PROSPECTUS
[LOGO]
$10,000,000
FB Capital Trust
9.75% Preferred Securities
(Liquidation Amount $10 per Preferred Security)
fully and unconditionally guaranteed, as described herein, by
Fidelity Bancorp, Inc.
The Preferred Securities offered hereby represent preferred undivided
beneficial interests in the assets of FB Capital Trust, a statutory business
trust created under the laws of the State of Delaware (the "Issuer Trust").
Fidelity Bancorp, Inc. (the "Company") will initially be the holder of all of
the beneficial interests represented by common securities of the Issuer Trust
(the "Common Securities" and, together with the Preferred
(Continued on next page)
Application has been made to include the Preferred Securities on
Nasdaq's National Market under the symbol "FSBIP." See "Risk Factors -- Absence
of Market."
See "Risk Factors" beginning on page 12 hereof for certain information
relevant to an investment in the Preferred Securities.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A
BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER INSURER OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSION (2) ISSUER TRUST (3)(4)
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Per Preferred Security................... $10.00 (4) $10.00
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Total(5)................................. $10,000,000 (4) $10,000,000
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(1) Plus accrued Distributions, if any, from May 13, 1997.
(2) The Compan and the Issuer Trust have each agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $280,000.
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriter, as compensation for arranging
the investment therein of such proceeds, $0.30 per Preferred Security
(or $300,000 in the aggregate) and an advisory fee equal to 1% of the
gross proceeds of the offering. See "Underwriting."
(5) The Company has granted the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
$1,000,000 aggregate liquidation amount of the Preferred Securities on the
same terms as set forth above, solely to cover over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public
and Proceeds to Issuer Trust will be $11,000,000 and $11,000,000,
respectively. See "Underwriting."
The Preferred Securities are offered by the Underwriter subject to
receipt and acceptance by them, prior sale and the Underwriter's 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 the Preferred Securities will be
made in book-entry form through the book-entry facilities of The Depository
Trust Company on or about May 13, 1997 against payment therefor in immediately
available funds.
Ryan, Beck & Co.
The date of this Prospectus is May 8, 1997
(cover page continued)
Securities, the "Trust Securities"). The Issuer Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in
9.75% Junior Subordinated Debentures (the "Junior Subordinated Debentures," and
together with the Trust Securities, the "Securities") to be issued by the
Company. The Junior Subordinated Debentures will mature on July 15, 2027 (the
"Stated Maturity"). The Preferred Securities will have a preference under
certain circumstances over the Common Securities with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise. See
"Description of Preferred Securities -- Subordination of Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Settlement for the Preferred Securities
will be made in immediately available funds. The Preferred Securities will trade
in DTC's Same-Day Funds Settlement System, and secondary market trading activity
for the Preferred Securities will therefore settle in immediately available
funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from May 13, 1997 and
payable quarterly in arrears on the 15th day of January, April, July and October
of each year commencing July 15, 1997, at the annual rate of 9.75% of the
Liquidation Amount of $10 per Preferred Security ("Distributions"). The Company
has the right to defer payment of interest on the Junior Subordinated Debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarterly periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. No interest shall be due and
payable during any Extension Period, except at the end thereof. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will also
be deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock or with respect to debt securities of the Company that
rank pari passu in all respects with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate of
9.75% per annum, compounded quarterly, and holders of Preferred Securities will
be required to accrue interest income for United States federal income tax
purposes. See "Description of Junior Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities as described
below. See "Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust may have insufficient funds to pay Distributions on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer Trust does not have sufficient funds to pay such Distributions. In such
event, a holder of
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Preferred Securities may institute a legal proceeding directly against the
Company to enforce payment of such Distributions to such holder. See
"Description of Junior Subordinated Debentures -- Enforcement of Certain Rights
by Holders of 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 Indebtedness (as defined in "Description of Junior
Subordinated Debentures -- Subordination") of the Company.
The Preferred Securities are subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Junior Subordinated Debentures at
Stated Maturity or, at the option of the Company, their earlier redemption in
whole upon the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein) and (ii) in whole or in part at
any time on or after July 15, 2002 contemporaneously with the optional
redemption by the Company of the Junior Subordinated Debentures in whole or in
part. The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after July 15, 2002, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, in each case at a redemption price set
forth herein, which includes the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption. The
ability of the Company to exercise its rights to redeem the Junior Subordinated
Debentures or to cause the redemption of the Preferred Securities prior to the
Stated Maturity may be subject to prior regulatory approval by the Board of
Governors of the Federal Reserve System (the "Federal Reserve"), if then
required under applicable Federal Reserve capital guidelines or policies. See
"Description of Junior Subordinated Debentures --Redemption" and "Description of
Preferred Securities -- Liquidation Distribution Upon Dissolution."
The holders of the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company, as holder of the Common Securities, to dissolve the Issuer Trust
may be subject to prior regulatory approval of the Federal Reserve, if then
required under applicable Federal Reserve capital guidelines or policies. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction
of liabilities to creditors of the Issuer Trust as provided by applicable law,
the holders of the Preferred Securities will be entitled to receive a
Liquidation Amount of $10 per Preferred Security plus accumulated and unpaid
Distributions thereon to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior Subordinated
Debentures. See "Description of Preferred Securities --Liquidation Distribution
Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures -- Subordination."
Prospective purchasers must carefully consider the information set forth in
"Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
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MAP
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER 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 NATIONAL MARKET
OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus is based on the assumption that the Underwriter (as defined
herein) will not exercise its over-allotment option.
FIDELITY BANCORP, INC.
The Company, a Pennsylvania corporation, is a bank holding company
headquartered in Pittsburgh, Pennsylvania with one subsidiary, Fidelity Savings
Bank (the "Bank"), a Pennsylvania - chartered savings bank. At December 31,
1996, the Company had total consolidated assets of $320.3 million, total
deposits of $233.6 million and total stockholders' equity of $23.1 million. The
Bank's deposits are federally insured by the Savings Association Insurance Fund
("SAIF"), which is administered by the Federal Deposit Insurance Corporation
("FDIC"). The Company's principal business is to serve as a holding company for
the Bank. As a bank holding company, the Company is regulated by the Federal
Reserve.
The Company was formed in 1993 pursuant to a reorganization by the Bank
into the holding company form of organization. The Bank was chartered in 1927.
The Bank is a community oriented savings bank which has traditionally
offered a variety of savings deposit products to its retail customers. The Bank
has historically concentrated its lending primarily on real estate loans secured
by one-to four- family properties. Loans secured by one-to four-family
residences were $81.5 million or 50.9% of total loans receivable at December 31,
1996. To a lesser extent, the Bank originates other loans including commercial
real estate loans, installment loans (primarily home equity and other consumer
loans), commercial business loans and construction loans. Commercial real estate
loans totaled $19.7 million or 12.2% of total loans receivable, installment
loans totaled $36.5 million or 22.8% of total loans receivable and construction
and commercial business loans totaled $18.1 million or 11.3% of total loans
receivable at December 31, 1996. The Bank also has a securities portfolio
primarily consisting of U.S. Treasury and Federal government agency obligations
and mortgage-backed securities. Investment securities amounted to $53.6 million
or 16.7% and mortgage-backed securities amounted to $100.4 million or 31.3% of
the Bank's total assets at December 31, 1996.
As part of its business strategy, the Bank has expanded its installment
and commercial business loan portfolios in recent years. The Bank's operating
strategy includes maintaining its focus as a single family lender, while
expanding its portfolio of installment loans and small business commercial
loans. This strategy is designed to improve the interest rate margins of the
Bank and to decrease its interest rate sensitivity. However, consumer and
commercial lending entails different and additional credit risks when compared
to residential mortgage lending. In particular, commercial loans typically
involve larger loan balances to single borrowers than residential loans and
payment experience on such loans is typically dependent on the successful
operation of the project or the borrower's business.
