Indenture may occur, and no waiver of any Debenture Event of Default may be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount of the Preferred Securities and that if the consent of the holder of each Subordinated Debenture is required, such modification will not be effective until each holder of Trust Securities has consented thereto. DEBENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events with respect to the Subordinated Debentures that has occurred and is continuing constitutes an event of default (each, a "Debenture Event of Default") with respect to the Subordinated Debentures: 39 46 (i) failure for 30 days to pay any interest on the Subordinated Debentures, when due (subject to the deferral of any due date in the case of an Extended Interest Payment Period); or (ii) failure to pay any principal on the Subordinated Debentures when due whether at maturity, upon redemption by declaration or otherwise; or (iii) failure to observe or perform in any material respect certain other covenants contained in the Indenture for 90 days after written notice to the Company from the Debenture Trustee or the holders of at least 25% in aggregate outstanding principal amount of the Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of the Company. The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee. The Debenture Trustee, or the holders of not less than 25% in aggregate outstanding principal amount of the Subordinated Debentures, may declare the principal due and payable immediately upon a Debenture Event of Default. The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures may annul such declaration and waive the default if the default (other than the non-payment of the principal of the Subordinated Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee. Should the holders of the Subordinated Debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities will have such right. The Company is required to file annually with the Debenture Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants applicable to it under the Indenture. If a Debenture Event of Default has occurred and is continuing, the Property Trustee will have the right to declare the principal of and the interest on such Subordinated Debentures, and any other amounts payable under the Indenture, to be forthwith due and payable and to enforce its other rights as a creditor with respect to such Subordinated Debentures. The Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures are not cross-defaulted. A Debenture Event of Default under the Fixed Rate Indenture will not constitute a Debenture Event of Default under the Floating Rate Indenture, and Vice Versa. ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES If a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest on or principal of the Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Preferred Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such holder (a "Direct Action"). In connection with such Direct Action, the Company will have a right of set-off under the Indenture to the extent of any payment made by the Company to such holder of Preferred Securities in the Direct Action. The Company may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Preferred Securities. If the right to bring a Direct Action is removed, 1st Capital may become subject to the reporting obligations under the Exchange Act. The Company has the right under the Indenture to set-off any payment made to such holder of Preferred Securities by the Company in connection with a Direct Action. The holders of the Preferred Securities will not be able to exercise directly any remedies, other than those set forth in the preceding paragraph, available to the holders of the Subordinated Debentures unless there has been an Event of Default under the Trust Agreement. See "Description of the Preferred Securities--Events of Default; Notice." CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS The Company may not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, and any Person may not consolidate with or merge into the Company 40 47 or sell, convey, transfer or otherwise dispose of its properties and assets substantially as an entirety to the Company, unless (i) in the event the Company consolidates with or merges into another Person or conveys or transfers its properties and assets substantially as an entirety to any Person, the successor Person is organized under the laws of the United States or any State or the District of Columbia, and such successor Person expressly assumes by supplemental indenture the Company's obligations on the Subordinated Debentures issued under the Indenture, (ii) immediately after giving effect thereto, no Debenture Event of Default, and no event which, after notice or lapse of time or both, would become a Debenture Event of Default, has occurred and is continuing, and (iii) certain other conditions as prescribed in the Indenture are met. SATISFACTION AND DISCHARGE The Indenture will cease to be of further effect (except as to the Company's obligations to pay certain sums due pursuant to the Indenture and to provide certain officers' certificates and opinions of counsel described therein) and the Company will be deemed to have satisfied and discharged the Indenture when, among other things, all Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year or are to be called for redemption within one year, and the Company deposits or causes to be deposited with the Debenture Trustee funds, in trust, for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on the Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation, for the principal and interest to the date of the deposit or to the Stated Maturity or redemption date, as the case may be. GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by and construed in accordance with the laws of the State of Indiana. INFORMATION CONCERNING THE DEBENTURE TRUSTEE The Debenture Trustee has and is subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Debenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Debenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. MISCELLANEOUS The Company has agreed, pursuant to the Indenture, for so long as Trust Securities remain outstanding, (i) to maintain directly or indirectly 100% ownership of the Common Securities of 1st Capital (provided that certain successors which are permitted pursuant to the Indenture may succeed to the Company's ownership of the Common Securities), (ii) not to voluntarily terminate, wind up or liquidate 1st Capital, except upon prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies of the Federal Reserve, and (a) in connection with a distribution of Subordinated Debentures to the holders of the Preferred Securities in liquidation of 1st Capital, or (b) in connection with certain mergers, consolidations or amalgamations permitted by the Trust Agreement, and (iii) to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause 1st Capital to remain classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. 41 ~~48 DESCRIPTION OF THE GUARANTEE~~ (FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES) The Preferred Securities Guarantee Agreement with respect The Preferred Securities Guarantee Agreement with respect to to the Fixed Rate Preferred Securities (the "Fixed Rate the Floating Rate Preferred Securities (the "Floating Rate Guarantee") will be executed and delivered by the Company Guarantee") will be executed and delivered by the Company concurrently with the issuance of the Fixed Rate Preferred concurrently with the issuance of the Floating Rate Preferred Securities for the benefit of the holders of the Fixed Rate Securities for the benefit of the holders of the Floating Rate Preferred Securities. The Fixed Rate Guarantee will be Preferred Securities. The Floating Rate Guarantee will be qualified as an indenture under the Trust Indenture Act. The qualified as an indenture under the Trust Indenture Act. The Fixed Rate Guarantee Trustee, State Street Bank and Trust Floating Rate Guarantee Trustee, State Street Bank and Trust Company, will act as indenture trustee under the Fixed Rate Company, will act as indenture trustee under the Floating Rate Guarantee for purposes of complying with the provisions of the Guarantee for purposes of complying with the provisions of the Trust Indenture Act and will hold the Fixed Rate Guarantee for Trust Indenture Act and will hold the Floating Rate Guarantee the benefit of the holders of the Fixed Rate Preferred for the benefit of the holders of the Floating Rate Preferred Securities. The following summary of the material terms and Securities. The following summary of the material terms and provisions of the Fixed Rate Guarantee does not purport to be provisions of the Floating Rate Guarantee does not purport to complete and is subject to, and qualified in its entirety by be complete and is subject to, and qualified in its entirety reference to, all of the provisions of the Fixed Rate by reference to, all of the provisions of the Floating Rate Guarantee and the Trust Indenture Act. Wherever particular Guarantee and the Trust Indenture Act. Wherever particular defined terms of the Fixed Rate Guarantee are referred to, but defined terms of the Floating Rate Guarantee are referred to, not defined herein, such defined terms are incorporated herein but not defined herein, such defined terms are incorporated by reference. The form of the Fixed Rate Guarantee has been herein by reference. The form of the Floating Rate Guarantee filed as an exhibit to the Registration Statement of which has been filed as an exhibit to the Registration Statement of this Prospectus forms a part. which this Prospectus forms a part.
GENERAL The Company will, pursuant to the Guarantee, irrevocably agree to pay in full on a subordinated basis, to the extent set forth therein, the Guarantee Payments (as defined herein) to the holders of the Preferred Securities, as and when due, regardless of any defense, right of set-off or counterclaim that 1st Capital may have or assert other than the defense of payment. The following payments with respect to the Preferred Securities, to the extent not paid by or on behalf of 1st Capital (the "Guarantee Payments"), will be subject to the Guarantee: (i) any accrued and unpaid Distributions required to be paid on the Preferred Securities, to the extent that 1st Capital has funds available therefor at such time, (ii) the Redemption Price with respect to any Preferred Securities called for redemption to the extent that 1st Capital has funds available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of 1st Capital (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all of the Preferred Securities), the lesser of (a) the amount of the Liquidation Distribution, to the extent 1st Capital has funds available therefor at such time, and (b) the amount of assets of 1st Capital remaining available for distribution to holders of Preferred Securities in liquidation of 1st Capital. The obligation of the Company to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Company to the holders of the Preferred Securities or by causing 1st Capital to pay such amounts to such holders. The Guarantee will not apply to any payment of Distributions except to the extent 1st Capital has funds available therefor. If the Company does not make interest payments on the Subordinated Debentures held by 1st Capital, 1st Capital will not pay Distributions on the Preferred Securities and will not have funds legally available therefor. The Fixed Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Fixed Rate Preferred Securities and the Floating Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Floating Rate Preferred Securities. Holders of Fixed Rate Preferred Securities will, therefore, have no rights under the Floating Rate Guarantee, and holders of Floating Rate Preferred Securities will have no rights under the Fixed Rate Guarantee. 42 49 STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of the Company and will rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company in the same manner as the Subordinated Debentures. The Guarantee does not place a limitation on the amount of additional Senior Debt, Subordinated Debt or Additional Senior Obligations that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. The Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against any other Person). The Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by 1st Capital or upon distribution of the Subordinated Debentures to the holders of the Preferred Securities. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of the Bank upon the Bank's liquidation or reorganization or otherwise is subject to the prior claims of creditors of the Bank, except to the extent the Company may itself be recognized as a creditor of the Bank. The Company's obligations under the Guarantee, therefore, will be effectively subordinated to all existing and future liabilities of the Company's subsidiaries, and claimants should look only to the assets of the Company for payments thereunder. AMENDMENTS AND ASSIGNMENT Except with respect to any changes which do not materially adversely affect the rights of holders of the Preferred Securities (in which case no vote will be required), the Guarantee may not be amended without the prior approval of the holders of not less than a majority of the aggregate Liquidation Amount of the outstanding Preferred Securities. See "Description of the Preferred Securities--Voting Rights; Amendment of Trust Agreement." All guarantees and agreements contained in the Guarantee will bind the successors, assigns, receivers, trustees and representatives of the Company and will inure to the benefit of the holders of the Preferred Securities then outstanding. EVENTS OF DEFAULT An event of default under the Guarantee will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of not less than a majority in aggregate Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. The Fixed Rate Guarantee and the Floating Rate Guarantee are not cross-defaulted. A default under the Fixed Rate Guarantee will not constitute a default under the Floating Rate Guarantee, and vice versa. Any holder of Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against 1st Capital, the Guarantee Trustee or any other Person. The Company, as guarantor, is required to file annually with the Guarantee Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants applicable to it under the Guarantee. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, other than during the occurrence and continuance of a default by the Company in performance of the Guarantee, undertakes to perform only such duties as are specifically set forth in the Guarantee and, after default with respect to the Guarantee, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to such provisions, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee at the request of any holder of any Preferred Securities, unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. 43 50 TERMINATION OF THE GUARANTEE The Guarantee will terminate and be of no further force and effect upon (a) full payment of the Redemption Price of the Preferred Securities, (b) full payment of the amounts payable upon liquidation of 1st Capital, or (c) distribution of the Subordinated Debentures to the holders of the Preferred Securities. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Preferred Securities must restore payment of any sums paid under such Preferred Securities or the Guarantee. GOVERNING LAW The Guarantee will be governed by and construed in accordance with the laws of the State of Indiana. EXPENSE AGREEMENT The Company will enter into a separate Agreement as to Expenses and Liabilities (each, an "Expense Agreement") under the Fixed Rate Trust Agreement (relating only to the Fixed Rate Preferred Securities) and under the Floating Rate Trust Agreement (relating only to the Floating Rate Preferred Securities). The Company will, under each Expense Agreement, irrevocably and unconditionally guarantee to each person or entity to whom 1st Capital becomes indebted or liable, the full payment of any costs, expenses or liabilities of 1st Capital, other than obligations of 1st Capital to pay to the holders of the Preferred Securities or other similar interests in 1st Capital of the amounts due such holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be. Third party creditors of 1st Capital may proceed directly against the Company under the Expense Agreement, regardless of whether such creditors had notice of the Expense Agreement. RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE SUBORDINATED DEBENTURES AND THE GUARANTEE FULL AND UNCONDITIONAL GUARANTEE Payments of Distributions and other amounts due on the Preferred Securities (to the extent 1st Capital has funds available for the payment of such Distributions) are irrevocably guaranteed by the Company as and to the extent set forth under "Description of the Guarantee." The Company and 1st Capital believe that, taken together, the obligations of the Company under the Subordinated Debentures, the Indenture, the Trust Agreement, the Expense Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of payment of Distributions and other amounts due on the Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the obligations of 1st Capital under the Preferred Securities. If and to the extent that the Company does not make payments on the Subordinated Debentures, 1st Capital will not pay Distributions or other amounts due on the Preferred Securities. The Guarantee does not cover payment of Distributions when 1st Capital does not have sufficient funds to pay such Distributions. In such event, the remedy of a holder of Preferred Securities is to institute a legal proceeding directly against the Company for enforcement of payment of such Distributions to such holder. The obligations of the Company under the Guarantee are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company. SUFFICIENCY OF PAYMENTS As long as payments of interest and other payments are made when due on the Subordinated Debentures, such payments will be sufficient to cover Distributions and other payments due on the Preferred Securities, primarily because (i) the aggregate principal amount of the Subordinated Debentures will be equal to the sum of the aggregate stated Liquidation Amount of the Trust Securities, (ii) the interest rate and interest and other payment dates on the Subordinated Debentures will match the Distribution rate and Distribution and other payment dates for the Preferred Securities, (iii) the Company will pay for all and any costs, expenses and liabilities of 1st Capital (except the obligations of 1st Capital to holders of the Preferred Securities), and (iv) the Trust Agreement further provides that 1st Capital will not engage in any activity that is not consistent with the limited purposes of 1st Capital. 44 51 ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES A holder of any Preferred Security may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee, 1st Capital or any other Person. A default or event of default under any Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company would not constitute a default or Event of Default. In the event, however, of payment defaults under, or acceleration of, Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company, the subordination provisions of the Indenture provide that no payments may be made in respect of the Subordinated Debentures until such Senior Debt, Subordinated Debt or Additional Senior Obligations has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on the Subordinated Debentures would constitute an Event of Default. LIMITED PURPOSE OF 1ST CAPITAL The Preferred Securities evidence a preferred undivided beneficial interest in the assets of 1st Capital. 1st Capital exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in Subordinated Debentures. A principal difference between the rights of a holder of a Preferred Security and the rights of a holder of a Subordinated Debenture is that a holder of a Subordinated Debenture is entitled to receive from the Company the principal amount of and interest accrued on Subordinated Debentures held, while a holder of Preferred Securities is entitled to receive Distributions from 1st Capital (or from the Company under the Guarantee) if and to the extent 1st Capital has funds available for the payment of such Distributions. RIGHTS UPON TERMINATION Upon any voluntary or involuntary termination, winding-up or liquidation of 1st Capital involving the liquidation of the Subordinated Debentures, the holders of the Preferred Securities will be entitled to receive, out of assets held by 1st Capital, the Liquidation Distribution in cash. See "Description of the Preferred Securities--Liquidation Distribution Upon Termination." Upon any voluntary or involuntary liquidation or bankruptcy of the Company, the Property Trustee, as holder of the Subordinated Debentures, would be a subordinated creditor of the Company, subordinated in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company (as set forth in the Indenture), but entitled to receive payment in full of principal and interest before any shareholders of the Company receive payments or distributions. Since the Company is the guarantor under the Guarantee and has agreed to pay for all costs, expenses and liabilities of 1st Capital (other than the obligations of 1st Capital to the holders of its Preferred Securities), the positions of a holder of the Preferred Securities and a holder of the Subordinated Debentures relative to other creditors and to shareholders of the Company in the event of liquidation or bankruptcy of the Company are expected to be substantially the same. CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following is a summary of the material United States federal income tax considerations that may be relevant to the purchasers of Preferred Securities which has been passed upon by Lewis, Rice & Fingersh, L.C., counsel to the Company and 1st Capital insofar as it relates to matters of law and legal conclusions. The conclusions expressed herein are based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), regulations thereunder and current administrative rulings and court decisions, all of which are subject to change at any time, with possible retroactive effect. Subsequent changes may cause tax consequences to vary substantially from the consequences described below. Furthermore, the authorities on which the following summary is based are subject to various interpretations, and it is therefore possible that the United States federal income tax treatment of the purchase, ownership, and disposition of Preferred Securities may differ from the treatment described below. No attempt has been made in the following discussion to comment on all United States federal income tax matters affecting purchasers of Preferred Securities. Moreover, the discussion generally focuses on holders of Preferred Securities who are individual citizens or residents of the United States and who acquire Preferred Securities on their original issue at their offering price and hold Preferred Securities as capital assets. The discussion has only limited application to dealers in securities, corporations, estates, trusts or nonresident aliens and does not address all the tax consequences that may be relevant to holders who may be subject to special tax treatment, such as, for 45 52 example, banks, thrifts, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that will hold the Preferred Securities as a position in a "straddle," as part of a "synthetic security" or "hedge," as part of a "conversion transaction" or other integrated investment, or as other than a capital asset. The following summary also does not address the tax consequences to persons that have a functional currency other than the U.S. dollar or the tax consequences to shareholders, partners or beneficiaries of a holder of Preferred Securities. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Preferred Securities. Accordingly, each prospective investor should consult, and should rely exclusively on, such investor's own tax advisors in analyzing the federal, state, local and foreign tax consequences of the purchase, ownership or disposition of Preferred Securities. CLASSIFICATION OF THE SUBORDINATED DEBENTURES The Company intends to take the position that the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company under current law, and, by acceptance of a Preferred Security, each holder covenants to treat the Subordinated Debentures as indebtedness and the Preferred Securities as evidence of an indirect beneficial ownership interest in the Subordinated Debentures. No assurance can be given, however, that such position of the Company will not be challenged by the Internal Revenue Service or, if challenged, that such a challenge will not be successful. The remainder of this discussion assumes that the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. CLASSIFICATION OF 1ST CAPITAL Under current law and assuming full compliance with the terms of the Trust Agreement and Indenture (and certain other documents described herein), 1st Capital will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Preferred Securities generally will be treated as owning an undivided beneficial interest in the Subordinated Debentures, and each holder will be required to include in its gross income any OID accrued with respect to its allocable share of the Subordinated Debentures whether or not cash is actually distributed to such holder. POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT Because the Company has the option, under the terms of the Subordinated Debentures, to defer (so long as no Debenture Event of Default has occurred and is continuing) payments of interest by extending interest payment periods for up to 20 consecutive quarters, all of the stated interest payments on the Subordinated Debentures will be treated as OID. Holders of debt instruments issued with OID must include that discount in income on an economic accrual basis before the receipt of cash attributable to the interest, regardless of their method of tax accounting. Generally, all of a holder's taxable interest income with respect to the Subordinated Debentures will be accounted for as OID. Actual payments and distributions of stated interest will not, however, be separately reported as taxable income. The amount of OID that accrues in any quarter will approximately equal the amount of the interest that accrues on the Subordinated Debentures in that quarter at the stated interest rate. In the event that the interest payment period is extended, holders will continue to accrue OID approximately equal to the amount of the interest payment due at the end of the extended interest payment period on an economic accrual basis over the length of the extended interest payment period. Because income on the Preferred Securities will constitute interest income generally and OID specifically, corporate holders of Preferred Securities will not be entitled to a dividends-received deduction with respect to any income recognized with respect to the Preferred Securities. MARKET DISCOUNT AND ACQUISITION PREMIUM Holders of Preferred Securities other than a holder who purchased the Preferred Securities upon original issuance may be considered to have acquired their undivided interests in the Subordinated Debentures with "market discount" or "acquisition premium" as such phrases are defined for United States federal income tax purposes. Such 46 53 holders are advised to consult their tax advisors as to the income tax consequences of the acquisition, ownership and disposition of the Preferred Securities. RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF 1ST CAPITAL Under certain circumstances, as described under "Description of the Preferred Securities--Redemption or Exchange" and "--Liquidation Distribution Upon Termination," the Subordinated Debentures may be distributed to holders of Preferred Securities upon a liquidation of 1st Capital. Under current United States federal income tax law, such a distribution would be treated as a nontaxable event to each such holder and would result in such holder having an aggregate tax basis in the Subordinated Debentures received in the liquidation equal to such holder's aggregate tax basis in the Preferred Securities immediately before the distribution. A holder's holding period in the Subordinated Debentures so received in liquidation of 1st Capital would include the period for which such holder held the Preferred Securities. If, however, a Tax Event occurs which results in 1st Capital being treated as an association taxable as a corporation, the distribution would likely constitute a taxable event to holders of the Preferred Securities. Under certain circumstances described herein, the Subordinated Debentures may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Preferred Securities. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed Preferred Securities, and a holder would recognize gain or loss as if the holder sold such Preferred Securities for cash. See "Description of the Preferred Securities--Redemption or Exchange" and "--Liquidation Distribution Upon Termination." DISPOSITION OF PREFERRED SECURITIES A holder that sells Preferred Securities will recognize gain or loss equal to the difference between the amount realized on the sale of the Preferred Securities and the holder's adjusted tax basis in such Preferred Securities. A holder's adjusted tax basis in the Preferred Securities generally will be its initial purchase price increased by OID previously includible in such holder's gross income to the date of disposition and decreased by payments received on the Preferred Securities to the date of disposition. Such gain or loss will generally be a capital gain or loss and will be a long-term capital gain or loss if the Preferred Securities have been held for more than one year at the time of sale. The Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder that disposes of its Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income, and to add such amount to its adjusted tax basis in its pro rata share of the underlying Subordinated Debentures deemed disposed of. To the extent the selling price is less than the holder's adjusted tax basis (which basis will include, in the form of OID, all accrued but unpaid interest), a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. EFFECT OF PROPOSED CHANGES IN TAX LAWS On March 19, 1996, President Clinton proposed certain tax law changes that would, among other things, generally deny corporate issuers a deduction for interest in respect of certain debt obligations issued on or after December 7, 1995 (the "1996 Proposed Legislation") if such debt obligations have a maximum term in excess of 20 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint statement (the "Joint Statement") indicating their intent that certain legislative proposals initiated by the Clinton administration, including the 1996 Proposed Legislation, that may be adopted by either of the tax-writing committees of Congress would have an effective date that is no earlier than the date of "appropriate Congressional action." In addition, subsequent to the publication of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials concurring with the views expressed in the Joint Statement. Neither the 1996 Proposed Legislation nor similar legislation was enacted during the 104th Congress. On February 6, 1997, President Clinton proposed in the administration's fiscal year 1998 budget certain tax law changes (the "1997 Proposed Legislation") that would, among 47 54 other things, generally deny corporate issuers a deduction for interest or OID in respect of certain debt obligations if such debt obligations have a maximum term in excess of 15 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. The 1997 Proposed Legislation also contains a provision that would deny a deduction to corporate issuers for interest or OID with respect to debt instruments that have a maximum term of more than 40 years (including rights to extend, renew or relend), or are payable in stock of the issuer or a related party. The U.S. Treasury Department's summary of the 1997 Proposed Legislation states that the above provisions regarding the deduction of interest would generally be effective for instruments issued on or after the date of first Congressional committee action with respect to the 1997 Proposed Legislation. The Ways and Means Committee began a full committee hearing on the President's fiscal 1998 budget on February 11, 1997. There can be no assurance that the effective date guidance in the 1997 Proposed Legislation will be adopted if the proposed change to the tax law is enacted, or that other legislation enacted after the date hereof will not otherwise adversely affect the ability of the Company to deduct the interest payable on the Subordinated Debentures. Consequently, there can be no assurance that a Tax Event will not occur. A Tax Event would permit the Company, upon approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, to cause a redemption of the Preferred Securities before, as well as after, March 31, 2002. See "Description of the Subordinated Debentures--Redemption or Exchange" and "Description of the Preferred Securities--Redemption or Exchange--Tax Event Redemption, Capital Treatment Event Redemption or Investment Company Event Redemption." BACKUP WITHHOLDING AND INFORMATION REPORTING The amount of OID accrued on the Preferred Securities held of record by individual citizens or residents of the United States, or certain trusts, estates, and partnerships, will be reported to the Internal Revenue Service on Forms 1099, which forms should be mailed to such holders of Preferred Securities by January 31 following each calendar year. Payments made on, and proceeds from the sale of, the Preferred Securities may be subject to a "backup" withholding tax (currently at 31%) unless the holder complies with certain identification and other requirements. Any amounts withheld under the backup withholding rules will be allowed as a credit against the holder's United States federal income tax liability, provided the required information is provided to the Internal Revenue Service. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. ERISA CONSIDERATIONS Employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code ("Plans"), generally may purchase Preferred Securities, subject to the investing fiduciary's determination that the investment in Preferred Securities satisfies ERISA's fiduciary standards and other requirements applicable to investments by the Plan. In any case, the Company and/or any of its affiliates may be considered a "party in interest" (within the meaning of ERISA) or a "disqualified person" (within the meaning of Section 4975 of the Code) with respect to certain plans (generally, Plans maintained or sponsored by, or contributed to by, any such persons with respect to which the Company or an affiliate is a fiduciary or Plans for which the Company or an affiliate provides services). The acquisition and ownership of Preferred Securities by a Plan (or by an individual retirement arrangement or other Plans described in Section 4975(e)(1) of the Code) with respect to which the Company or any of its affiliates is considered a party in interest or a disqualified person may constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code, unless such Preferred Securities are acquired pursuant to and in accordance with an applicable exemption. As a result, Plans with respect to which the Company or any of its affiliates is a party in interest or a disqualified person should not acquire Preferred Securities unless such Preferred Securities are acquired pursuant to and in 48 55 accordance with an applicable exemption. Any other Plans or other entities whose assets include Plan assets subject to ERISA or Section 4975 of the Code proposing to acquire Preferred Securities should consult with their own counsel. UNDERWRITING The Underwriters named below, represented by Stifel, Nicolaus & Company, Incorporated (the "Representative"), have severally agreed, subject to the terms and conditions set forth in the separate Underwriting Agreements to be executed with respect to the Fixed Rate Preferred Securities and the Floating Rate Preferred Securities, the forms of which are filed as exhibits to the Registration Statement of which this Prospectus forms a part, to purchase from 1st Capital the number of Preferred Securities set forth opposite their respective names below. The several Underwriters have agreed in each Underwriting Agreement, subject to the terms and conditions set forth therein, to purchase all the Preferred Securities covered by such Underwriting Agreement and offered hereby if any of the Preferred Securities coverered by such Underwriting Agreement are purchased. In the event of default by an Underwriter under an Underwriting Agreement, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated.
NUMBER OF NUMBER OF FIXED RATE FLOATING RATE UNDERWRITER PREFERRED SECURITIES PREFERRED SECURITIES ----------- -------------------- -------------------- Stifel, Nicolaus & Company, Incorporated.......... --------- --------- Total......................................... 1,000,000 1,000,000 ========= =========
The Representative has advised 1st Capital that it proposes initially to offer the Preferred Securities to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per Preferred Security. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per Preferred Security to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. In view of the fact that the proceeds of the sale of the Preferred Securities will be used to purchase the Subordinated Debentures of the Company, the Underwriting Agreements provide that the Company will pay as compensation to the Underwriters arranging the investment therein of such proceeds, an amount in immediately available funds of $ per Preferred Security (or $ in the aggregate) for the accounts of the several Underwriters. Each of 1st Capital I and 1st Capital II has granted the Underwriters an option to purchase up to an additional 100,000 of its Preferred Securities, for a total of 200,000 Preferred Securities, at the initial public offering price. Such options, which expire 30 days from the date of this Prospectus, may be exercised solely to cover over-allotments. To the extent that the Underwriters exercise either or both of such options, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of the additional Preferred Securities that the number of Preferred Securities to be purchased initially by the Underwriter is of the Preferred Securities initially purchased by the Underwriters. To the extent that the Underwriters exercise either or both of their options to purchase additional Preferred Securities, either or both of 1st Capital I and 1st Capital II, as the case may be, will issue and sell to the Company additional Common Securities in such aggregate Liquidation Amount as is required for the Company to continue to hold Common Securities in an Aggregate Liquidation amount equal to at least 3% of the total capital of such entity and the Company will issue and sell to either or both of 1st Capital I and 1st Capital II, as the case may be, Subordinated Debentures in an aggregate principal amount equal to the total aggregate Liquidation Amount of the additional Preferred Securities being purchased pursuant to the option and the additional Common Securities. During a period of 30 days from the date of this Prospectus, neither 1st Capital nor the Company will, subject to certain exceptions, without the prior written consent of the Representative, directly or indirectly, sell, offer to sell, grant any option for sale of, or otherwise dispose of, any Preferred Securities, any security convertible into or 49 56 exchangeable into or exercisable for Preferred Securities or Subordinated Debentures or any debt securities substantially similar to the Subordinated Debentures or equity securities substantially similar to the Preferred Securities (except for Subordinated Debentures and the Preferred Securities offered hereby). Applicaton has been made to have the Preferred Securities approved for quotation on The Nasdaq Stock Market's National Market. The Representative has advised 1st Capital that it presently intends to make a market in the Preferred Securities after the commencement of trading on The Nasdaq Stock Market's National Market, but no assurances can be made as to the liquidity of such Preferred Securities or that an active and liquid trading market will develop or, if developed, that it will continue. The offering price and distribution rate have been determined by negotiations among representatives of the Company and the Underwriters, and the offering price of the Preferred Securities may not be indicative of the market price following the offering. The Representative will have no obligation to make a market in the Preferred Securities, however, and may cease market-making activities, if commenced, at any time. 1st Capital and the Company have agreed to indemnify the Underwriters against, or contribute to payments that the Underwriters may be required to make in respect of, certain liabilities, including liabilities under the Securities Act. VALIDITY OF SECURITIES Certain matters of Delaware law relating to the validity of the Preferred Securities, the enforceability of the Trust Agreement and the formation of 1st Capital will be passed upon by Richards, Layton & Finger, special Delaware counsel to the Company and 1st Capital. Certain legal matters for the Company and 1st Capital, including the validity of the Guarantee and the Subordinated Debentures will be passed upon for the Company and 1st Capital by Lewis, Rice & Fingersh, L.C., St. Louis, Missouri, counsel to the Company and 1st Capital. Certain legal matters will be passed upon for the Underwriters by Bryan Cave LLP, St. Louis, Missouri. Lewis, Rice & Fingersh, L.C. and Bryan Cave LLP will rely on the opinion of Richards, Layton & Finger as to matters of Delaware law. Certain matters relating to United States federal income tax considerations will be passed upon for the Company by Lewis, Rice & Fingersh, L.C. EXPERTS The consolidated financial statements of the Company and its subsidiaries incorporated herein by reference to the Company's annual Report on Form 10-K for the year ended December 31, 1996 have been audited by Coopers & Lybrand LLP, independent certified public accountants, as stated in their report, which report is incorporated herein by reference and has been so incorporated in reliance upon the authority of said firm as experts in accounting and auditing. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following document, previously filed by the Company with the Securities and Exchange Commission (the "Commission") pursuant to Section 13 of the Exchange Act, is incorporated herein by reference: The Company'sour Annual Report on Form 10-K for the year ended December 31, ~~1996. All reports~~2008 as well as any updated risk factors described in our Annual Report on Form 10-K or Quarterly Report on Form 10-Q which we may file with the SEC in the future, all of which are incorporated by reference in this prospectus and in any accompanying prospectus supplement.
    Before making an investment decision, you should carefully consider these risks as well as information we include or incorporate by reference in this prospectus and in any accompanying prospectus supplement. The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that currently seem immaterial may also affect our business operations.  You should also consider the other important factors that can affect our business discussed under the caption “Special Note Regarding Forward-Looking Statements.”
USE OF PROCEEDS
    We will not receive any proceeds from the sale of the securities by the selling securityholders. If the warrant is exercised in full for cash, we will receive proceeds of approximately $16,650,000, which we intend to use for general corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
    No shares of the series A preferred stock, or any other class of preferred stock, were outstanding during the years ended December 31, 2008, 2007, 2006, 2005 or 2004, and we did not pay preferred stock dividends during those periods. Consequently, the ratios of earnings to fixed charges and preferred dividends are the same as the ratios of earnings to fixed charges for such periods. The ratios of earnings to fixed charges for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 are as follows:
Consolidated Ratios of Earnings to Fixed Charges
Year ended December 31,
2008 2007 2006 2005 2004
Excluding interest on deposits 3.86 3.13 4.40 4.59 4.06
Including interest on deposits 1.45 1.31 1.58 1.70 1.65