Operating characteristics of the Bank in recent years include the
following:
o Capital. The Company and the Bank exceed all applicable minimum
regulatory capital requirements. At December 31, 1996, the Company had
Tier 1 risk-based, total risk-based and Tier 1 leverage capital ratios
of 15.10%, 16.15%, and 7.38%, respectively, as compared to the minimum
requirements of 4.0%, 8.0% and 4.0%, respectively. At December 31,
1996, the Bank had Tier 1 risk-based, total risk-based and Tier 1
leverage capital ratios of 14.38%, 15.43% and 7.05%, respectively.
o Profitability. The Company had net income of $623,000 and $413,000 for
the three months ended December 31, 1996 and 1995, respectively. Net
income was $1.3 million, $1.5 million, and $2.4 million for the fiscal
years ended September 30, 1996, 1995 and 1994, respectively. Return on
average assets, excluding a $1.5 million pre-tax charge in 1996
relating to the SAIF one-time special assessment, and excluding income
tax benefit of $530,000 in 1994 relating to a cumulative effect of
change in accounting principle, was .73%, .54%, and .68%, for the years
ended September 30, 1996, 1995 and 1994, respectively. The annualized
return on average assets was .78% and .58%, for the three months ended
December 31, 1996 and 1995, respectively.
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o Asset Quality. Management of the Bank believes that good asset quality
is the key to long term financial strength and, as a result, the Bank's
investments are intended to maintain asset quality and control credit
risk. At December 31, 1996, one-to four-family residential loans
comprised $81.5 million, or 25.4% of total assets and investment and
mortgage-backed securities were $154.0 million, or 48.1% of total
assets. At December 31, 1996, total non-performing assets were $1.4
million, or .42% of total assets.
o Operating Efficiency. The Company's ratio of noninterest expenses to
average assets was 2.18% and 2.20% for the years ended September 30,
1996 and 1995, respectively, excluding the SAIF one-time special
assessment. For the quarter ended December 31, 1996 noninterest
expenses to average assets was 2.00%. The Company's efficiency ratio
(noninterest expenses, excluding the SAIF one-time special assessment,
divided by the sum of net interest income and noninterest income) was
60.3% for the quarter ended December 31, 1996, 66.1% for fiscal 1996
and 71.2% for fiscal 1995.
The executive office of the Company is located at 1009 Perry Highway,
Pittsburgh, Pennsylvania 15237 and its telephone number is (412) 367-3300.
FB CAPITAL TRUST
The Issuer Trust is a statutory business trust formed under Delaware
law pursuant to (i) a trust agreement, dated as of April 1, 1997, executed by
the Company, as Depositor, Bankers Trust Company, as Property Trustee and
Bankers Trust (Delaware), as Delaware Trustee, and (ii) the filing of a
Certificate of Trust with the Delaware Secretary of State on April 1, 1997. Such
initial trust agreement will be amended and restated in its entirety (as so
amended and restated, the "Trust Agreement"), as of the date the Preferred
Securities are initially issued. Two individuals will be selected by the holder
of the Common Securities to act as administrators with respect to the Issuer
Trust (the "Administrators"). The Company, while holder of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as Administrators. The Issuer Trust's
business and affairs are conducted by its Property Trustee, Delaware Trustee,
and two Administrators. The Issuer Trust exists for the exclusive purposes of
(i) issuing and selling the Preferred Securities and Common Securities, (ii)
using the proceeds from the sale of Preferred Securities and Common Securities
to acquire the Junior Subordinated Debentures issued by the Company and (iii)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Preferred Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Issuer Trust and payments under the Junior Subordinated Debentures will be the
sole revenue of the Issuer Trust. All of the Common Securities will be owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities, except that upon the
occurrence and during the continuance of an Event of Default under the Trust
Agreement resulting from an Event of Default under the Indenture, the rights of
the Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. The
Company will acquire Common Securities representing an aggregate liquidation
amount equal to 3% of the total capital of the Issuer Trust. The Issuer Trust
has a term of 31 years, but may terminate earlier as provided in the Trust
Agreement. The principal executive office of the Issuer Trust is 1009 Perry
Highway, Pittsburgh, Pennsylvania 15237, and its telephone number is (412)
367-3300.
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THE OFFERING
Securities Offered........................................ The 9.75% Preferred Securities represent preferred
undivided beneficial interests in the Issuer Trust's
assets, which will consist solely of the Junior
Subordinated Debentures. The Issuer Trust has
granted the Underwriter an option, exercisable within
30 days after the date of this Prospectus, to purchase
up to an additional 100,000 Preferred Securities at
the offering price, solely to cover over-allotments, if
any.
Offering Price............................................ $10 per Preferred Security (Liquidation Amount
$10), plus accumulated Distributions, if any, from
May 13, 1997.
Distributions............................................. The distributions payable on each Preferred Security
will be fixed at a rate per annum of 9.75% of the
stated liquidation amount per Preferred Security, will
be cumulative, will accrue from May 13, 1997, the
date of issuance of the Preferred Securities, and
will be payable quarterly in arrears on the 15th day
of January, April, July and October of each year,
commencing July 15, 1997. See "Description of
Preferred Securities -- Distributions."
Junior Subordinated Debentures............................ The Issuer Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of 9.75% Junior
Subordinated Debentures of the Company. The
Junior Subordinated Debentures will mature on
July 15, 2027. The Junior Subordinated
Debentures will rank subordinate and junior in right
of payment to all Senior Indebtedness of the
Company. In addition, the Company's obligations
under the Junior Subordinated Debentures will be
structurally subordinated to all existing and future
liabilities and obligations of its subsidiaries.
Guarantee................................................. Under the terms of the 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 the Issuer Trust described
herein. The Company and the Issuer Trust believe
that the obligations of the Company under the
Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated
Indenture taken together, fully, irrevocably and
unconditionally guarantee all of the Issuer Trust's
obligations relating to 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 Indebtedness. See
"Description of Guarantee."
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Right to Defer Interest Payments.......................... The Company has the right, at any time, to defer
payments of interest on the Junior Subordinated
Debentures for a period not exceeding 20
consecutive quarters; provided that no Extension
Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. As a consequence
of the Company's extension of the interest payment
period, quarterly Distributions on the Preferred
Securities will be deferred (though such Distribution
would continue to accrue with interest thereon
compounded quarterly, since interest will continue to
accrue and compound on the Junior Subordinated
Debentures during any such Extension Period).
During an Extension 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
Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment
of all amounts then due, the Company may
commence a new Extension Period, subject to the
foregoing requirements. See "Description of Junior
Subordinated Debentures -- Option to Extend Interest
Payment Period."
Should an Extension Period occur, Preferred
Security holders will continue to include interest
income (and de minimis original issue discount, if
any) for United States income tax purposes. See
"Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount."
Redemption................................................ The Preferred Securities are subject to mandatory
redemption (i) in whole, but not in part, at the Stated
Maturity upon repayment of the Junior Subordinated
Debentures, (ii) in whole, but not in part,
contemporaneously with the optional redemption at
any time by the Company of the Junior Subordinated
Debentures upon the occurrence and continuation of
a Tax Event, Investment Company Event or Capital
Treatment Event and (iii) in whole or in part at any
time on or after July 15, 2002,
contemporaneously with the optional redemption by
the Company of the Junior Subordinated Debentures
in whole or in part, in each case at the applicable
Redemption Price. See "Description of Preferred
Securities -- Redemption."
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Liquidation of the Issuer Trust........................... The Company, as holder of the Common Securities,
has the right at any time to dissolve the Issuer Trust
and cause the Junior Subordinated Debentures to be
distributed to holders of Preferred Securities in
liquidation of the Issuer Trust, 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. See "Description of Preferred
Securities -- Liquidation Distribution Upon
Dissolution."
Voting Rights............................................. Generally, the holders of the Preferred Securities
will not have any voting rights. See "Description of
Preferred Securities -- Voting Rights" and "Risk
Factors -- Limited Voting Rights."