    For purposes of computing these ratios, earnings represent income or loss before income tax expense and fixed charges. Fixed charges, excluding interest on deposits, include interest (other than on deposits), whether expensed or capitalized. Fixed charges, including interest on deposits, consist of the foregoing items plus interest on deposits.
DETERMINATION OF OFFERING PRICE
    This offering is being made solely to allow the  selling securityholders to offer and sell the securities to the public.  The selling securityholders may offer for resale some or all of their securities at the time and price that they choose.  On any given day, the price per share of our common stock is likely to be based on the market price for our common stock, as quoted on the Nasdaq Global Select Market.
DESCRIPTION OF SERIES A PREFERRED STOCK
    The following is a brief description of the terms of the series A preferred stock that may be resold by the selling securityholders. This summary does not purport to be complete in all respects. This description is subject to, and qualified in its entirety by, reference to our articles of incorporation, as

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amended, including the certificate of designations with respect to the series A preferred stock, copies of which have been filed with the SEC and are also available upon request from us.
General
    Under our articles of incorporation, as amended, we have authority to issue up to 10,000,000 shares of preferred stock, without par value. Of such number of shares of preferred stock, 111,000 shares have been designated as series A preferred stock, all of which shares of series A preferred stock were issued to the Treasury in a transaction exempt from the registration requirements of the Securities Act. The issued and outstanding shares of series A preferred stock are validly issued, fully paid and nonassessable. No other shares of preferred stock are issued and outstanding as of the date hereof.
Dividends Payable on Shares of Series A Preferred Stock
    Holders of shares of series A preferred stock are entitled to receive if, as and when declared by our board of directors or a duly authorized committee of the board, out of assets legally available for payment, cumulative cash dividends at a rate per annum of 5% per share on a liquidation preference of $1,000 per share of series A preferred stock with respect to each dividend period from January 23, 2009 to, but excluding, February 15, 2014. From and after February 15, 2014, holders of shares of series A preferred stock are entitled to receive cumulative cash dividends at a rate per annum of 9% per share on a liquidation preference of $1,000 per share of series A preferred stock with respect to each dividend period thereafter.
    Dividends are payable quarterly in arrears on each February 15, May 15, August 15 and November 15, each a “dividend payment date,” starting with February 15, 2009. If any dividend payment date is not a business day, then the next business day will be the applicable dividend payment date, and no additional dividends will accrue as a result of the applicable postponement of the dividend payment date. Dividends payable during any dividend period are computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable with respect to the series A preferred stock are payable to holders of record of shares of series A preferred stock on the date that is 15 calendar days immediately preceding the applicable dividend payment date or such other record date as the board of directors or any duly authorized committee of the board determines, so long as such record date is not more than 60 nor less than 10 days prior to the applicable dividend payment date.
    If we determine not to pay any dividend or a full dividend with respect to the series A preferred stock, we are required to provide written notice to the holders of shares of series A preferred stock prior to the applicable dividend payment date.
    Since we receive substantially all of our revenue from dividends from 1st Source Bank, our ability to pay dividends on our common stock or preferred stock depends on our receipt of dividends from 1st Source Bank. Dividend payments from 1st Source Bank are subject to legal and regulatory limitations, generally based on net income and retained earnings. The ability of 1st Source Bank to pay dividends to us is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. In addition, we are subject to Indiana state laws relating to the payment of dividends.
Priority of Dividends
    With respect to the payment of dividends and the amounts to be paid upon liquidation, the series A preferred stock will rank:
·   senior to our common stock and all other equity securities designated as ranking junior to the series A preferred stock; and

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·   at least equally with all other equity securities designated as ranking on a parity with the series A preferred stock, or parity stock, with respect to the payment of dividends and distribution upon any liquidation, dissolution or winding-up of 1st Source.
    So long as any shares of series A preferred stock remain outstanding, unless all accrued and unpaid dividends for all prior dividend periods have been paid or are contemporaneously declared and paid in full, no dividend whatsoever shall be paid or declared on the common stock or other junior stock, other than a dividend payable solely in common stock. We and our subsidiaries also may not purchase, redeem or otherwise acquire for consideration any shares of our common stock or other junior stock unless we have paid in full all accrued dividends on the series A preferred stock for all prior dividend periods, other than:
·   purchases, redemptions or other acquisitions of our common stock or other junior stock in connection with the administration of our employee benefit plans in the ordinary course of business and consistent with past practice pursuant to a publicly announced repurchase plan up to the increase in diluted shares outstanding resulting from the grant, vesting or exercise of equity-based compensation;
·   purchases or other acquisitions by broker-dealer subsidiaries of 1st Source solely for the purpose of market-making, stabilization or customer facilitation transactions in junior stock or parity stock in the ordinary course of its business;
·   purchases by broker-dealer subsidiaries of 1st Source for resale pursuant to an offering by us of our stock that is underwritten by the related broker-dealer subsidiary;
·   any dividends or distributions of rights or junior stock in connection with any shareholders’ rights plan or redemptions or repurchases of rights pursuant to any shareholders’ rights plan;
·   the acquisition of record ownership by 1st Source or any of its subsidiaries of junior stock or parity stock for the beneficial ownership of any other person who is not 1st Source or any of its subsidiaries, including as trustee or custodian; and
·   the exchange or conversion of junior stock for or into other junior stock or of parity stock for or into other parity stock or junior stock but only to the extent that such exchange or conversion is required pursuant to binding contractual agreements entered into before January 23, 2009 or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for common stock.
    If we repurchase shares of series A preferred stock from a holder other than the Treasury, we must offer to repurchase a ratable portion of the series A preferred stock then held by the Treasury on the same terms and conditions.
    On any dividend payment date for which full dividends are not paid, or declared and funds set aside therefor, on the series A preferred stock and any ~~definitive proxy~~other parity stock, all dividends paid or ~~information statements filed~~declared for payment on that dividend payment date (or, with respect to parity stock with a different dividend payment date, on the applicable dividend date therefor falling within the dividend period and related to the dividend payment date for the series A preferred stock), with respect to the series A preferred stock and any other parity stock shall be declared ratably among the holders of any such shares who have the right to receive dividends, in proportion to the respective amounts of the undeclared and unpaid dividends relating to the dividend period.
    Subject to the foregoing, such dividends (payable in cash, stock or otherwise) as may be determined by our board of directors, or a duly authorized committee of the board, may be declared and paid on our common stock and any other stock ranking equally with or junior to the series A preferred stock from time to time out of any funds legally available for such payment, and the series A preferred stock shall not be entitled to participate in any such dividend. Prior to the earlier of January 23, 2012, or

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the date on which all of the series A preferred stock has been redeemed or Treasury has transferred all of the shares of series A preferred stock to third parties that are not affiliates of Treasury, we may not, without the consent of Treasury, declare or pay a dividend or make any distribution on our common stock, other than regular quarterly cash dividends of not more than $0.16 per share of common stock, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction; dividends payable solely in shares of our common stock; and dividends or distributions of rights or junior stock in connection with a shareholders’ rights plan.
Redemption
    The series A preferred stock may not be redeemed prior to February 15, 2012, unless we have received aggregate gross proceeds from one or more qualified equity offerings (as described below) of not less than $27,750,000, which equals 25% of the aggregate liquidation amount of the series A preferred stock on the date of issuance. In such a case, we may redeem the series A preferred stock, subject to the approval of the Federal Reserve Bank of Chicago, or FRB, in whole or in part, upon notice as described below, up to a maximum amount equal to the aggregate net cash proceeds received by us from such qualified equity offerings. A “qualified equity offering” is a sale and issuance for cash by us, to persons other than 1st Source or its subsidiaries after January 23, 2009, of shares of perpetual preferred stock, common stock or a combination thereof, that in each case qualify as tier 1 capital of 1st Source at the time of issuance under the applicable risk-based capital guidelines of the FRB. Qualified equity offerings do not include issuances made in connection with acquisitions, issuances of trust preferred securities and issuances of common stock and/or perpetual preferred stock made pursuant to agreements or arrangements entered into, or pursuant to financing plans that were publicly announced, on or prior to October 13, 2008.
    On or after February 15, 2012, the series A preferred stock may be redeemed at any time, subject to the approval of the FRB, in whole or in part, subject to notice as described below.
    In any redemption, the redemption price is an amount equal to the per share liquidation amount plus accrued and unpaid dividends to, but excluding, the date of redemption.
    The series A preferred stock will not be subject to any mandatory redemption, sinking fund or similar provisions. Holders of shares of series A preferred stock have no right to require the redemption or repurchase of the series A preferred stock. Our board of directors, or a duly authorized committee of the board of directors, has full power and authority to prescribe the terms and conditions upon which the series A preferred stock will be redeemed from time to time, subject to the provisions of the certificate of designations.
    If fewer than all of the outstanding shares of series A preferred stock are to be redeemed, the shares to be redeemed will be selected either pro rata from the holders of record of shares of series A preferred stock in proportion to the number of shares held by those holders or in such other manner as our board of directors or a duly authorized committee thereof may determine to be fair and equitable.
    Notwithstanding the foregoing, The American Recovery and Reinvestment Act of 2009 (“ARRA”), which was signed into law by President Obama on February 17, 2009, provides that the Secretary of the Treasury shall permit a recipient of funds under the Troubled Assets Relief Program, subject to consultation with the recipient’s appropriate Federal banking agency, to repay such assistance without regard to whether the recipient has replaced such funds from any other source or to any waiting period.  ARRA further provides that when the recipient repays such assistance, the Secretary of the Treasury shall liquidate the warrants associated with the assistance at the current market price.  While Treasury has not yet issued implementing regulations, it appears that ARRA will permit 1st Source, if it so elects and following consultation with the FRB, to redeem the series A preferred stock at any time without restriction.