The proceeds from the sale of the Preferred
Securities offered hereby will be used by the Issuer
Use of Proceeds........................................... Trust to purchase the Junior Subordinated
Debentures issued by the Company. The proceeds
received by the Company from the sale of the Junior
Subordinated Debentures may be used to contribute
capital through investments in or advances to the
Bank. The remainder of the proceeds will be held
by the Company and may be used to repurchase
stock and other general corporate purposes as well as
to meet debt service obligations of the Company
under the Junior Subordinated Debentures. The
Trust Securities will qualify as Tier 1 or core capital
of the Company, subject to the 25% Capital
Limitation (as defined herein), under the risk-based
capital guidelines of the Federal Reserve. The
portion of the Trust Securities that exceeds the 25%
Capital Limitation will qualify as Tier 2 or
supplementary capital of the Company. See "Use of
Proceeds."
ERISA Considerations...................................... Prospective purchasers should consider the
information set forth under "Certain ERISA
Considerations."
Nasdaq National Market Symbol............................. Application has been made to have the Preferred
Securities approved for quotation on the Nasdaq
National Market under the symbol "FSBIP."
RISK FACTORS
Prospective investors should carefully consider the matters set forth
under "Risk Factors," beginning on page 12.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following summary information regarding the Company should be read
in conjunction with the consolidated financial statements of the Company and
notes. Consolidated historical financial and other data regarding the Company at
or for the three months ended December 31, 1996 and 1995 have been prepared by
the Company without audit and may not be indicative of results on an annualized
basis or any other period. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) that are necessary for a fair
presentation for such periods or dates have been made.
At or
for the Three Months
Ended December 31, At or for the Fiscal Years Ended September 30,
----------------------- -------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992(3)
---- ---- ---- ---- ---- ---- ----
Operating Data (Dollars in Thousands, except per share amounts)
Interest income.......................... $5,603 $4,919 $ 20,986 $ 19,047 $ 17,652 $ 18,515 $ 19,258
Interest expense......................... 3,152 2,878 11,832 11,059 9,435 9,982 12,084
----- ----- ------- ------- ------- ------- -------
Net interest income before provision
for loan losses......................... 2,451 2,041 9,154 7,988 8,217 8,533 7,174
Provision for loan losses................. 115 30 270 230 360 655 483
------- ------- ------- ------- ------- ------- -------
Net interest income after provision for
loan losses............................... 2,336 2,011 8,884 7,758 7,857 7,878 6,691
Gain (loss) on sale of investments and
mortgage-backed securities, net........... (2) (12) 27 (57) 79 751 312
Gain on sale of loans..................... 2 2 17 18 24 57 47
Service fees and other income............. 184 156 688 643 524 569 462
SAIF assessment........................... -- -- 1,537 -- -- -- --
Operating expenses........................ 1,590 1,564 6,536 6,119 5,617 5,650 5,180
----- ----- ------ ------- ------- ------- -------
Income before income tax provision and
cumulative effect of change in accounting
principle................................. 930 593 1,543 2,243 2,867 3,605 2,332
Income tax provision...................... 307 180 226 728 1,025 1,411 1,010
--- --- ------- ------- ------- ------- -------
Net income before cumulative effect of
change in accounting principle(4)......... 623 413 1,317 1,515 1,842 2,194 1,322
Cumulative effect of change in accounting
principle................................. -- -- -- -- 530 -- --
------ ------- ------- ------- ------- ------- -------
Net income(4)............................. $ 623 $ 413 $1,317 $ 1,515 $ 2,372 $ 2,194 $ 1,322
======= ======= ===== ======= ======= ======= =======
Financial Condition Data
Total assets.............................. $320,336 $287,465 $317,874 $281,810 $273,564 $267,205 $252,923
Loans, net................................ 153,509 125,780 151,263 120,904 112,647 106,585 106,407
Mortgage-backed securities (1)............ 100,391 96,330 93,738 101,511 112,236 120,033 96,705
Investment securities and other interest
earning assets(2)......................... 53,593 52,795 59,302 46,523 37,607 30,487 39,910
Savings deposits.......................... 233,642 245,548 234,276 244,083 228,304 234,091 233,979
Advances from FHLB and other
borrowings................................ 60,805 15,850 57,143 13,092 22,601 12,309 --
Stockholders' equity -- substantially
restricted................................ 23,135 22,741 21,778 22,132 20,646 18,544 16,589
Number of full service offices............ 8 8 8 8 8 9 9
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At or for the
Three Months Ended At or for the Fiscal Years Ended
December 31,(7) September 30,
---------------------- -----------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
Per Share Data
Primary earnings (4)(5) ........... $.44 $.30 $.94 $1.09 $1.71 $1.59 $.98
Book value ........................ 16.75 16.70 15.86 16.28 15.30 13.88 12.43
Performance Ratios
Return on average assets (4)(5) . .78% .58% .44% .54% .87% .84% .54%
Return on average equity (4)(5) . 10.93 7.33 5.96 7.13 12.02 12.41 8.31
Net yield on interest-earning
assets ......................... 3.34 3.17 3.33 3.08 3.18 3.38 3.04
Asset Quality Ratios
Non-performing loans to
total loans .................... .85 .36 .73 .25 1.10 1.16 1.55
Non-performing assets to
total loans and other real
estate owned ................... .85 1.12 .97 1.07 1.48 1.46 1.74
Net charge-offs to average
total loans .................... .01 .07 .12 .11 .14 .46 .11
Total allowance for loan
losses to total
non-performing loans ........... 120.00 290.04 132.12 458.01 104.06 86.98 57.41
Capital Ratios
Equity to assets ................ 7.22 7.91 6.85 7.85 7.55 6.94 6.56
Tier 1 risk-based capital ratio . 15.10 15.88 14.85 15.83 15.01 15.15 13.05
Total risk-based capital ratio .. 16.15 16.87 15.84 16.87 16.01 16.11 13.87
Leverage ratio .................. 7.38 7.76 7.64 7.76 7.42 6.77 6.33
Ratios of Earnings to Fixed
Charges (6)
Including interest on deposits(4) 1.30 x 1.21 x 1.13 x 1.20 x 1.30 x 1.36 x 1.19 x
Excluding interest on deposits(4) 2.18 x 3.88 x 1.88 x 3.08 x 5.16 x 14.92 x 11.01 x
- --------------------
(1) Consists of mortgage-backed securities classified as investments
held-to-maturity and available-for-sale.
(2) Consists of interest-bearing deposits, investments securities classified as
investments held-to-maturity and available-for-sale, and Federal Home Loan
Bank stock.
(3) Fiscal 1992 data reflects the purchase of three branches offices during the
year.
(4) Fiscal 1996 operating results include the effect of a one-time pre-tax
payment to recapitalize the Savings Association Insurance Fund of $1.5
million. Exclusive of the special assessment, net income would have been
approximately $2.2 million; primary earnings per share would have been
$1.56; return on average assets would have been .73%; and return on average
equity would have been 9.88%. The ratio of earnings to fixed charges
including deposits would have been 1.26x and 2.75x excluding deposits.
(5) Fiscal 1994 operating results include the cumulative effect of change in
accounting principle related to accounting for income taxes of $530,000.
Exclusive of the change primary earnings per share would have been $1.33;
return on average assets would have been .68%; and return on average equity
would have been 9.33%.
(6) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes, cumulative effect of change in
accounting principle and fixed charges by fixed charges. Fixed charges,
including interest on deposits, include all interest expense. Fixed
charges, excluding interest on deposits, include interest expense (other
than on deposits) on notes, federal funds purchased and securities sold
under agreements to repurchase, and other funds borrowed. There were no
amortization of notes and debentures expense nor any portion of net rental
expense which was deemed to be equivalent to interest on debt.
(7) Ratios are annualized where appropriate.
- --------------------------------------------------------------------------------
11
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. An investment in the Preferred
Securities involves a high degree of risk. Certain statements in this Prospectus
and documents incorporated herein by reference are forward-looking and are
identified by the use of forward-looking words or phrases such as "intended,"
"will be positioned," "expects," is or are "expected," "anticipates," and
"anticipated." These forward-looking statements are based on the Company's
current expectations. To the extent any of the information contained in this
Prospectus constitutes a "forward-looking statement" as defined in Section
27A(i)(1) of the Securities Act, the risk factors set forth below are cautionary
statements identifying important factors that could cause actual results to
differ materially from those in the forward-looking statement.
RISK FACTORS RELATING TO THE OFFERING
Preferred Securities Rank Junior to Unlimited Senior Indebtedness
The obligations of the Company under the Guarantee issued by the
Company for the benefit of the holders of Preferred Securities and under the
Junior Subordinated Debentures are subordinate and junior in right of payment to
all Senior Indebtedness. None of the Junior Subordinated Indenture, the
Guarantee or the Trust Agreement places any limitation on the amount of secured
or unsecured debt, including Senior Indebtedness, that may be incurred by the
Company. See "Description of Guarantee --Status of the Guarantee" and
"Description of Junior Subordinated Debentures -- Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
Option to Extend Interest Payment Period; Tax Consequences
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures -- Debenture Events of Default." As a consequence of any
such deferral, quarterly Distributions on the Preferred Securities by the Issuer
Trust will be deferred during any such Extension Period. Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon during any Extension Period at the rate of 9.75% per
annum, compounded quarterly from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distribution" as used herein
shall include any such additional Distributions. During any such Extension
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 or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior in
interest to the Junior Subordinated Debentures (other than (a) repurchases,
redemptions or other
12
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the annual rate of 9.75%, compounded
quarterly, to the extent permitted by applicable law), the Company may elect to
begin a new Extension Period subject to the above conditions. No interest shall
be due and payable during an Extension Period, except at the end thereof. The
Company must give the Issuer Trustees notice of its election to begin an
Extension Period at least one Business Day prior to the earlier of (i) the date
the Distributions on the Preferred Securities would have been payable but for
the election to begin such Extension Period and (ii) the date the Property
Trustee is required to give notice to holders of the Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Property Trustee will
give notice of the Company's election to begin a new Extension Period to the
holders of the Preferred Securities. Subject to the foregoing, there is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Preferred Securities --Distributions" and
"Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount ("OID")) for
United States federal income tax purposes in respect of its pro rata share of
the Junior Subordinated Debentures held by the Issuer Trust, which will include
a holder's pro rata share of both the stated interest and de minimis OID, if
any, on the Junior Subordinated Debentures. As a result, a holder of Preferred
Securities will include such OID 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 the Issuer Trust if the holder disposes of the
Preferred Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount" and "-- Sales of Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be affected. A holder that disposes of his, her or its Preferred Securities
during an Extension Period, therefore, might not receive the same return on his,
her or its investment as a holder that continues to
13
hold its Preferred Securities. In addition, as a result of the existence of the
Company's right to defer interest payments, the market price of the Preferred
Securities (which represent preferred undivided beneficial interests in the
assets of the Issuer Trust) may be more volatile than the market prices of other
securities on which original issue discount or interest accrues that are not
subject to such deferrals.
Tax Event, Investment Company Event or Capital Treatment Event Redemption
Upon the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event, the Company has the right
to redeem the Junior Subordinated Debentures in whole, but not in part, at any
time within 90 days following the occurrence of such Tax Event, Investment
Company Event or Capital Treatment Event and thereby cause a mandatory
redemption of the Preferred Securities. Any such redemption shall be at a price
equal to the liquidation amount of the Preferred Securities, together with
accumulated Distributions to but excluding the date fixed for redemption. The
ability of the Company to exercise its rights to redeem the Junior Subordinated
Debentures prior to the Stated Maturity may be subject to prior regulatory
approval by the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Junior Subordinated
Debentures -- Redemption" and "Description of Preferred Securities --
Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company 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 or administrative pronouncement or action 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, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
See "-- Possible Tax Law Changes Affecting the Preferred Securities"
for a discussion of certain legislative proposals 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 July 15, 2002.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust 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 or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
14
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof) except
as otherwise restricted under the 25% Capital Limitation (as defined herein),
for purposes of the risk-based capital adequacy guidelines of the Federal
Reserve, as then in effect and applicable to the Company.
Exchange of Preferred Securities for Junior Subordinated Debentures
The holders of all the outstanding Common Securities have the right at
any time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company, as holder of the Common Securities, to dissolve the Issuer Trust
may be subject to prior regulatory approval of the Federal Reserve, if then
required under applicable Federal Reserve capital guidelines or policies. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
Under current United States federal income tax law and interpretations
and assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain Federal Income Tax Consequences -- Distribution of Junior Subordinated
Debentures to Securityholders."
Rights Under the Guarantee
The Guarantee guarantees to the holders of the Preferred Securities
the following payments, to the extent not paid by or on behalf of the Issuer
Trust: (i) any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Issuer Trust has funds on hand
available therefor at the payment date, (ii) the Redemption Price with respect
to any Preferred Securities called for redemption, to the extent that the Issuer
Trust has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of the Issuer
Trust (unless the Junior Subordinated Debentures are distributed to holders of
the Preferred Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment, to
the extent that the Issuer Trust has funds on hand available therefor at such
time, and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Guarantee is subordinated as described under "--Preferred Securities
Rank Junior to Unlimited Senior Indebtedness" and "Description of Guarantee
- --Status of the Guarantee." The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding 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
15
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 the Issuer Trust,
the Guarantee Trustee or any other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior 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 any amounts payable in respect of such Junior
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 Junior Subordinated 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 Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Preferred Securities,"
"-- Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
Limited Voting Rights
Holders of Preferred Securities will have no voting rights except in
limited circumstances relating generally to the modification of the Preferred
Securities and the Guarantee and the exercise of the Issuer Trust's rights as
holder of Junior Subordinated Debentures. Holders of Preferred Securities will
not be entitled to appoint, remove or replace the Property Trustee or the
Delaware Trustee except upon the occurrence of certain events specified in the
Trust Agreement. The Property Trustee and the holders of all the Common
Securities may, subject to certain conditions, amend the Trust Agreement without
the consent of holders of Preferred Securities to cure any ambiguity or make
other provisions not inconsistent with the Trust Agreement or to ensure that the
Issuer Trust (i) will not be taxable as a corporation for United States federal
income tax purposes, or (ii) will not be required to register as an "investment
company" under the Investment Company Act. See "Description of Preferred
Securities -- Voting Rights; Amendment of Trust Agreement" and "-- Removal of
Issuer Trustees; Appointment of Successors."
Absence of Market
The Preferred Securities are a new issue of securities with no
established trading market. Application has been made to list the Preferred
Securities in the Nasdaq National Market, but one of the requirements for
listing and continued listing is the presence of two market makers for the
Preferred Securities. The Company and the Issuer Trust have been advised by
Ryan, Beck & Co. ("Ryan, Beck") that it intends to make a market in the
Preferred Securities. However, Ryan, Beck is not obligated to do so and such
market making may be interrupted or discontinued at any time without notice at
the sole discretion of Ryan, Beck. Moreover, there can be no assurance of a
second market maker for the
16
Preferred Securities. Accordingly, no assurance can be given as to the
development or liquidity of any market for the Preferred Securities.
Market Prices
There can be no assurance as to the market prices for Preferred
Securities, or the market prices for Junior Subordinated Debentures that may be
distributed in exchange for Preferred Securities if a liquidation of the Issuer
Trust occurs. Accordingly, the Preferred Securities or the Junior Subordinated
Debentures that a holder of Preferred Securities may receive on liquidation of
the Issuer Trust may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby and holders may experience
difficulty reselling them or may be unable to sell them at all. Because holders
of Preferred Securities may receive Junior Subordinated Debentures on
termination of the Issuer Trust, prospective purchasers of Preferred Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of Junior
Subordinated Debentures."