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    We will mail notice of any redemption of series A preferred stock by first class mail, postage prepaid, addressed to the holders of record of the shares of series A preferred stock to be redeemed at their respective last addresses appearing on our books. This mailing will be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed or otherwise given as described in this paragraph will be conclusively presumed to have been duly given, whether or not the holder receives the notice, and failure duly to give the notice by mail or otherwise, or any defect in the notice or in the mailing or provision of the notice, to any holder of series A preferred stock designated for redemption will not affect the redemption of any other series A preferred stock. Each notice of redemption will set forth the applicable redemption date, the redemption price, the place where shares of series A preferred stock are to be redeemed, and the number of shares of series A preferred stock to be redeemed (and, if less than all shares of series A preferred stock held by the ~~Company~~applicable holder, the number of shares to be redeemed from the holder).
    Shares of series A preferred stock that are redeemed, repurchased or otherwise acquired by us will revert to authorized but unissued shares of our preferred stock.
Liquidation Rights
    In the event that we voluntarily or involuntarily liquidate, dissolve or wind up our affairs, holders of series A preferred stock will be entitled to receive an amount per share, referred to as the total liquidation amount, equal to the fixed liquidation preference of $1,000 per share, plus any accrued and unpaid dividends, whether or not declared, to the date of payment. Holders of the series A preferred stock will be entitled to receive the total liquidation amount out of our assets that are available for distribution to shareholders, after payment or provision for payment of our debts and other liabilities, but before any distribution of assets is made to holders of our common stock or any other shares ranking, as to that distribution, junior to the series A preferred stock.
    If our assets are not sufficient to pay the total liquidation amount in full to all holders of series A preferred stock and all holders of any shares of outstanding parity stock, the amounts paid to the holders of series A preferred stock and other shares of parity stock will be paid pro rata in accordance with the ~~Commission~~respective total liquidation amount for those holders. If the total liquidation amount per share of series A preferred stock has been paid in full to all holders of series A preferred stock and other shares of parity stock, the holders of our common stock or any other shares ranking, as to such distribution, junior to the series A preferred stock will be entitled to receive all of our remaining assets according to their respective rights and preferences.
    For purposes of the liquidation rights, neither the sale, conveyance, exchange or transfer of all or substantially all of our property and assets, nor the consolidation or merger by us with or into any other corporation or by another corporation with or into us, will constitute a liquidation, dissolution or winding-up of our affairs.
Voting Rights
    Except as indicated below or otherwise required by law, the holders of series A preferred stock will not have any voting rights.
Election of Two Directors upon Non-Payment of Dividends
    If the dividends on the series A preferred stock have not been paid for an aggregate of six quarterly dividend periods or more (whether or not consecutive), the authorized number of directors then constituting our board of directors will be increased by two. Holders of series A preferred stock, together with the holders of any outstanding parity stock with like voting rights, referred to as voting parity stock, voting as a single class, will be entitled to elect the two additional members of our board of directors, referred to as the “preferred stock directors,” at the next annual meeting (or at a special meeting called for

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the purpose of electing the preferred stock directors prior to the next annual meeting) and at each subsequent annual meeting until all accrued and unpaid dividends for all past dividend periods have been paid in full. Upon payment in full of all accrued and unpaid dividends, the right to elect preferred stock directors will terminate, subject to revesting in the event that dividends on the series A preferred stock are not paid for an aggregate of six quarterly dividend payments. The election of any preferred stock director is subject to the qualification that the election would not cause us to violate the corporate governance requirement of The Nasdaq Stock Market (or any other exchange on which our securities may be listed) that listed companies must have a majority of independent directors.
    Upon the termination of the right of the holders of series A preferred stock and voting parity stock to vote for preferred stock directors, as described above, the preferred stock directors will immediately cease to be qualified as directors, their term of office shall terminate immediately and the number of authorized directors of 1st Source will be reduced by the number of preferred stock directors that the holders of series A preferred stock and voting parity stock had been entitled to elect. The holders of a majority of shares of series A preferred stock and voting parity stock, voting as a class, may remove any preferred stock director, with or without cause, and the holders of a majority of the shares of series A preferred stock and voting parity stock, voting as a class, may fill any vacancy created by the removal of a preferred stock director. If the office of a preferred stock director becomes vacant for any other reason, the remaining preferred stock director may choose a successor to fill such vacancy for the remainder of the unexpired term.
Other Voting Rights
    So long as any shares of series A preferred stock are outstanding, in addition to any other vote or consent of shareholders required by law or by our articles of incorporation, as amended, the vote or consent of the holders of at least 66 2/3% of the shares of series A preferred stock at the time outstanding, voting separately as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:
·   any amendment or alteration of the certificate of designations for the series A preferred stock or our articles of incorporation, as amended, to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock ranking senior to the series A preferred stock with respect to payment of dividends and/or distribution of assets on any liquidation, dissolution or winding up of 1st Source;
·   any amendment, alteration or repeal of any provision of the certificate of designations for the series A preferred stock or our articles of incorporation, as amended, so as to adversely affect the rights, preferences, privileges or voting powers of the series A preferred stock; or
·   any consummation of a binding share exchange or reclassification involving the series A preferred stock or of a merger or consolidation of 1st Source with another entity, unless the shares of series A preferred stock remain outstanding following any such transaction or, if 1st Source is not the surviving or resulting entity or its ultimate parent, are converted into or exchanged for preference securities, and such remaining outstanding shares of series A preferred stock or preference securities have rights, references, privileges and voting powers that are not materially less favorable than the rights, preferences, privileges or voting powers of the series A preferred stock, taken as a whole.
    To the extent of the voting rights of the series A preferred stock, each holder of series A preferred stock will have one vote for each $1,000 of liquidation preference to which such holder’s shares of series A preferred stock are entitled.

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    The foregoing voting provisions will not apply if, at or prior to the time when the vote or consent would otherwise be required, all outstanding shares of series A preferred stock have been redeemed or called for redemption upon proper notice and sufficient funds have been set aside by us for the benefit of the holders of series A preferred stock to effect the redemption.
DESCRIPTION OF WARRANT TO PURCHASE COMMON STOCK
    The following is a brief description of the terms of the warrant that may be resold by the selling securityholders. This summary does not purport to be complete in all respects. This description is subject to, and qualified in its entirety by, reference to the warrant, a copy of which has been filed with the SEC and is also available upon request from us.
Shares of Common Stock Subject to the Warrant
    The warrant is initially exercisable for 837,947 shares of our common stock. If we complete one or more qualified equity offerings, as described at “Description of Series A Preferred Stock – Redemption,” on or prior to December 31, 2009 that result in our receipt of aggregate gross proceeds of not less than $111,000,000, which is equal to 100% of the aggregate fixed liquidation amount of our $1,000 per share series A preferred stock, plus any accrued and unpaid dividends, the number of shares of common stock underlying the warrant then held by the Treasury will be reduced by 50% to 418,974 shares. The number of shares subject to the warrant are subject to the further adjustments described below under the heading “-Adjustments to the Warrant.”
Exercise of the Warrant
    The initial exercise price applicable to the warrant is $19.87 per share of common stock for which the warrant may be exercised. The warrant may be exercised at any time on or before January 23, 2019 by surrender of the warrant and a completed notice of exercise attached as an annex to the warrant and the payment of the exercise price for the shares of common stock for which the warrant is being exercised. The exercise price may be paid either by the withholding by 1st Source of such number of shares of common stock issuable upon exercise of the warrant equal to the value of the aggregate exercise price of the warrant, determined by reference to the market price of our common stock on the trading day on which the warrant is exercised or, if agreed to by us and the warrantholder, by the payment of cash, certified or cashier’s check, or wire transfer, in an amount equal to the aggregate exercise price. The exercise price applicable to the warrant is subject to the further adjustments described below under the heading “-Adjustments to the Warrant.”
    Upon exercise of the warrant, certificates for the shares of common stock issuable upon exercise will be issued to the warrantholder. We will not issue fractional shares upon any exercise of the warrant. Instead, the warrantholder will be entitled to a cash payment equal to the market price of our common stock on the last trading day preceding the exercise of the warrant, less the prorated exercise price of the warrant, for any fractional shares that would have otherwise been issuable upon exercise of the warrant. We will at all times reserve the aggregate number of shares of our common stock for which the warrant may be exercised. We have listed the shares of common stock issuable upon exercise of the warrant with the Nasdaq Global Select Market.
Rights as a Shareholder
    The warrantholder shall have no rights or privileges of the holders of our common stock, including any voting rights, until (and then only to the extent) the warrant has been exercised.
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Transferability; Restrictions on Exercise of Warrant
    The initial selling securityholder may not transfer a portion of the warrant, and/or exercise the warrant, with respect to more than 418,974 shares of common stock until the earlier of the date on which 1st Source has received aggregate gross proceeds from one or more qualified equity offerings of at least $111,000,000 and December 31, 2009. The warrant, and all rights under the warrant, are otherwise transferable and exercisable.
Adjustments to the Warrant
    Adjustments in Connection with Stock Splits, Subdivisions, Reclassifications and Combinations. The number of shares for which the warrant may be exercised and the exercise price applicable to the warrant will be proportionately adjusted in the event we pay dividends or make distributions on our common stock in shares of our common stock, or subdivide, combine or reclassify outstanding shares of our common stock.
    Anti-dilution Adjustment. Until the earlier of January 23, 2012 and the date the initial selling securityholder no longer holds the warrant (and other than in certain permitted transactions described below), if we issue any shares of common stock (or securities convertible or exercisable into common stock) for less than 90% of the market price of the common stock on the last trading day prior to pricing such shares, then the number of shares of common stock into which the warrant is exercisable and the exercise price will be adjusted. Permitted transactions include issuances:
·   as consideration for or to fund the acquisition of businesses and/or related assets;
·   in connection with employee benefit plans and compensation related arrangements in the ordinary course and consistent with past practice approved by our board of directors;
·   in connection with public or broadly marketed offerings and sales of common stock or convertible securities for cash conducted by us or our affiliates pursuant to registration under the Securities Act, or Rule 144A thereunder, on a basis consistent with capital-raising transactions by comparable financial institutions; and
·   in connection with the exercise of preemptive rights on terms existing as of January 23, 2009.
    Other Distributions. If we declare any dividends or distributions other than a quarterly cash dividend equal to or less than $0.16 per share, the exercise price of the warrant will be adjusted to reflect such dividend or distribution.
    Certain Repurchases. If we effect a pro rata repurchase of common stock, both the number of shares issuable upon exercise of the warrant and the exercise price will be adjusted.
    Business Combinations. In the event of a merger, consolidation or similar transaction involving 1st Source and requiring shareholder approval, the warrantholder’s right to receive shares of our common stock upon exercise of the warrant shall be converted into the right to exercise the warrant for the consideration that would have been payable to the warrantholder with respect to the shares of common stock for which the warrant may be exercised, as if the warrant had been exercised prior to such merger, consolidation or similar transaction.
DESCRIPTION OF COMMON STOCK
General
    The following is a brief description of our common stock that may be resold by the selling securityholders. This summary does not purport to be complete in all respects. This description is subject

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to and qualified in its entirety by reference to our charter documents and amended by-laws.  See “Where You Can Find More Information.”
    We have 40,000,000 shares of authorized common stock, without par value per share, of which 24,945,647 shares were outstanding as of February 19, 2009.
    Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders.  Holders of shares of common stock are not entitled to cumulative voting rights in the election of directors.  In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preferences, if any, on any outstanding shares of preferred stock.  Holders of common stock have no preemptive rights and have no rights to convert their common stock into any other securities. The common stock is not redeemable. All of the outstanding shares of 1st Source common stock are fully paid and non-assessable.
    Our series A preferred stock has, and any other series of preferred stock upon issuance will have, preference over our common stock with respect to the payment of dividends. Our preferred stock also has such other preferences as currently, or as may be, fixed by our board of directors.  We may pay dividends on our common stock only if we have paid or provided for all dividends on our outstanding series of preferred stock for the then current period and, in the case of any cumulative preferred stock, including the series A preferred stock, all prior periods.  Prior to the earlier of January 23, 2012, or the date on which all of the series A preferred stock has been redeemed or Treasury has transferred all of the shares of series A preferred stock to third parties that are not affiliates of Treasury, we may not, without the consent of Treasury, declare or pay a dividend or make any distribution on our common stock, other than regular quarterly cash dividends of not more than $0.16 per share of common stock, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction; dividends payable solely in shares of our common stock; and dividends or distributions of rights or junior stock in connection with a shareholders’ rights plan.
    Our common stock is listed on the Nasdaq Global Select Market.
Transfer Agent and Registrar
    The transfer agent and registrar for 1st Source common stock is American Stock Transfer Company.
PLAN OF DISTRIBUTION
    The selling securityholders and their successors, including their transferees, may sell the securities directly to purchasers or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the selling securityholders or the purchasers of the securities. These discounts, concessions or commissions as to any particular underwriter, broker-dealer or agent may be in excess of those customary in the types of transactions involved.
    The securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions, in the following manner:
·   on any national securities exchange or quotation service on which the warrant or the common stock may be listed or quoted at the time of sale, including, as of the date of this prospectus, the Nasdaq Global Select Market in the case of the common stock;
·   in the over-the-counter market;

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·   in transactions otherwise than on these exchanges or services or in the over-the-counter market; or
·   through the writing of options, whether the options are listed on an options exchange or otherwise.
    In addition, any securities that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.
    In connection with the sale of the securities or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling securityholders may also sell short the securities and deliver securities to close out short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities.
    The aggregate proceeds to the selling securityholders from the sale of the securities will be the purchase price of the securities less discounts and commissions, if any. If the warrant is exercised in full for cash, we will receive proceeds of approximately $16,650,000, which we intend to use for general corporate purposes.
    In effecting sales, broker-dealers or agents engaged by the selling securityholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the selling securityholders in amounts to be negotiated immediately prior to the sale.
    In offering the securities covered by this prospectus, the selling securityholders and any broker-dealers who execute sales for the selling securityholders may be deemed to be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act in connection with such sales. Any profits realized by the selling securityholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions. Selling securityholders who are “underwriters” within the meaning of Section 2(a)(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act and may be subject to certain statutory and regulatory liabilities, including liabilities imposed pursuant to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, referred to as the Exchange Act.
    In order to comply with the securities laws of certain states, if applicable, the securities must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
    The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of securities pursuant to this prospectus and to the activities of the selling securityholders. In addition, we will make copies of this prospectus available to the selling securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act, which may include delivery through the facilities of the Nasdaq Global Select Market pursuant to Rule 153 under the Securities Act.
    At the time a particular offer of securities is made, if required, a prospectus supplement will set forth the number and type of securities being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public.
    We do not intend to apply for listing of the warrant on any securities exchange or for inclusion of the warrant in any automated quotation system unless requested by the initial selling shareholder. No assurance can be given as to the liquidity of the trading market, if any, for the warrant.
    We have agreed to indemnify the selling securityholders against certain liabilities, including certain liabilities under the Securities Act. We have also agreed, among other things, to register the