Possible Tax Law Changes Affecting the Preferred Securities
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the revenue provisions of those proposals would
generally deny interest deductions for interest on an instrument issued by a
corporation that has a maximum term of more than 15 years and that is not shown
as indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. If enacted as
proposed by the President, this provision would be effective for instruments
issued on or after the date of first action by a Congressional committee with
respect to the proposal. It is not clear from the President's proposals as to
what constitutes Congressional "committee action" with respect to this proposal.
If the provision were to apply to the Junior Subordinated Debentures, the
Company would be unable to deduct interest on the Junior Subordinated
Debentures. There can be no assurance, however, that future legislative
proposals or final legislation will not affect the ability of the Company to
deduct interest on the Junior Subordinated Debentures. Such a change could give
rise to a Tax Event, which may permit the Company to cause a redemption of the
Preferred Securities before July 15, 2002. See "Description of Junior
Subordinated Debentures -- Redemption" and "Description of Preferred Securities
- -- Redemption." See also "Certain Federal Income Tax Consequences -- Possible
Tax Law Changes." Under current law, the Company will be able to deduct interest
on the Junior Subordinated Debentures.
RISK FACTORS RELATING TO THE COMPANY
Potential Impact of Changes in Interest Rates
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels and by other economic factors beyond its
control. Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities, and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time period is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time
17
period is considered liability-sensitive and is reflected as negative gap. An
asset-sensitive position (i.e., a positive gap) will generally enhance earnings
in a rising interest rate environment and will negatively impact earnings in a
falling interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
At September 30, 1996 and December 31, 1996, the Company had a one year
cumulative negative gap of 17.0% and 18.2%, respectively. This negative one year
gap position may, as noted above, have a negative impact on earnings in a rising
interest rate environment.
The Bank has undertaken a program to enhance the origination of
consumer, commercial real estate and commercial business loans in an effort to
maintain or improve its interest rate margins and shorten the maturity of its
asset portfolio. Management may be unsuccessful in originating additional
qualified consumer loans, commercial real estate or commercial business loans
and in that case will resort to the purchase of investment securities with lower
yield. The failure to reprice maturing assets at equal or greater yield could
result in lower interest rate margins and lower net income.
A significant increase in the level of interest rates may also have an
adverse effect on the ability of certain of the Bank's borrowers to repay their
loans.
Fluctuations in Stockholders' Equity
In addition to affecting interest income and expense, changes in
interest rates also can affect the value of the Company's investment and
mortgage backed securities and the ability to realize gains from the sale of
such assets which are included as available-for-sale. Generally, the value of
fixed rate instruments fluctuate inversely with changes in interest rates.
Increases in interest rates generally result in decreases in the carrying value
of interest-earning assets which are classified as available-for-sale, which
could adversely affect the Company's results of operations if sold by the
Company or the Company's stockholders' equity if retained by the Company as a
result of Statement of Financial Accounting Standards ("SFAS") No. 115.
The Company held investment securities for available-for-sale with a
market value of $50.9 million and an amortized cost of $51.1 million at
September 30, 1996. The market value and the amortized cost of the
mortgage-backed securities available-for-sale portfolio was $62.5 million and
$64.0 million, respectively, at September 30, 1996. Debt and equity securities
which are classified as "available-for-sale" are carried at fair value.
Unrealized gains and losses, net of income tax effect, are recorded as a
separate component of stockholders' equity and are excluded from income. As a
result, if market rates should increase in the future, then the market value of
the Company's securities available- for-sale is likely to decrease, which will
have an adverse effect upon the Company's stockholders' equity, and conversely,
a decrease in interest rates will likely cause an increase in the Company's
stockholders' equity.
Source of Funds
The Company is a legal entity separate and distinct from the Bank,
although the principal source of the Company's funds to satisfy its obligations
is dividends from the Bank. The ability of the Company to pay the interest on,
and principal of, the Junior Subordinated Debentures will be significantly
dependent on the ability of the Bank to pay dividends to the Company in amounts
sufficient to service
18
the Company's debt obligations. Payment of dividends by the Bank is restricted
by various legal and regulatory limitations based upon the Bank's regulatory
capital levels and net income.
The right of the Company to participate in the assets of any subsidiary
upon the latter's liquidation, reorganization or otherwise (and thus the ability
of the holders of Preferred Securities to benefit indirectly from any such
distribution) will be subject to the claims of the subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim. As of December 31, 1996, the Company's
subsidiaries had indebtedness and other liabilities of approximately $297.2
million.
Competition
The banking business is highly competitive. In its primary market area,
the Bank competes with other commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. The
Bank's primary competitors have substantially greater resources and lending
limits than the Bank and may offer certain services, such as trust services,
that the Bank does not provide. The market for attracting savings deposits
and/or originating loans is very competitive which may limit the ability of the
Bank to originate loans and attract savings which provide a desirable interest
rate margin. The profitability of the Company depends upon the Bank's ability to
compete in its primary market area.
FB CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware
law pursuant to the filing of a certificate of trust with the Delaware Secretary
of State on April 1, 1997. The Issuer Trust will be governed by an Amended and
Restated Trust Agreement among the Company, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company, as Property Trustee
(together with the Delaware Trustee, the "Issuer Trustees"). Two individuals
will be selected by the holder of the Common Securities to act as administrators
with respect to the Issuer Trust (the "Administrators"). The Company, while
holder of the Common Securities, intends to select two individuals who are
employees or officers of or affiliated with the Company to serve as the
Administrators. See "Description of Preferred Securities -- Miscellaneous." The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of the Trust Securities
to acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
All the Common Securities will initially be owned by the Company. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Preferred Securities, except that upon the occurrence and during
the continuation of a Debenture Event of Default arising as a result of any
failure by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of Preferred Securities -- Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee is Bankers Trust
19
(Delaware), 1001 Jefferson Street, Wilmington, Delaware 19801, telephone number
(302) 576-3301. The address of the Property Trustee, the Guarantee Trustee and
the Debenture Trustee is Bankers Trust Company, Four Albany Street, 4th Floor,
New York, New York 10006, telephone number (212) 250-2500.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The proceeds from the sale of the Preferred Securities are expected
to qualify as Tier 1 or core capital with respect to the Company under the
guidelines established by the Federal Reserve, however capital received from the
proceeds of the sale of the Preferred Securities cannot constitute more than 25%
of the total Tier 1 capital of the Company (the "25% Capital Limitation").
Amounts in excess of the 25% Capital Limitation will constitute Tier 2 or
supplementary capital of the Company. The net proceeds to the Company from the
sale of the Junior Subordinated Debentures are estimated to be approximately
$9.32 million ($10.28 million if the Underwriter's over-allotment option is
exercised in full). A portion of the net proceeds to be received by the Company
from the sale of the Junior Subordinated Debentures may be used to make capital
contributions through investments in or advances to the Bank. The remainder of
the proceeds will be retained by the Company and may be used to repurchase stock
and for other general corporate purposes as well as to meet debt service
obligations of the Company pursuant to the Junior Subordinated Debentures.
Pending such use, the net proceeds may be temporarily invested in short-term
obligations. The precise amounts and timing of the application of proceeds will
depend upon the funding requirements of the Company and its subsidiaries and the
availability of other funds.
20
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of
the Company at December 31, 1996, (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Preferred Securities hereby offered
by FB Capital Trust and application by the Company of the net proceeds from the
corresponding sale of the Junior Subordinated Debentures to FB Capital Trust as
if the sale of the Preferred Securities had been consummated on December 31,
1996, and assuming the Underwriter's over-allotment was not exercised, and (iii)
the actual and pro forma capital ratios of the Company.