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securities and bear substantially all expenses in connection with the registration of the securities covered by this prospectus.
SELLING SECURITYHOLDERS
    On January 23, 2009, we issued the securities covered by this prospectus to the United States Department of Treasury, which is the initial selling securityholder under this prospectus, in a transaction exempt from the registration requirements of the Securities Act. The initial selling securityholder, or its successors, including transferees, may from time to time offer and sell, pursuant to this prospectus or a supplement to this prospectus, any or all of the securities they own. The securities to be offered under this prospectus for the account of the selling securityholders are:
·
a warrant to purchase 837,947 shares of our common stock, representing beneficial ownership of approximately 3.3% of our common stock as of January 23, 2009; and
·
837,947 shares of our common stock issuable upon exercise of the warrant, which shares, if issued, would represent ownership of approximately 3.3% of our common stock as of January 23, 2009.
    For purposes of this prospectus, we have assumed that, after completion of the offering, none of the securities covered by this prospectus will be held by the selling securityholders.
    Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. To our knowledge, the initial selling securityholder has sole voting and investment power with respect to the securities.
    We do not know when or in what amounts the selling securityholders may offer the securities for sale. The selling securityholders might not sell any of the securities offered by this prospectus. Because the selling securityholders may offer all or some of the securities pursuant to this offering, and because currently no sale of any of the securities is subject to any agreements, arrangements or understandings, we cannot estimate the number of the securities that will be held by the selling securityholders after completion of the offering.
    Other than with respect to the acquisition of the securities, the initial selling securityholder has not had a material relationship with us.
    Information about the selling securityholders may change over time and changed information will be set forth in supplements to this prospectus if and when necessary.
LEGAL MATTERS
    The validity of the series A preferred stock, the warrant and the common stock offered hereby have been passed upon for us by Barnes & Thornburg LLP.
EXPERTS
The consolidated financial statements of 1st Source Corporation appearing in 1st Source Corporation’s Annual Report (Form 10-K) for the year ended December 31, 2008 and the effectiveness of 1st Source Corporation’s internal control over financial reporting as of December 31, 2008 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION
    We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy materials that we have filed with the SEC at the SEC’s public reference

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room located at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public on the SEC’s Internet website at http://www.sec.gov or on our website at www.1stsource.com. The information on the websites listed above is not and should not be considered part of this prospectus and is not incorporated by reference in this document. Those websites are and are only intended to be inactive textual references.
INCORPORATION BY REFERENCE
    We incorporate by reference into this prospectus the documents listed below and any filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act ~~subsequent to~~after the date of this ~~Prospectus~~prospectus and prior to the termination of the offering of the ~~Preferred Securities offered hereby shall be deemed to be~~securities under this prospectus; provided, however, that we are not incorporating any information furnished under either Item 2.02 or Item 7.01 of any current report on Form 8-K. The information incorporated by reference ininto this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which alsoprospectus is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constituteconsidered a part of this Prospectus. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS 50 57 FOR SUCH COPIES SHOULD BE DIRECTED TO LARRY E. LENTYCH, SENIOR VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER, 1ST SOURCE CORPORATION, 100 NORTH MICHIGAN STREET, SOUTH BEND, INDIANA 46601. TELEPHONE REQUESTS MAY BE DIRECTED TO (219) 235-2000. AVAILABLE INFORMATION This Prospectus constitutes a part of a Registration Statement on Form S-3 (together with all amendmentsprospectus, and ~~exhibits thereto, the "Registration Statement") filed by the Company and 1st Capital~~information that we file later with the Securities and Exchange Commission, ~~under the Securities Act, with respect~~prior to the ~~Preferred Securities and the Subordinated Debentures. This Prospectus does not contain all~~termination of the ~~information set forth in such Registration Statement, certain parts~~offering of ~~which are omitted in accordance with~~common stock under this prospectus, will automatically update and supersede the ~~rules and regulations~~previously filed information.
· Our Annual Report on Form 10-K for our fiscal year ended December 31, 2008.
·
Our Current Report on Form 8-K filed on January 23, 2009.
·
The information set forth under the caption “Description of Registrant’s Securities to be Registered” in the registrant’s Registration Statement on Form S-2, Reg. No. 33-9087, dated December 16, 1986, including any amendments or reports filed for the purpose of updating that description.
    You may request a copy of ~~the Commission, although it does include a summary of the material terms of the Indenture and the Trust Agreement. Reference is made~~these filings (other than exhibits to ~~such Registration Statement and to~~documents, unless the exhibits relating thereto for further information with respect to the Company, 1st Capital, the Preferred Securities and the Subordinated Debentures. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission orare specifically incorporated by reference ~~herein are not necessarily complete, and, in each instance, reference is made~~into the documents that this prospectus incorporates), at no cost, by writing to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. 1st Capital is not currently subject to the information reporting requirements of the Exchange Act and although 1st Capital will become subject to such requirements upon the effectiveness of the Registration Statement, it is not expected that 1st Capital will be filing separate reports under the Exchange Act. The Company's reports, proxy statements and other information can be inspected and copiedor telephoning us at the following ~~public reference facilities maintained by the Commission: 450 Fifth~~address:
1st Source Corporation
100 North Michigan Street N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon payment of prescribed rates. The Commission maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers who file electronically with the Commission. The address of that site is http://www.sec.gov. In addition, reports, proxy statements and other information concerning the Company may be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. No separate financial statements of 1st Capital have been included herein. The Company does not consider that such financial statements would be material to holders of Preferred Securities because (i) all of the voting securities of 1st Capital will be owned by the Company, a reporting company under the Exchange Act, (ii) 1st Capital has no independent operations but exists for the exclusive purposes of issuing the Trust Securities representing undivided beneficial interests in the assets of 1st Capital, investing the gross proceeds of the Trust Securities in Subordinated Debentures issued by the Company and engaging in only those other activities necessary, advisable, or incidental thereto, and (iii) the obligations of the Company described herein to provide certain indemnities in respect of and be responsible for certain costs, expenses, debts and liabilities of 1st Capital under the Indenture and pursuant to the Trust Agreement, the Guarantee issued by the Company with respect to the Preferred Securities, the Subordinated Debentures purchased by 1st Capital and the related Indenture, taken together, constitute, in the belief of the Company and 1st Capital, a full and unconditional guarantee of payments due on the Preferred Securities. See "Description of the Subordinated Debentures" and "Description of the Guarantee." 51 ~~58 - -------------------------------------------------------------------------------~~ ~~TABLE OF CONTENTS~~
~~PAGE ----~~ Prospectus Summary........................................... 2 Selected Consolidated Financial Data......................... 11 Risk Factors................................................. 12 Use of Proceeds.............................................. 18 Market for the Preferred Securities.......................... 18 Accounting Treatment......................................... 18 Capitalization............................................... 19 Description of the Preferred Securities...................... 20 Description of the Subordinated Debentures................... 33 Description of the Guarantee................................. 42 Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee............................... 44 Certain Federal Income Tax Consequences...................... 45 ERISA Considerations......................................... 48 Underwriting................................................. 49 Validity of Securities....................................... 50 Experts...................................................... 50 Incorporation of Certain Documents by Reference.............. 50 Available Information........................................ 51
------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY 1ST SOURCE CORPORATION, 1ST SOURCE CAPITAL TRUST I, 1ST SOURCE CAPITAL TRUST II OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF 1ST SOURCE CORPORATION SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1st SOURCE(R) CORPORATION 1,000,000 PREFERRED SECURITIES 1ST SOURCE CAPITAL TRUST I % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) GUARANTEED, AS DESCRIBED HEREIN, BY 1ST SOURCE CORPORATION AND $25,000,000 % SUBORDINATED DEBENTURES OF 1ST SOURCE CORPORATION ------------------- ------------------- 1,000,000 PREFERRED SECURITIES 1ST SOURCE CAPITAL TRUST II FLOATING RATE CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) GUARANTEED, AS DESCRIBED HEREIN, BY 1ST SOURCE CORPORATION AND $25,000,000 FLOATING RATE SUBORDINATED DEBENTURES OF 1ST SOURCE CORPORATION ------------------- Prospectus , 1997 ------------------- STIFEL, NICOLAUS & COMPANY INCORPORATED - ------------------------------------------------------------------------------- 59
South Bend, Indiana 46601
(574) 235-2000
15
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS ~~ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION~~
Item 14.   Other Expenses of Issuance and Distribution
    The ~~estimated~~following table sets forth the various expenses to be incurred in connection with ~~this offering~~the sale and distribution of the Securities being registered hereby, all of which will be borne by 1st Source (except any underwriting discounts and commissions and expenses incurred by the selling securityholders for brokerage, accounting, tax or legal services or any other expenses incurred by the selling securityholders in disposing of the shares). All amounts shown are ~~as set forth in~~estimates except the ~~following table:~~ SEC registration fee.
SEC ~~Registration Fee..................................................~~ registration fee $ ~~16,667 NASD Filing Fee....................................................... 6,500 Nasdaq Listing Fee.................................................... 11,000 Blue Sky Qualification Fees~~ 5,017
Legal fees and ~~Expenses.............................. 3,000~~ expenses $ 20,000
Accounting Fees $ 5,000
Miscellaneous Expenses $ 5,000
Total expenses $ 35,017
Item 15.   Indemnification of Directors and Expenses.......................................... 40,000 Legal Fees and Expenses............................................... 100,000 Trustees' Fees and Expenses........................................... 22,000 Printing and Engraving Expenses....................................... 33,000 Transfer and Registrar Fees........................................... 4,000 Miscellaneous......................................................... 13,833 -------- Total......................................................... $250,000 ======== Officers
~~ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 23-1-37-9 of the~~
    ~~The Indiana Business Corporation Law ~~(the "Indiana Law")~~ provides in regard to indemnification of directors and officers as follows:~~
    ~~23-1-37-8 Indemnification of director against liability~~
    ~~Sec. 8. (a) A corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding if:~~
~~(1) the individual’s conduct was in good faith; and~~
~~(2) the individual reasonably believed:~~
~~(A) in the case of conduct in the individual’s official capacity with the corporation, that the individual’s conduct was in its best interests; and~~
~~(B) in all other cases, that the individual’s conduct was at least not opposed to its best interests; and~~
~~(3) in the case of any criminal proceeding, the individual either:~~
~~(A) had reasonable cause to believe the individual’s conduct was lawful; or~~
~~(B) had no reasonable cause to believe the individual’s conduct was unlawful.~~
(b) A director’s conduct with respect to an employee benefit plan for ~~"mandatory~~a purpose the director reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection (a)(2)(B).
(c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.
~~23-1-37-9 Mandatory indemnification~~" unless~~ of director against expense~~
Sec. 9. Unless limited by ~~the~~its articles of incorporation, by a corporation ~~against reasonable expenses incurred by~~shall indemnify a director who iswas wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party ~~by reason of~~because the director ~~being~~is or ~~having been~~was a director of the ~~corporation. Section 23-1-37-10~~corporation against reasonable expenses incurred by the director in connection with the proceeding.

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23-1-37-13 Officers, employees or agents; indemnification and advance of expense
Sec. 13. Unless a corporation’s articles of incorporation provide otherwise:
(1) an officer of the ~~Indiana Law states that~~corporation, whether or not a director, is entitled to mandatory indemnification under section 9 of this chapter, and is entitled to apply for court-ordered indemnification under section 11 of this chapter, in each case to the same extent as a director;
(2) the corporation may indemnify and advance expenses under this chapter to an officer, employee, or agent of the corporation, whether or not a director, to the same extent as to a director; and
(3) a corporation may inalso indemnify and advance expenses to an officer, employee, or agent, whether or not a director, to the extent, consistent with public policy, that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.
23-1-37-15 Indemnification rights under articles of incorporation, bylaws, or resolutions
Sec. 15. (a) The indemnification and advance for expenses provided for or authorized by this chapter does not exclude any other rights to indemnification and advance for expenses that a person may have under:
(1) a corporation’s articles of incorporation or bylaws;
(2) a resolution of the ~~final disposition~~board of directors or of the shareholders; or
(3) any other authorization, whenever adopted, after notice, by a ~~proceeding,~~majority vote of all the voting shares then issued and outstanding.
(b) If the articles of incorporation, bylaws, resolutions of the board of directors or of the shareholders, or other duly adopted authorization of indemnification or advance for expenses limit indemnification or advance for expenses, indemnification and advance for expenses are valid only to the extent consistent with the articles, bylaws, resolution of the board of directors or of the shareholders, or other duly adopted authorization of indemnification or advance for expenses.
(c) This chapter does not limit a corporation’s power to pay or reimburse ~~reasonable~~ expenses incurred by a director, ~~who is~~officer, employee, or agent in connection with the person’s appearance as a ~~party to~~witness in a proceeding ifat a time when the ~~director furnishes~~person has not been made a named defendant or respondent to the ~~corporation with a written affirmation~~proceeding.
Article VIII of the director's good faith belief that the director has met the standard of conduct required by Section 23-1-37-8 of the Indiana Law, that the director will repay the advance if it is ultimately determined that he did not meet the standard of conduct required by Section 23-1-37-8 of the Indiana Law, and that those making the decision to reimburse the director determine that the facts then known would not preclude indemnification under the Indiana Law. The Company's Articles of Incorporation ~~(the "Articles") provide that~~of the ~~Company~~Registrant provides:
    “The Corporation shall, to the fullest extent permitted in and in the manner provided ~~under~~by Chapter 37 of the ~~Indiana Law,~~Act, indemnify every person who is or was a ~~director~~Director of the ~~Company, to~~Corporation. The Corporation may advance expenses to every person who is or was a ~~director~~Director of the ~~Company~~Corporation to the fullest extent permitted in and in the manner provided ~~under Indiana Law and to~~by Chapter 37 of the Act. The Corporation shall indemnify and ~~advances~~advance expenses to every person who is or was an ~~officer~~Officer of the ~~Company~~Corporation to the same extent as if ~~he or she was~~such person were a ~~director to~~Director of the ~~Company.~~Corporation. The ~~Articles further provide that the~~ foregoing indemnification and advance of expenses ~~provisions~~for Directors and Officers of the Corporation shall apply when ~~directors or officers of the Company~~such persons are serving in their official capacity with the ~~Company,~~Corporation, when serving at the ~~Company's~~Corporation’s request while a ~~director~~Director or ~~officer~~Officer of the ~~Company~~Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, whether for profit or not, and when serving as a director or officer of any corporation at least ~~80%~~eighty percent (80%) of the voting capital stock of which is owned of record by the ~~Company. The Bylaws~~Corporation. All references in this paragraph to Chapter 37 of the ~~Company provide that~~Act shall be deemed to include any amendment or successor thereto. Nothing contained in this paragraph shall limit or preclude the ~~Company shall indemnify every~~exercise of any right relating to indemnification or advance of expenses to any person who is or was a ~~director~~Director or ~~officer~~Officer of the ~~Company~~Corporation or the ability of the Corporation to otherwise indemnify or advance expenses to any such person. The foregoing provisions shall be binding upon any successor to the Corporation so that each person who is or was a Director or