(Unaudited)
As Adjusted for
Sale of
Actual Preferred Securities
------ --------------------
(Dollars in Thousands)
INDEBTEDNESS:
FHLB Advances ................................ $13,000 $13,000
Guaranteed preferred beneficial interests in the
Company's subordinated debt (1)................ -- 10,000
SHAREHOLDERS' EQUITY:
Preferred Stock $.01 par value, 5,000,000 shares
authorized, none issued.................... -- --
Common Stock $0.01 par value - 10,000,000
shares authorized; 1,380,977 outstanding........ 14 14
Surplus.......................................... 10,496 10,496
Unrealized loss on securities available for sale,
net of income taxes............................ (411) (411)
Retained Earnings................................ 13,036 13,036
-------- --------
Total Stockholders' equity................... 23,135 23,135
-------- --------
Total Capitalization........................ $ 36,135 $ 46,135
======= =======
COMPANY CAPITAL RATIOS(2):
Equity to total assets.......................... 7.22% 7.02%
Tier 1 risk-based capital ratio(3)............... 15.10 20.14
Total risk-based capital ratio................... 16.15 21.19
Leverage ratio (4)............................... 7.38 9.77
- -----------------
(1) Preferred Securities representing beneficial interests in an aggregate
principal amount of $10,000,000 of the 9.75% Junior Subordinated Debentures
of the Company. The Junior Subordinated Debentures will mature on July 15,
2027.
(2) The capital ratios, as adjusted, are computed including the total estimated
net proceeds from the sale of the Preferred Securities, in a manner
consistent with Federal Reserve guidelines.
(3) Federal Reserve guidelines for calculation of Tier 1 capital limit the
amount of cumulative preferred stock which can be included in Tier 1
capital to 25% of total Tier 1 capital.
(4) The leverage ratio is Tier 1 capital divided by the average total assets
less intangibles.
21
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as
a subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated statement of financial
condition of the ompany and appropriate disclosures about the Preferred
Securities, the Guarantee and the Junior Subordinated Debentures will be
included in the notes to the consolidated financial statements of the Company.
For financial reporting purposes, Distributions on the Preferred Securities will
be recorded in the consolidated statements of income of the Company.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Preferred
Securities and the Common Securities. The Preferred Securities will represent
preferred undivided beneficial interests in the assets of the Issuer Trust and
the holders thereof will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Preferred Securities and
the Trust Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trustees.
General
The Preferred Securities will be limited to $10,000,000 aggregate
Liquidation Amount outstanding (which amount may be increased by up to
$1,000,000 aggregate liquidation amount of Preferred Securities for exercise of
the Underwriter's over-allotment option). See "Underwriting." The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "-- Subordination of Common
Securities." The Junior Subordinated Debentures will be registered in the name
of the Issuer Trust and held by the Property Trustee in trust for the benefit of
the holders of the Preferred Securities and Common Securities. The Guarantee
will be a guarantee on a subordinated basis with respect to the Preferred
Securities but will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of such Preferred Securities when the Issuer Trust
does not have funds on hand available to make such payments. See "Description of
Guarantee."
Distributions
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and Distributions on each Preferred Security
will be payable at the annual rate of 9.75% of the stated Liquidation Amount of
$10, payable quarterly in arrears on the 15th day of January, April, July and
October of each year (each a "Distribution Date"), to the holders of the
Preferred Securities at the close of business on the 1st day of January, April,
July and October (whether or not a Business Day (as defined below)) next
preceding the relevant Distribution Date. Distributions on the Preferred
Securities will be cumulative. Distributions will accumulate from May 13, 1997.
The first Distribution Date for the Preferred Securities will be July 15, 1997.
The amount of Distributions payable for any period less
22
than a full Distribution period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by four. If any date on which Distributions are
payable on the Preferred Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate of 9.75% per annum,
compounded quarterly from the relevant payment date for such Distributions,
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension 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 or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company must
give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Preferred Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee
23
is required to give notice to holders of the Preferred Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee will give
notice of the Company's election to begin a new Extension Period to the holders
of the Preferred Securities. Subject to the foregoing, there is no limitation on
the number of times that the Company may elect to begin an Extension Period. See
"Description of Junior Subordinated Debentures -- Option To Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences -- Interest Income
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 Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders
of the Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Preferred Securities. The payment
of Distributions and other amounts payable on the Preferred Securities (if and
to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of Guarantee."
Redemption
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred 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 Preferred Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date") and the related amount of the premium, if any, paid by the Company upon
the concurrent redemption of such Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Redemption." If less than all
the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The amount of premium, if any, paid by the Company upon the redemption of all or
any part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after July 15, 2002, in whole at any time or in part from time to time, or
(ii) in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event, Investment Company Event
or Capital Treatment Event (each as defined below), in each case subject to
possible regulatory approval. See "-- Liquidation Distribution Upon
Dissolution." A redemption of the Junior Subordinated Debentures would cause a
mandatory redemption of a Like Amount of the Preferred Securities and Common
Securities at the Redemption Price.
24
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities like the Trust
Securities will qualify as Tier 1 capital of the issuer up to an amount not to
exceed 25% of the Issuer's Tier 1 capital, or any subsequent limitation adopted
by the Federal Reserve.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the Commonwealth of Pennsylvania or the
City of New York are authorized or required by law or executive order to remain
closed, or (c) a day on which the Property Trustee's Corporate Trust Office or
the Corporate Trust Office of the Debenture Trustee is closed for business.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount (as defined below)
equal to that portion of the principal amount of Junior Subordinated Debentures
to be contemporaneously redeemed in accordance with the Junior Subordinated
Indenture, allocated to the Common Securities and to the Preferred Securities
based upon the relative Liquidation Amounts of such classes and (ii) with
respect to a distribution of Junior Subordinated Debentures to holders of Trust
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company 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 or administrative pronouncement or action 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, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision
25
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement, action or decision is announced on or after the
date of issuance of the Preferred Securities, there is more than an
insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation Amount of the Preferred Securities as "Tier 1 Capital"
(or the then equivalent thereof), except as otherwise restricted under the 25%
Capital Limitation, for purposes of the risk-based capital adequacy guidelines
of the Federal Reserve, as then in effect and applicable to the Company.
If a Tax Event described in clause (i) or (iii) of the definition of
Tax Event above has occurred and is continuing and the Issuer Trust is the
holder of all the Junior Subordinated Debentures, the Company will pay
Additional Sums (as defined below), if any, on the Junior Subordinated
Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer Trust
on the outstanding Preferred Securities and Common Securities of the Issuer
Trust will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
Redemption Procedures
Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions of
the Preferred Securities shall be made and the Redemption Price shall be payable
on each Redemption Date only to the extent that the Issuer Trust has funds on
hand available for the payment of such Redemption Price. See also "--
Subordination of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred Securities
held in book-entry form, the Property Trustee will deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Preferred Securities. With respect to Preferred Securities not
held in book-entry form, the Property Trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the Preferred
Securities funds sufficient to pay the applicable Redemption Price and will give
such paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing the
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
shall be payable to the holders of the Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit all rights of 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. If
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 (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer Trust or by the Company pursuant to
the Guarantee as described under "Description of Guarantee," Distributions on
such Preferred Securities will continue to accumulate at the then applicable
rate, from
26
the Redemption Date originally established by the Issuer Trust for such
Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United
States federal securities laws), the Company or its affiliates may at any time
and from time to time purchase outstanding Preferred Securities by tender, in
the open market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to
be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from the outstanding
Preferred Securities not previously called for redemption, or if the Preferred
Securities are then held in the form of a Global Preferred Security (as defined
below), in accordance with DTC's customary procedures. The Property Trustee
shall promptly notify the securities registrar for the Trust 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 shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, 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 registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or Liquidation Distribution in respect
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all 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 the outstanding Preferred
Securities then called for redemption, shall have been made or provided for, and
all funds available to the Property Trustee shall 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.
27
In the case of any Event of Default (as defined below) resulting from
a Debenture Event of Default, the holders 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 effects of all such Events of Default with
respect to such Preferred Securities have been cured, waived or otherwise
eliminated. See "-- Events of Default; Notice" and "Description of Junior
Subordinated Debentures -- Debenture Events of Default." Until all such Events
of Default under the Trust Agreement with respect to the Preferred Securities
have 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 holders of the Common Securities, and only the holders of the
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
Liquidation Distribution Upon Dissolution
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $10 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at
any time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide
that redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities,
dissolves the Issuer Trust prior to the stated maturity of the Preferred
Securities and the dissolution of the Issuer Trust is deemed to constitute the
redemption of capital instruments by the Federal Reserve under its risk-based
capital guidelines or policies, the dissolution of the Issuer Trust by the
Company may be subject to the prior approval of the Federal Reserve. Moreover,
any changes in applicable law or changes in the Federal Reserve's risk-based
capital guidelines or policies could impose a requirement on the Company that it
obtain the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Preferred
Securities in connection with the redemption of all the Trust Securities as
described under "-- Redemption" and (iv) the entry of an order for the
dissolution of the Issuer Trust by a court of competent jurisdiction.
28
If dissolution of the Issuer Trust occurs as described in clause (i),
(ii) or (iv) above, the Issuer Trust will be liquidated by the Property Trustee
as expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer Trust
as provided by applicable law, to the holders of such Trust Securities a Like
Amount of the Junior Subordinated Debentures, unless such distribution is not
practical, in which event such holders will be entitled to receive out of the
assets of the Issuer Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to, in the case of holders of Preferred
Securities, the aggregate of the Liquidation Amount plus accumulated 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 the Issuer Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Issuer Trust on its Preferred Securities shall be paid on a pro rata basis. The
holders 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 as a
result of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities shall have a priority
over the Common Securities. See "-- Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures
prior to maturity and the Issuer Trust is not liquidated and the Junior
Subordinated Debentures are not distributed to holders of the Preferred
Securities, the Preferred Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures and the distribution of the Liquidation
Distribution to the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Preferred Securities offered
hereby.
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
29
Default and whether it is voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a period
of 30 days; or
(iii) default by the Issuer Trust 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 Issuer 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 clause (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 Issuer Trustees and the Company 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 if a successor Property Trustee has not been
appointed within 90 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 Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators 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 as a
result of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "-- Subordination of
Common Securities," "-- Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures--Debenture Events of Default."
Removal of Issuer Trustees; Appointment of Successors
The holders of at least a majority in aggregate Liquidation Amount of
the outstanding Preferred Securities may remove an Issuer Trustee for cause or,
if a Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Preferred Securities. If an Issuer Trustee resigns,
such Trustee will appoint its successor. If an Issuer Trustee fails to appoint a
successor, the holders of at least 25% in Liquidation Amount of the outstanding
Preferred Securities may appoint a successor. If a successor has not been
appointed by the
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holders, any holder of Preferred Securities or Common Securities or the other
Issuer Trustee may petition a court in the State of Delaware to appoint a
successor. Any Delaware Trustee must meet the applicable requirements of
Delaware law. Any Property Trustee must be a national or state-chartered bank,
and at the time of appointment have securities rated in one of the three highest
rating categories by a nationally recognized statistical rating organization and
have capital and surplus of at least $50,000,000. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees
Any entity into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust
The Issuer Trust may not merge with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, 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, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (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) such successor entity has
a purpose substantially identical to that of the Issuer Trust, (vi) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Issuer Trust has received an opinion from independent counsel
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act,
and (vii) the Company or any permitted successor or assignee owns all the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders
31
of 100% in aggregate 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 entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States federal income tax
purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided above and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law 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 holders of
a majority of the Common Securities and the Property Trustee, without the
consent of the holders of the Preferred Securities, (i) to cure any ambiguity,
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, provided that
any such amendment does not adversely affect in any material respect the
interests of any holder of Trust Securities, or (ii) to modify, eliminate or add
to any provisions of the Trust Agreement to such extent as may be necessary to
ensure that the Issuer Trust will not be taxable as a corporation for United
States federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Issuer Trust will not be required to register
as an "investment company" under the Investment Company Act, and any amendments
of the Trust Agreement will become effective when notice of such amendment is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the holders of a majority of the Common Securities and the Property Trustee with
(i) the consent of holders representing not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities and (ii) receipt by
the Issuer Trustees of an opinion of counsel to the effect that such amendment
or the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Issuer Trust's not being taxable as a
corporation for United States federal income tax purposes or the Issuer Trust's
exemption from status as an "investment company" under the Investment Company
Act, except that, without the consent of each holder of Trust Securities
affected thereby, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer
Trust, the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without
32
the prior consent of each holder of the Preferred Securities. The Property
Trustee 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 Junior
Subordinated Debentures. In addition to obtaining the foregoing approvals of the
holders of the Preferred Securities, before taking any of the foregoing actions,
the Property Trustee will obtain an opinion of counsel experienced in such
matters to the effect that the Issuer Trust will not be 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 registered holder 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 to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding 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 Issuer Trustees or any
affiliate of the Company or any Issuer Trustees, will, for purposes of such vote
or consent, be treated as if they were not outstanding.
Expenses and Taxes
In the Indenture, the Company, as borrower, has agreed to pay all
debts and other obligations (other than with respect to the Preferred
Securities) and all costs and expenses of the Issuer Trust (including costs and
expenses relating to the organization of the Issuer Trust, the fees and expenses
of the Issuer Trustees and the costs and expenses relating to the operation of
the Issuer Trust) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the Issuer
Trust might become subject. The foregoing obligations of the Company under the
Indenture are for the benefit of, and shall be enforceable by, any person to
whom any such debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice thereof. Any such
Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Issuer Trust or any other
person before proceeding against the Company. The Company has also agreed in the
Indenture to execute such additional agreements as may be necessary or desirable
to give full effect to the foregoing.
Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more
fully registered global securities which will be deposited with, or on behalf
of, DTC and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole or in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
33
Ownership of beneficial interests in a global security will be limited
to persons that have accounts with DTC or its nominee ("Participants") or
persons that may hold interests through Participants. The Company expects that,
upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of Participants)
and on the records of Participants (with respect to interests of Persons held
through Participants). Beneficial owners will not receive written confirmation
from DTC of their purchase, but are expected to receive written confirmations
from the Participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests will be accomplished by entries on
the books of Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Preferred
Securities under the Junior Subordinated Indenture. The Company understands
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of
DTC or its nominee will be made to DTC or its nominee, as the case may be, as
the registered owner of the global security representing such Preferred
Securities. None of the Company, the Issuer Trustees, the Administrators, any
Paying Agent or any other agent of the Company or the Issuer Trustees will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Company, the Issuer
Trustees, the Paying Agent or any other agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
34
DTC may discontinue providing its services as securities depository
with respect to the Preferred Securities at any time by giving reasonable notice
to the Company or the Issuer Trustees. If DTC notifies the Company that it is
unwilling to continue as such, or if it is unable to continue or ceases to be a
clearing agency registered under the Exchange Act and a successor depository is
not appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with a
Participant, either directly or indirectly.
Same-Day Settlement and Payment
Settlement for the Preferred Securities will be made by the
Underwriter in immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The paying
agent (the "Paying Agent") will initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrators. The Paying Agent will be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Administrators. If
the Property Trustee is no longer the Paying Agent, the Property Trustee will
appoint a successor (which must be a bank or trust company reasonably acceptable
to the Administrators) to act as Paying Agent.
35
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected
without charge by or on behalf of the Issuer Trust, but upon payment of any tax
or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer Trust will not be required to register or cause
to be registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and 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.