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Officer of the Corporation shall be in the same position with respect to any resulting, surviving, or succeeding entity as he or she would have been had the separate legal existence of the Corporation continued; provided, that unless expressly provided or agreed otherwise, this sentence shall be applicable only to Directors and Officers acting in such capacity prior to termination of the separate legal existence of the Corporation. If any word, clause, or sentence of the foregoing provisions regarding indemnification or advancement of expenses shall be held invalid as contrary to law or public policy, it shall be severable and the provisions remaining shall not be otherwise affected. This paragraph shall be interpreted and enforced so as to give maximum rights to indemnification and advance of expenses to each person who is or was a Director or Officer of the Corporation. If any Court holds any word, clause, or sentence of this paragraph invalid, the Court is authorized and empowered to rewrite these provisions to achieve such purpose.”
Article 8 of the By-Laws of the Registrant provides as follows:
8.01 INDEMNIFICATION:
(A)    Every person who is or was a Director or Officer of the Corporation shall be indemnified by the Corporation against all liability, including any obligation to pay a judgment, settlement, penalty, excise tax, or fine, and against reasonable expenses, including counsel fees, actually incurred by such person in his or her ~~"Official Capacity" (as defined below),~~Official Capacity, provided that such person is determined in the manner specified in D below to have met the standard of conduct specified in E below.  Upon demand for such indemnification, the ~~Bylaws and described below. The Bylaws further provide that every~~Corporation shall proceed as provided in D below to determine whether such person is so entitled to indemnification.
(B)    Every person who is or was a ~~director~~Director or ~~officer~~Officer of the ~~Company~~Corporation shall be indemnified by the ~~Company~~Corporation against reasonable expenses, including counsel fees, actually incurred by such person in connection with any ~~"Proceeding" (as defined below)~~Proceeding to which such person was a party because of such person serving in his or her Official Capacity if such person was wholly successful, on the merits or otherwise, in the defense of such Proceeding. ~~Finally, the Bylaws provide that the Company~~
(C)    The Corporation may, ~~also~~upon authorization of those entitled to select counsel under D.(3) below, pay for or reimburse the reasonable expenses, including counsel fees, incurred by any person who is or was a Director or ~~is a director or officer~~Officer of the ~~Company~~Corporation in connection with any ~~II-1~~ 60 Proceeding to which such person is a ~~party~~Party because of such person serving in his or her Official Capacity in advance of final disposition of the Proceeding ifif:
    (1)    The person furnishes the ~~person (1) affirms in writing his or her~~Corporation a written affirmation of the person’s good faith belief that ~~he or she~~the person has met the standard of conduct specified in E below;
    (2)    The person furnishes the ~~Bylaws, (2) undertakes~~Corporation an unlimited general written undertaking, executed personally or on the person’s behalf, to repay the advance if it is ultimately determined that the person did not meet such standard of ~~conduct~~conduct; and
    (3)    A determination is made in the ~~Company determines, based upon~~manner specified in D below that the facts then known to ~~it, that such person~~those making the determination would ~~ultimately~~not preclude indemnification under A above.
(D)    The determination shall be ~~entitled to indemnification upon conclusion~~made by any one of the ~~Proceeding~~following procedures, as selected by the Board of Directors by majority vote of the entire Board of Directors:
    (1)    By the Board of Directors by majority vote of a quorum consisting of Directors not at the time parties to the proceeding as to which indemnification or advancement of expenses is at issue.
    (2)    If a quorum cannot be obtained under Subdivision (1), by majority vote of a committee duly designated by the Board of Directors (in which designation Directors who are Parties may participate), consisting solely of two or more Directors not at the time Parties to the Proceeding.

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    (3)    By special legal counsel selected by the Board of Directors or its committee in ~~question.~~the manner prescribed in Subdivision (1) or (2); or, if a quorum of the Board of Directors cannot be obtained under Subdivision (1) and a committee cannot be designated under Subdivision (2), by special legal counsel selected by majority vote of the full Board of Directors (in which selection Directors who are Parties may participate).
    (4)    By a majority vote of shareholders excluding shares owned or controlled by Directors or Officers who at the time of the vote are Parties to the Proceeding.
(E)    The ~~Bylaws provide that the~~ standard of conduct for any act or omission is as follows:
    (1)    inIn the case of any criminal Proceeding, the person either ~~has~~had reasonable cause to believe that ~~his or her~~the person’s conduct was lawful, or, had no reasonable cause to believe ~~that his or her~~the person’s conduct was ~~unlawful, and~~unlawful.
    (2)    inIn all other cases, either (a)(i) the ~~person's~~person’s conduct was in good faith, and (ii) the person reasonably believed that ~~his or her~~the person’s conduct was in the ~~Company's~~Corporation’s best interest, or, ~~under circumstances specified~~ in ~~clause~~ the situation described in F.(3)(c) ofbelow, the ~~definition of "Official Capacity" below,~~person reasonably believed that the person’s conduct was not opposed to the ~~Company's~~Corporation’s best ~~interests~~interests; or (b) the ~~person's~~person’s breach of or failure to act in accordance with the standard set forth in ~~clause~~ E.(2)(a) above did not constitute willful misconduct or recklessness.  ~~The Bylaws further provide that a person's~~A person’s conduct with respect to an employee benefit plan for a purpose which the person reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirements of ~~clause~~ E.(2)(b) ~~above, and that the~~.
    (3)    The termination of a Proceeding by judgment, order, agreement, or settlement, or upon conviction or a plea of nolo contendere, or the equivalent of any of the foregoing, is not, of itself, determinative that the person did not meet the standard of conduct.
(F)    As used inhereinabove with respect to indemnification, the ~~Bylaws,~~following terms have the ~~term "Official Capacity"~~following meanings:
    (1)    DIRECTOR means an individual who is or was a director of the Corporation.  “Director” includes the heirs, estate, executors, administrators, and personal representatives of a Director.
    (2)    OFFICER means an individual who is or was an officer of the Corporation.  “Officer” includes the heirs, estate, executors, administrators, and personal representatives of an Officer.
    (3)    OFFICIAL CAPACITY means: (a) when used with respect to a ~~director,~~Director, the position of ~~director~~Director of the ~~Company,~~Corporation; (b) when used with respect to an ~~officer,~~Officer, the office in the ~~Company~~Corporation held by an ~~officer,~~Officer, and (c) when used bywith respect to a ~~person while a director~~Director or ~~officer,~~Officer, any service by a person while a ~~director~~Director or ~~officer~~Officer of the ~~Company~~Corporation at the ~~Company's~~Corporation’s specific request, as a ~~director, officer,~~Director, Officer, partner, trustee, employee, or agent of ~~a corporation,~~the Corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, whether for profit or not.  ~~The Bylaws further provide that, for the~~For these purposes, ~~described herein,~~ a person is considered to be serving an employee benefit plan at the ~~Company's~~Corporation’s specific request ifof the ~~person's~~person’s duties to the ~~Company~~Corporation also impose duties on, or otherwise involve services by, such person to the plan or to participants in or beneficiaries of the plan. ~~As used~~
    (4)    PARTIES means persons who were, are, or are threatened to be named defendant or respondent in ~~the Bylaws, the term "Proceeding"~~a Proceeding.
    (5)    PROCEEDING means any threatened, pending, or completed action, suit, proceeding, or appeal therefrom, whether civil, criminal, administrative, regulatory, or investigative, and whether formal or informal. ~~In the Bylaws, the Company~~
(G)    The Corporation reserves the right to purchase and maintain insurance for the matters covered by ~~the foregoing~~these provisions and to the extent of such insurance payments ~~such Bylaw provision~~these provisions shall not be effective. ~~Pursuant~~

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Item 16.   Exhibits
Exhibit No. Description
4.1 Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, Without Par Value, and With a Liquidation Preference of $1,000 per share (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.2 Warrant for Purchase of Shares of Common Stock (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.3 Certificate of Designations of Fixed Rate Cumulative Preferred Stock, Series A, dated January 21, 2009 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.4 Letter Agreement, dated January 23, 2009, between 1st Source Corporation and the United States Department of the Treasury (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
5.1* Opinion of Barnes & Thornburg LLP
12.1* Computation of Ratios of Earnings to Fixed Charges for Periods Ended September 30, 2008 and December 31, 2007, 2006, 2005, 2004 and 2003
23.1* Consent of Ernst & Young LLP
23.2 Consent of Barnes & Thornburg LLP (included in Exhibit 5.1)
24.1* Limited Power of Attorney
* Filed herewith
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, That:

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(1) Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of a registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to ~~a policy~~this registration statement, regardless of ~~directors' and officers' liability insurance with total annual limits of $12,500,000,~~ the ~~Company's directors and officers are insured, subject~~underwriting method used to sell the securities to the ~~limits, retention, exceptions and other terms and conditions~~purchaser, if the securities are offered or sold to such purchaser by means of ~~such policy, against liability for~~ any ~~actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted while acting in their capacities as directors or officers~~ of the ~~Company. II-2~~ 61 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1 Form of Underwriting Agreement for Fixed Rate Preferred Securities of 1st Capital I. 1.2 Form of Underwriting Agreement for Floating Rate Preferred Securities of 1st Capital II. 4.1 Form of Indenture for Fixed Rate Subordinated Debentures of 1st Source Corporation. 4.2 Form of Fixed Rate Subordinated Debenture of 1st Source Corporation (included as an exhibit to Exhibit 4.1). 4.3 Restated Certificate of Trust of 1st Capital I dated as of February 27, 1997. 4.4 Amended and Restated Trust Agreement of 1st Capital I dated as of February 27, 1997. 4.5 Form of Amended and Restated Trust Agreement of 1st Capital I. 4.6 Form of Fixed Rate Preferred Security Certificate of 1st Capital I (included as an exhibit to Exhibit 4.5). 4.7 Form of Fixed Rate Preferred Securities Guarantee Agreement for 1st Capital I. 4.8 Form of Agreement as to Expenses and Liabilities pertaining to 1st Capital I (included as an exhibit to Exhibit 4.5). 4.9 Form of Indenture for Floating Rate Subordinated Debentures of 1st Source Corporation. 4.10 Form of Floating Rate Subordinated Debenture of 1st Source Corporation (included as an exhibit to Exhibit 4.9). 4.11 Certificate of Trust of 1st Capital II dated as of February 27, 1997. 4.12 Trust Agreement of 1st Capital II dated as of February 27, 1997. 4.13 Form of Amended and Restated Trust Agreement of 1st Capital II. 4.14 Form of Floating Rate Preferred Security Certificate of 1st Capital II (included as an exhibit to Exhibit 4.13). 4.15 Form of Floating Rate Preferred Securities Guarantee Agreement for 1st Capital II. 4.16 Form of Agreement as to Expenses and Liabilities pertaining to 1st Capital II (included as an exhibit to Exhibit 4.13). 5.1 Opinion of Lewis, Rice & Fingersh, L.C. asfollowing communications the undersigned registrant will be a seller to the validity of the issuance of the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures. 5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to the legality of the Fixed Rate Preferred Securities to be issued by 1st Capital I and the Floating Rate Preferred Securities to be issued by 1st Capital II. 8.1 Opinion of Lewis, Rice & Fingersh, L.C. as to certain federal income tax matters. 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Coopers & Lybrand LLP, Independent Auditors. 23.2 Consent of Lewis, Rice & Fingersh, L.C. (included in their opinions filed herewith as Exhibits 5.1 and 8.1). 23.3 Consent of Richards, Layton & Finger (included in their opinion filed herewith as Exhibit 5.2). 24.1 Power of Attorney (included on the signature page). 25.1 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture for Fixed Rate Subordinated Debentures of 1st Source Corporation. 25.2 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under Amended and Restated Trust Agreement of 1st Capital I. 25.3 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred Securities Guarantee Agreement for 1st Capital I. 25.4 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture for Floating Rate Subordinated Debentures of 1st Source Corporation. 25.5 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under Amended and Restated Trust Agreement of 1st Capital II. 25.6 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred Securities Guarantee Agreement for 1st Capital II. [FN] - ---------- ~~Filed herewith. All other exhibits previously filed. II-3~~ 62 (b) Financial Statement Schedules--Not applicable as all required information is contained in the financial statements and the notes thereto or in the selected financial data. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described under "Item 15--Indemnification of Directors and Officers" above, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Actpurchaser and will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuantconsidered to ~~Rule 424(b)(1)~~offer or (4) or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering ofsell such securities ~~at that time shall be deemed~~ to ~~be the initial bona fide offering thereof. II-4~~ 63 such purchaser:
(i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

II-6

(ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned Registrant; and
(iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b)
The undersigned registrant hereby further undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-7

SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the ~~undersigned~~ registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this ~~Pre-Effective Amendment No. 1 to the Registration Statement~~registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of South Bend, State of Indiana, on March 5, 1997. 1ST SOURCE CORPORATION By: CHRISTOPHER J. MURPHY III ------------------------------------- Christopher J. Murphy III President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, the undersigned registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in South Bend, Indiana on March 5, 1997. 1ST SOURCE CAPITAL TRUST I By: CHRISTOPHER J. MURPHY III ------------------------------------- Christopher J. Murphy III, Trustee By: LARRY E. LENTYCH ------------------------------------- Larry E. Lentych, Trustee By: WELLINGTON D. JONES III ------------------------------------- Wellington D. Jones III, Trustee Pursuant to the requirements of the Securities Act of 1933, the undersigned registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in South Bend, Indiana on March 5, 1997. 1ST SOURCE CAPITAL TRUST II By: CHRISTOPHER J. MURPHY III ------------------------------------- Christopher J. Murphy III, Trustee By: LARRY E. LENTYCH ------------------------------------- Larry E. Lentych, Trustee By: WELLINGTON D. JONES III ------------------------------------- Wellington D. Jones III, Trustee II-5 64 SIGNATURES KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher J. Murphy III and Larry E. Lentych and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement including any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. February 20, 2009.
1st Source Corporation
By: /s/ Christopher J. Murphy III
Christopher J. Murphy III
Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this ~~Pre-Effective Amendment No. 1 to the Registration Statement~~registration statement has been signed by the following persons in the capacities and on the ~~dates~~date indicated.
SIGNATURE ~~TITLE~~
TITLE(S)
DATE ~~--------- ----- ----~~ ~~Chairman of the Board March 5, 1997 ----------------------------------- Ernestine M. Raclin~~ ~~President, Chief Executive March 5, 1997 ----------------------------------- Officer and Director~~
/s/ Christopher J. Murphy III ~~Senior Vice~~
Chairman, President ~~March 5, 1997 ----------------------------------- (Principal Financial~~ and Chief Executive Officer and Director
)
)
Christopher J. Murphy III )
)
/s/ Larry E. Lentych ~~Accounting Officer)~~ ~~Director March 5, 1997 ----------------------------------- Rev.~~ Treasurer and Chief Financial Officer )
Larry E. ~~William Beauchamp~~ ~~Director March 5, 1997 ----------------------------------- Paul R. Bowles~~ ~~Director March 5, 1997 ----------------------------------- Philip J. Faccenda~~ ~~Director March 5, 1997 -----------------------------------~~Lentych )
)
/s/ Daniel B. Fitzpatrick Director ~~March 5, 1997 -----------------------------------~~ )
Daniel B. Fitzpatrick )
)
/s/ Terry L. Gerber Director )
Terry L. Gerber )
)
/s/  Lawrence E. Hiler Director ~~March 5, 1997 -----------------------------------~~ )
Lawrence E. Hiler )
)
/s/  William P. Johnson Director ~~March 5, 1997 -----------------------------------~~ )
William P. Johnson )
)
/s/  Wellington D. Jones III Director ) February 20, 2009
Wellington D. Jones III )
)
/s/  Craig A. Kapson Director )
Craig A. Kapson )
)
/s/  Rex Martin ~~II-6~~ ~~65 SIGNATURE TITLE DATE --------- ----- ----~~ Director ~~March 5, 1997 ----------------------------------- Leo J. McKernan~~ ~~Director March 5, 1997 ----------------------------------- JoAnn R. Meehan~~ ~~Director March 5, 1997 -----------------------------------~~ )
Rex Martin )
)
/s/  Dane A. Miller ~~Ph.D.~~ Director ~~March 5, 1997 ----------------------------------- Richard J. Pfeil~~ ~~By: Larry E. Lentych ------------------------------ Larry E. Lentych~~ )
Dane A. Miller )
)
/s/  Timothy K. Ozark Director )
Timothy K. Ozark )
)
/s/  John T. Phair Director )
John T. Phair )
)
/s/  Mark D. Schwabero Director )
Mark D. Schwabero )
~~II-7~~ 66

EXHIBIT INDEX
~~EXHIBIT INDEX~~
~~EXHIBIT NUMBER DESCRIPTION -------- -----------~~ ~~1.1~~
Exhibit No. Description
4.1
Form of ~~Underwriting Agreement~~Certificate for the Fixed Rate Cumulative Perpetual Preferred ~~Securities~~Stock, Series A, Without Par Value, and With a Liquidation Preference of ~~1st Capital I. 1.2~~$1,000 per share (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.2 Warrant for Purchase of ~~Underwriting Agreement for Floating Rate Preferred Securities~~Shares of ~~1st Capital II. 4.1~~Common Stock (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.3 Certificate of ~~Indenture for Fixed Rate Subordinated Debentures of 1st Source Corporation. 4.2 Form~~Designations of Fixed Rate ~~Subordinated Debenture of~~Cumulative Preferred Stock, Series A, dated January 23, 2009 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.4 Letter Agreement, dated January 23, 2009, between 1st Source Corporation ~~(included~~and the United States Department of the Treasury (filed as ~~an exhibit~~Exhibit 10.1 to ~~Exhibit 4.1). 4.3 Restated Certificate of Trust of 1st Capital I dated as of February 27, 1997. 4.4 Amended~~the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and Restated Trust Agreement of 1st Capital I dated as of February 27, 1997. 4.5 Form of Amended and Restated Trust Agreement of 1st Capital I. 4.6 Form of Fixed Rate Preferred Security Certificate of 1st Capital I (included as an exhibit to Exhibit 4.5). 4.7 Form of Fixed Rate Preferred Securities Guarantee Agreement for 1st Capital I. 4.8 Form of Agreement as to Expenses and Liabilities pertaining to 1st Capital I (included as an exhibit to Exhibit 4.5). 4.9 Form of Indenture for Floating Rate Subordinated Debentures of 1st Source Corporation. 4.10 Form of Floating Rate Subordinated Debenture of 1st Source Corporation (included as an exhibit to Exhibit 4.9). 4.11 Certificate of Trust of 1st Capital II dated as of February 27, 1997. 4.12 Trust Agreement of 1st Capital II dated as of February 27, 1997. 4.13 Form of Amended and Restated Trust Agreement of 1st Capital II. 4.14 Form of Floating Rate Preferred Security Certificate of 1st Capital II (included as an exhibit to Exhibit 4.13). 4.15 Form of Floating Rate Preferred Securities Guarantee Agreement for 1st Capital II. 4.16 Form of Agreement as to Expenses and Liabilities pertaining to 1st Capital II (included as an exhibit to Exhibit 4.13). 5.1 incorporated herein by reference)
5.1* Opinion of ~~Lewis, Rice~~Barnes & Fingersh, L.C. as to the validity of the issuance of the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures. 5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to the legality of the Fixed Rate Preferred Securities to be issued by 1st Capital I and the Floating Rate Preferred Securities to be issued by 1st Capital II. 8.1 Opinion of Lewis, Rice & Fingersh, L.C. as to certain federal income tax matters. 12.1 Statement Regarding Thornburg LLP
12.1* Computation of ~~Ratio~~Ratios of Earnings to Fixed ~~Charges. 23.1~~Charges for Periods Ended December 31, 2008, 2007, 2006, 2005 and 2004
23.1* Consent of ~~Coopers~~Ernst & ~~Lybrand~~Young LLP ~~Independent Auditors.~~
23.2 Consent of ~~Lewis, Rice~~Barnes & ~~Fingersh, L.C.~~Thornburg LLP (included in ~~their opinions filed herewith as Exhibits 5.1 and 8.1). 23.3 Consent of Richards, Layton & Finger (included in their opinion filed herewith as~~ Exhibit ~~5.2). 24.1~~5.1)
24.1* Limited Power of Attorney (included on the signature page). 25.1 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture for Fixed Rate Subordinated Debentures of 1st Source Corporation. 25.2 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under Amended and Restated Trust Agreement of 1st Capital I. 25.3 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred Securities Guarantee Agreement for 1st Capital I. 25.4 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture for Floating Rate Subordinated Debentures of 1st Source Corporation. 25.5 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under Amended and Restated Trust Agreement of 1st Capital II. 25.6 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred Securities Guarantee Agreement for 1st Capital II. ~~- ----------~~ ~~Filed herewith. All other exhibits previously filed.~~
~~II-8~~


1st Source Corporation
(Exact name of registrant as specified in its charter)

Indiana
(State or other jurisdiction of incorporation) (Primary Standard Industrial Classification Code Number)
35-1068133
(I.R.S. Employer Identification No.)
100 North Michigan Street, South Bend, Indiana 46601 (574) 235-2000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)


Title of each class of securities to be registered	Amount to be registered (1)	Proposed maximum offering price per share		Proposed maximum aggregate offering price		Amount of Registration Fee
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, without par value	111,000 shares	$1,000	(1)	$111,000,000	(1)	$4,362
Warrant to Purchase Common Stock, without par value (2)	837,947 shares	--	(3)	--	(3)	--	(3)
Common Stock, without par value	837,947 shares	$19.87	(4)	$16,650,007		$655
Total:				$127,650,007		$5,017

ABOUT THIS PROSPECTUS	1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	1
SUMMARY	3
RISK FACTORS	4
USE OF PROCEEDS	4
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS	4
DETERMINATION OF OFFERING PRICE	4
DESCRIPTION OF SERIES A PREFERRED STOCK	4
DESCRIPTION OF WARRANT TO PURCHASE COMMON STOCK	10
DESCRIPTION OF COMMON STOCK	11
PLAN OF DISTRIBUTION	12
SELLING SECURITYHOLDERS	14
LEGAL MATTERS	14
EXPERTS	14
WHERE YOU CAN FIND MORE INFORMATION	15
INCORPORATION BY REFERENCE	15

Shares of fixed rate cumulative perpetual preferred stock, series A, without par value, offered in this prospectus	111,000 shares

Warrant offered in this prospectus	Warrant to ~~(i) a trust under Delaware law pursuant to (i) a trust agreement, agreement, dated~~purchase 837,947 shares of common stock

Common stock offered in this prospectus	837,947 shares of common stock issuable upon exercise of the warrant

Common stock outstanding as of February ~~20, 1997, executed dated as~~19, 2009	24,945,647 shares

Use of February 27, 1997, executed by the Com- by the Company, as depositor, and the trustees of pany, as depositor, and the trustees of 1st Capital II 1st Capital I (together with the Fixed Rate (together with the Floating Rate Property Trustee, the Property Trustee, the "Fixed Rate Trustees") and "Floating Rate Trustees"), and (ii) a certificate of trust amended and restated as of February 27, 1997, and filed with the Secretary of State of the State of Dela- (ii) a certificate of trust filed with the ware on February 27, 1997. The initial trust agreement Secretary of State of the State of Delaware on will be amended and restated in its entirety (as so February 20, 1997 and amended and restated as of amended and restated, the "Floating Rate Trust Agree- February 27, 1997. The initial trust agreement ment") substantially in the form filed as an exhibit to will be amended and restated in its entirety (as the Registration Statement (as defined herein) of which so amended and restated, the "Fixed Rate Trust this Prospectus forms a part. The Floating Rate Trust Agreement") substantially in the form filed as an Agreement will be qualified as an indenture under the exhibit to the Registration Statement (as defined Trust Indenture Act of 1939, as amended (the "Trust herein) of which this Prospectus forms a part. The Indenture Act"). Upon issuance of the Floating Rate Fixed Rate Trust Agreement will be qualified as an Preferred Securities, the purchasers thereof will own all indenture under the Trust Indenture Act of 1939, of the Floating Rate Preferred Securities. The Com- as amended (the "Trust Indenture Act"). Upon pany will acquire all of the Floating Rate Common issuance of the Fixed Rate Preferred Securities, Securities which will represent an aggregate liquidation the purchasers thereof will own all of the Fixed amount equal to at least 3% of the total capital of 1st Rate Preferred Securities. The Company will ac- quire all of the Fixed Rate Common Securities which (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 4 11 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) will represent an aggregate liquidation amount equal to at Capital II. The Floating Rate Common Securities will rank pari least 3% of the total capital of 1st Capital I. The Fixed Rate passu, and payments will be made thereon pro rata, with the Common Securities will rank pari passu, and payments will be Floating Rate Preferred Securities, except that upon the made thereon pro rata, with the Fixed Rate Preferred occurrence and during the continuance of an Event of Default Securities, except that upon the occurrence and during the (as defined herein) under the Floating Rate Trust Agreement continuance of an Event of Default (as defined herein) under resulting from a Debenture Event of Default, the rights of the the Fixed Rate Trust Agreement resulting from a Debenture Company as holder of the Floating Rate Common Securities to Event of Default, the rights of the Company as holder of the payment in respect of Floating Rate Distributions and pay- Fixed Rate Common Securities to payment in respect of Fixed ments upon liquidation, redemption or otherwise will be Rate Distributions and payments upon liquidation, redemption subordinated to the rights of the holders of the Floating Rate or otherwise will be subordinated to the rights of the holders Preferred Securities. See "Description of the Preferred of the Fixed Rate Preferred Securities. See "Description of Securities--Subordination of Common Securities." 1st Capital the Preferred Securities--Subordination of Common II exists for the exclusive purposes of (i) issuing the Securities." 1st Capital I exists for the exclusive purposes Floating Rate Trust Securities representing undivided of (i) issuing the Fixed Rate Trust Securities representing beneficial interests in the assets of 1st Capital II, (ii) undivided beneficial interests in the assets of 1st Capital I, investing the gross proceeds of the Floating Rate Trust (ii) investing the gross proceeds of the Fixed Rate Trust Securities in the Floating Rate Subordinated Debentures issued Securities in the Fixed Rate Subordinated Debentures issued by by the Company, and (iii) engaging in only those other the Company, and (iii) engaging in only those other activities activities necessary, advisable, or incidental thereto. The necessary, advisable, or incidental thereto. The Fixed Rate Floating Rate Subordinated Debentures and payments thereunder Subordinated Debentures and payments thereunder will be the will be the only assets of 1st Capital II and payments under only assets of 1st Capital I and payments under the Fixed Rate the Floating Rate Subordinated Debentures will be the only Subordinated Debentures will be the only revenue of 1st revenue of 1st Capital II. 1st Capital II has a term of 55 Capital I. 1st Capital I has a term of 55 years, but may years, but may terminate earlier as provided in the Floating terminate earlier as provided in the Fixed Rate Trust Rate Trust Agreement. The principal executive office of 1st Agreement. The principal executive office of 1st Capital I is Capital II is 100 North Michigan Street, South Bend, Indiana 100 North Michigan Street, South Bend, Indiana 46601, and its 46601, and its telephone number is (219) 235-2000. telephone number is (219) 235-2000. The number of Fixed Rate Trustees will, pursuant to the The number of Floating Rate Trustees will, pursuant to the Fixed Rate Trust Agreement, initially be five. Three of the Floating Rate Trust Agreement, initially be five. Three of the Fixed Rate Trustees (the "Fixed Rate Administrative Floating Rate Trustees (the "Floating Rate Administrative Trustees") will be persons who are employees or officers of, Trustees") will be persons who are employees or officers of, or who are affiliated with, the Company. The fourth trustee or who are affiliated with, the Company. The fourth trustee will be a financial institution that is unaffiliated with the will be a financial institution that is unaffiliated with the Company, which trustee will serve as institutional trustee Company, which trustee will serve as institutional trustee under the Fixed Rate Trust Agreement and as indenture trustee under the Floating Rate Trust Agreement and as indenture for the purposes of compliance with the provisions of the trustee for the purposes of compliance with the provisions of Trust Indenture Act (the "Fixed Rate Property Trustee"). the Trust Indenture Act (the "Floating Rate Property State Street Bank and Trust Company, a state chartered trust Trustee"). State Street Bank and Trust Company, a state company organized under the laws of the Commonwealth of chartered trust company organized under the laws of the Com- Massachusetts, will be the Fixed Rate Property Trustee until monwealth of Massachusetts, will be the Floating Rate Property removed or replaced by the holder of the Fixed Rate Common Trustee until removed or replaced by the holder of the Securities. For purposes of compliance with the provisions of Floating Rate Common Securities. For purposes of compliance the Trust Indenture Act, State Street Bank and Trust Company with the provisions of the Trust Indenture Act, State Street will also act as trustee (the "Fixed Rate Guarantee Bank and Trust Company will also act as trustee (the Trustee") under the Fixed Rate Guarantee and as "Floating Rate Guarantee Trustee") under the Floating Rate Guarantee and as (FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page) 5 12 (FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous page) page) Fixed Rate Debenture Trustee (as defined herein) under the Floating Rate Debenture Trustee (as defined herein) under the Fixed Rate Indenture. The fifth trustee will be an entity that Floating Rate Indenture. The fifth trustee will be an entity maintains its principal place of business in the State of that maintains its principal place of business in the State of Delaware (the "Fixed Rate Delaware Trustee"). Wilmington Delaware (the "Floating Rate Delaware Trustee"). Wilmington Trust Company, a Delaware chartered trust company, will act as Trust Company, a Delaware chartered trust company, will act as Fixed Rate Delaware Trustee. Floating Rate Delaware Trustee. The Fixed Rate Property Trustee will hold title to the The Floating Rate Property Trustee will hold title to the Fixed Rate Subordinated Debentures for the benefit of the Floating Rate Subordinated Debentures for the benefit of the holders of the Fixed Rate Trust Securities and holders of the Floating Rate Trust Securities and in such in such capacity will have the power to exercise all rights, capacity will have the power to exercise all rights, powers powers and privileges under the Fixed Rate Indenture. The and privileges under the Floating Rate Indenture. The Floating Fixed Rate Property Trustee will also maintain exclusive Rate Property Trustee will also maintain exclusive control of control of a segregated non-interest-bearing bank account (the a segregated non-interest-bearing bank account (the "Fixed Rate Property Account") to hold all payments made in "Floating Rate Property Account") to hold all payments made respect of the Fixed Rate Subordinated Debentures for the in respect of the Floating Rate Subordinated Debentures for benefit of the holders of the Fixed Rate Trust Securities. The the benefit of the holders of the Floating Rate Trust Fixed Rate Property Trustee will make payments of Fixed Rate Securities. The Floating Rate Property Trustee will make Distributions and payments on liquidation, redemption and payments of Floating Rate Distributions and payments on otherwise to the holders of the Fixed Rate Trust Securities liquidation, redemption and otherwise to the holders of the out of funds from the Fixed Rate Property Account. The Fixed Floating Rate Trust Securities out of funds from the Floating Rate Guarantee Trustee will hold the Fixed Rate Guarantee for Rate Property Account. The Floating Rate Guarantee Trustee the benefit of the holders of the Fixed Rate Preferred will hold the Floating Rate Guarantee for the benefit of the Securities. The Company, as the holder of all the Fixed Rate holders of the Floating Rate Preferred Securities. The Common Securities, will have the right to appoint, remove or Company, as the holder of all the Floating Rate Common replace any Fixed Rate Trustee and to increase or decrease the Securities, will have the right to appoint, remove or replace number of Fixed Rate Trustees. The Company will pay all fees any Floating Rate Trustee and to increase or decrease the and expenses related to 1st Capital I and the offering of the number of Floating Rate Trustees. The Company will pay all Fixed Rate Trust Securities. fees and expenses related to 1st Capital II and the offering of the Floating Rate Trust Securities. The rights of the holders of the Fixed Rate Preferred The rights of the holders of the Floating Rate Preferred Securities, including economic rights, rights to information Securities, including economic rights, rights to information and voting rights, are set forth in the Fixed Rate Trust and voting rights, are set forth in the Floating Rate Trust Agreement, the Delaware Business Trust Act (the "Trust Act") Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the and the Trust Indenture Act. See "Description of the Preferred Securities." Preferred Securities."

We will not have sufficient funds to make distributions on the Preferred Securities; in which event, the Guarantee will not apply to such Distributions until 1st Capital has sufficient funds available therefor. The Fixed Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Fixed Rate Preferred Securities and the Floating Rate Guarantee will be executed by the Company for the sole benefit of the holders of the Floating Rate Preferred Securities. Holders of Fixed Rate Preferred Securities will, therefore, have no rights under the Floating Rate Guarantee, and holders of Floating Rate Preferred Securities will have no rights under the Fixed Rate Guarantee. See "Description of the Guarantee." 9 16 Voting Rights................. The holders of the Preferred Securities generally will have no voting rights except in limited circumstances. See "Description of the Preferred Securities--Voting Rights; Amendment of Trust Agreement." Use of Proceeds............... Thereceive any proceeds from the sale of the ~~Preferred Securities offered hereby will be used by 1st Capital to purchase the Subordinated Debentures issued~~securities by the ~~Company. The Company intends~~selling securityholders. If the warrant is exercised in full for cash, we will receive proceeds of approximately $16,650,000, which we intend to use ~~the net proceeds from the sale of the Subordinated Debentures~~ for general corporate purposes. ~~These may include, without limitation, the repurchase~~See “Use of Proceeds.”

Risk factors	The warrant and shares of common stock ~~the repayment~~offered in this prospectus involve a high degree of long term debt, the funding of investments in or extensions of credit to the Company's subsidiaries and the making of investments in or possibly acquiring businesses which enhance the Company's long-term growth or improve or expand the Company's products, services or markets. Pending their applicationrisk. See “Risk Factors.”

Nasdaq Global Select Market for ~~any or all of such purposes, the net proceeds may be invested in investment grade financial instruments. See "Use of Proceeds."~~ our common stock	“SRCE”

	Year ended December 31,
	2008	2007	2006	2005	2004
Excluding interest on deposits	3.86	3.13	4.40	4.59	4.06
Including interest on deposits	1.45	1.31	1.58	1.70	1.65

SEC ~~Registration Fee..................................................~~ registration fee	$ ~~16,667 NASD Filing Fee....................................................... 6,500 Nasdaq Listing Fee.................................................... 11,000 Blue Sky Qualification Fees~~	5,017
Legal fees and ~~Expenses.............................. 3,000~~ expenses	$	20,000
Accounting Fees	$	5,000
Miscellaneous Expenses	$	5,000
Total expenses	$	35,017

Exhibit No.		Description
4.1		Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, Without Par Value, and With a Liquidation Preference of $1,000 per share (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.2		Warrant for Purchase of Shares of Common Stock (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.3		Certificate of Designations of Fixed Rate Cumulative Preferred Stock, Series A, dated January 21, 2009 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.4		Letter Agreement, dated January 23, 2009, between 1st Source Corporation and the United States Department of the Treasury (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
5.1*		Opinion of Barnes & Thornburg LLP
12.1*		Computation of Ratios of Earnings to Fixed Charges for Periods Ended September 30, 2008 and December 31, 2007, 2006, 2005, 2004 and 2003
23.1*		Consent of Ernst & Young LLP
23.2		Consent of Barnes & Thornburg LLP (included in Exhibit 5.1)
24.1*		Limited Power of Attorney

	1st Source Corporation

	By:	/s/ Christopher J. Murphy III
		Christopher J. Murphy III
		Chairman, President and Chief Executive Officer

SIGNATURE ~~TITLE~~	TITLE(S)		DATE ~~--------- ----- ----~~ ~~Chairman of the Board March 5, 1997 ----------------------------------- Ernestine M. Raclin~~ ~~President, Chief Executive March 5, 1997 ----------------------------------- Officer and Director~~

/s/ Christopher J. Murphy III ~~Senior Vice~~	Chairman, President ~~March 5, 1997 ----------------------------------- (Principal Financial~~ and Chief Executive Officer and Director	) )
Christopher J. Murphy III		)
		)
/s/ Larry E. Lentych ~~Accounting Officer)~~ ~~Director March 5, 1997 ----------------------------------- Rev.~~	Treasurer and Chief Financial Officer	)
Larry E. ~~William Beauchamp~~ ~~Director March 5, 1997 ----------------------------------- Paul R. Bowles~~ ~~Director March 5, 1997 ----------------------------------- Philip J. Faccenda~~ ~~Director March 5, 1997 -----------------------------------~~Lentych		)
		)
/s/ Daniel B. Fitzpatrick	Director ~~March 5, 1997 -----------------------------------~~	)
Daniel B. Fitzpatrick		)
		)
/s/ Terry L. Gerber	Director	)
Terry L. Gerber		)
		)
/s/ Lawrence E. Hiler	Director ~~March 5, 1997 -----------------------------------~~	)
Lawrence E. Hiler		)
		)
/s/ William P. Johnson	Director ~~March 5, 1997 -----------------------------------~~	)
William P. Johnson		)
		)
/s/ Wellington D. Jones III	Director	)	February 20, 2009
Wellington D. Jones III		)
		)
/s/ Craig A. Kapson	Director	)
Craig A. Kapson		)
		)
/s/ Rex Martin ~~II-6~~ ~~65 SIGNATURE TITLE DATE --------- ----- ----~~	Director ~~March 5, 1997 ----------------------------------- Leo J. McKernan~~ ~~Director March 5, 1997 ----------------------------------- JoAnn R. Meehan~~ ~~Director March 5, 1997 -----------------------------------~~	)
Rex Martin		)
		)
/s/ Dane A. Miller ~~Ph.D.~~	Director ~~March 5, 1997 ----------------------------------- Richard J. Pfeil~~ ~~By: Larry E. Lentych ------------------------------ Larry E. Lentych~~	)
Dane A. Miller		)
		)
/s/ Timothy K. Ozark	Director	)
Timothy K. Ozark		)
		)
/s/ John T. Phair	Director	)
John T. Phair		)
		)
/s/ Mark D. Schwabero	Director	)
Mark D. Schwabero		)

Exhibit No.		Description
4.1		Form of ~~Underwriting Agreement~~Certificate for the Fixed Rate Cumulative Perpetual Preferred ~~Securities~~Stock, Series A, Without Par Value, and With a Liquidation Preference of ~~1st Capital I. 1.2~~$1,000 per share (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.2		Warrant for Purchase of ~~Underwriting Agreement for Floating Rate Preferred Securities~~Shares of ~~1st Capital II. 4.1~~Common Stock (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.3		Certificate of ~~Indenture for Fixed Rate Subordinated Debentures of 1st Source Corporation. 4.2 Form~~Designations of Fixed Rate ~~Subordinated Debenture of~~Cumulative Preferred Stock, Series A, dated January 23, 2009 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference)
4.4		Letter Agreement, dated January 23, 2009, between 1st Source Corporation ~~(included~~and the United States Department of the Treasury (filed as ~~an exhibit~~Exhibit 10.1 to ~~Exhibit 4.1). 4.3 Restated Certificate of Trust of 1st Capital I dated as of February 27, 1997. 4.4 Amended~~the Registrant’s Current Report on Form 8-K filed on January 23, 2009 and Restated Trust Agreement of 1st Capital I dated as of February 27, 1997. 4.5 Form of Amended and Restated Trust Agreement of 1st Capital I. 4.6 Form of Fixed Rate Preferred Security Certificate of 1st Capital I (included as an exhibit to Exhibit 4.5). 4.7 Form of Fixed Rate Preferred Securities Guarantee Agreement for 1st Capital I. 4.8 Form of Agreement as to Expenses and Liabilities pertaining to 1st Capital I (included as an exhibit to Exhibit 4.5). 4.9 Form of Indenture for Floating Rate Subordinated Debentures of 1st Source Corporation. 4.10 Form of Floating Rate Subordinated Debenture of 1st Source Corporation (included as an exhibit to Exhibit 4.9). 4.11 Certificate of Trust of 1st Capital II dated as of February 27, 1997. 4.12 Trust Agreement of 1st Capital II dated as of February 27, 1997. 4.13 Form of Amended and Restated Trust Agreement of 1st Capital II. 4.14 Form of Floating Rate Preferred Security Certificate of 1st Capital II (included as an exhibit to Exhibit 4.13). 4.15 Form of Floating Rate Preferred Securities Guarantee Agreement for 1st Capital II. 4.16 Form of Agreement as to Expenses and Liabilities pertaining to 1st Capital II (included as an exhibit to Exhibit 4.13). 5.1 incorporated herein by reference)
5.1*		Opinion of ~~Lewis, Rice~~Barnes & Fingersh, L.C. as to the validity of the issuance of the Fixed Rate Subordinated Debentures and the Floating Rate Subordinated Debentures. 5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to the legality of the Fixed Rate Preferred Securities to be issued by 1st Capital I and the Floating Rate Preferred Securities to be issued by 1st Capital II. 8.1 Opinion of Lewis, Rice & Fingersh, L.C. as to certain federal income tax matters. 12.1 Statement Regarding Thornburg LLP
12.1*		Computation of ~~Ratio~~Ratios of Earnings to Fixed ~~Charges. 23.1~~Charges for Periods Ended December 31, 2008, 2007, 2006, 2005 and 2004
23.1*		Consent of ~~Coopers~~Ernst & ~~Lybrand~~Young LLP ~~Independent Auditors.~~
23.2		Consent of ~~Lewis, Rice~~Barnes & ~~Fingersh, L.C.~~Thornburg LLP (included in ~~their opinions filed herewith as Exhibits 5.1 and 8.1). 23.3 Consent of Richards, Layton & Finger (included in their opinion filed herewith as~~ Exhibit ~~5.2). 24.1~~5.1)
24.1*		Limited Power of Attorney (included on the signature page). 25.1 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture for Fixed Rate Subordinated Debentures of 1st Source Corporation. 25.2 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under Amended and Restated Trust Agreement of 1st Capital I. 25.3 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred Securities Guarantee Agreement for 1st Capital I. 25.4 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture for Floating Rate Subordinated Debentures of 1st Source Corporation. 25.5 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under Amended and Restated Trust Agreement of 1st Capital II. 25.6 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred Securities Guarantee Agreement for 1st Capital II. ~~- ----------~~ ~~Filed herewith. All other exhibits previously filed.~~