For information concerning the relationships between Bankers Trust
Company, the Property Trustee, and the Company, see "Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
Miscellaneous
The Administrators and the Property Trustee are authorized and
directed to conduct the affairs of and to operate the Issuer Trust in such a way
that the Issuer Trust will not be deemed to be an "investment company" required
to be registered under the Investment Company Act or taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Property
Trustee and the holders of Common Securities are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Issuer
Trust or the Trust Agreement, that the Property Trustee and the holders of
Common Securities determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not materially adversely affect the
interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Issuer Trust may not borrow money, issue debt or mortgage or
pledge any of its assets.
Governing Law
The Trust Agreement will be governed by and construed in accordance
with the laws of the State of Delaware.
36
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
General
Concurrently with the issuance of the Preferred Securities, the Issuer
Trust will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from May 13, 1997, at the annual rate of 9.75% of the principal amount
thereof, payable quarterly in arrears on the 15th day of January, April, July
and October of each year (each, an "Interest Payment Date"), commencing July 15,
1997, to the person in whose name each Junior Subordinated Debenture is
registered at the close of business on the 1st day of January, April, July or
October (whether or not a Business Day) next preceding such Interest Payment
Date. It is anticipated that, until the liquidation, if any, of the Issuer
Trust, each Junior Subordinated Debenture will be registered in the name of the
Issuer Trust and held by the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The amount of interest payable for any period
less than a full interest period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual days elapsed in a partial month in such
period. The amount of interest payable for any full interest period will be
computed by dividing the rate per annum by four. If any date on which interest
is payable on the Junior Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day that is a Business Day (without any interest or other payment in respect of
any such delay), with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of 9.75%,
compounded quarterly and computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period. The
amount of additional interest payable for any full interest period will be
computed by dividing the rate per annum by four. The term "interest" as used
herein includes quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date and Additional Sums
(as defined below), as applicable.
The Junior Subordinated Debentures will mature on July 15, 2027.
The Junior Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"-- Subordination."
37
Option to Extend Interest Payment Period
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. During any
such Extension Period the Company shall have the right to make partial payments
of interest on any interest payment date. At the end of such Extension Period,
the Company must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of 9.75%, compounded quarterly and computed
on the basis of a 360-day year of twelve 30-day months and the actual days
elapsed in a partial month in such period, to the extent permitted by applicable
law). The amount of additional interest payable for any full interest period
will be computed by dividing the rate per annum by four. During an Extension
Period, interest will continue to accrue and holders of Junior Subordinated
Debentures (or holders of Preferred Securities while outstanding) will be
required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount."
During any such Extension 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 or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholders rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin a
new Extension Period subject to the above conditions. No interest shall be due
and payable during an Extension Period, except at the end thereof. The Company
must give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Preferred Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
38
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. There is no limitation on the number of times that the
Company may elect to begin an Extension Period.
Redemption
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after July 15, 2002, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Preferred Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Preferred Securities.
The Federal Reserve's risk-based capital guidelines, which are subject
to change, currently provide that redemptions of permanent equity or other
capital instruments before stated maturity could have a significant impact on a
bank holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company
prior to their Stated Maturity would constitute the redemption of capital
instruments under the Federal Reserve's current risk-based capital guidelines
and may be subject to the prior approval of the Federal Reserve. The redemption
of the Junior Subordinated Debentures also could be subject to the additional
prior approval of the Federal Reserve under its current risk-based capital
guidelines.
The redemption price for Junior Subordinated Debentures is the
outstanding principal amount of the Junior Subordinated Debentures plus accrued
interest (including any Additional Interest or any Additional Sums) thereon to
but excluding the date fixed for redemption.
Additional Sums
The Company has covenanted in the Junior Subordinated Indenture that,
if and for so long as (i) the Issuer Trust is the holder of all Junior
Subordinated Debentures and (ii) the Issuer Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay as additional sums on the Junior Subordinated
Debentures such amounts as may be required so that the Distributions payable by
the Issuer Trust will not be reduced as a result of any such additional taxes,
duties or other governmental charges. See "Description of Preferred Securities
- --Redemption."
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the
name of the Issuer Trust. If the Junior Subordinated Debentures are distributed
to holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical
39
to those in effect for the Preferred Securities. See "Description of Preferred
Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
Preferred Securities -- Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in New York, New
York or at the offices of any Paying Agent or transfer agent appointed by the
Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto. However,
a holder of $1 million or more in aggregate principal amount of Junior
Subordinated Debentures may receive payments of interest (other than interest
payable at the Stated Maturity) by wire transfer of immediately available funds
upon written request to the Debenture Trustee not later than 15 calendar days
prior to the date on which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as
provided above, and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent,
or then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the
40
Company and the holder of such Junior Subordinated Debenture shall thereafter
look, as a general unsecured creditor, only to the Company for payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Company
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event (a) of which the Company has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute a Debenture
Event of Default and (b) that the Company has not taken reasonable steps to
cure, (ii) if the Junior Subordinated Debentures are held by the Issuer Trust,
the Company is in default with respect to its payment of any obligations under
the Guarantee or (iii) the Company has given notice of its election of an
Extension Period as provided in the Junior Subordinated Indenture and has not
rescinded such notice, or such Extension Period, or any extension thereof, is
continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust 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 the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
Modification of Junior Subordinated Indenture
From time to time, the Company and the Debenture Trustee may, without
the consent of any of the holders of the outstanding Junior Subordinated
Debentures, amend, waive or supplement the
41
provisions of the Junior Subordinated Indenture to: (1) evidence succession of
another corporation or association to the Company and the assumption by such
person of the obligations of the Company under the Junior Subordinated
Debentures, (2) add further covenants, restrictions or conditions for the
protection of holders of the Junior Subordinated Debentures, (3) cure
ambiguities or correct the Junior Subordinated Debentures in the case of defects
or inconsistencies in the provisions thereof, so long as any such cure or
correction does not adversely affect the interest of the holders of the Junior
Subordinated Debentures in any material respect, (4) change the terms of the
Junior Subordinated Debentures to facilitate the issuance of the Junior
Subordinated Debentures in certificated or other definitive form, (5) evidence
or provide for the appointment of a successor Debenture Trustee, or (6) qualify,
or maintain the qualification of, the Junior Subordinated Indentures under the
Trust Indenture Act. The Junior Subordinated 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 Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture.
Furthermore, so long as any of the Preferred Securities remain outstanding, no
such modification may be made that adversely affects the holders of such
Preferred Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Junior Subordinated Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the outstanding Preferred
Securities unless and until the principal of (and premium, if any, on) the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
Debenture Events of Default
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due
date in the case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on
the Junior Subordinated Debentures when due whether
at maturity, upon redemption, by declaration of
acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Junior Subordinated
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 outstanding
Junior Subordinated Debentures; or
42
(iv) the Company consents to the appointment of a receiver or
other similar official in any liquidation, insolvency or
similar proceeding with respect to the Company or all or
substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such
Event of Default under the Junior Subordinated Debenture is referred to as a
"Debenture Event of Default." As described in "Description of Preferred
Securities -- Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior 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 principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have 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 Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of
the outstanding Junior Subordinated Debentures affected thereby may, on behalf
of the holders of all the Junior Subordinated Debentures, waive any past
default, except a default in the payment of principal (or premium, if any) or
interest (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Junior Subordinated Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Junior Subordinated Debenture affected thereby. See "-- Modification
of Junior Subordinated Indenture." 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
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
43
Enforcement of Certain Rights by Holders of 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 any amounts
payable in respect of the Junior Subordinated Debentures on the date such
amounts are otherwise payable, a registered holder of Preferred Securities may
institute a Direct Action against the Company for enforcement of payment to such
holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities held by such holder. The Company
may not amend the Junior Subordinated Indenture to remove the foregoing right to
bring a Direct Action without the prior written consent of the holders of all
the Preferred Securities. The Company will have the right under the Junior
Subordinated 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 are not able to exercise
directly any remedies available to the holders of the Junior Subordinated
Debentures except under the circumstances described in the preceding paragraph.
See "Description of Preferred Securities -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford
holders of the Junior Subordinated Debentures protection in the event of a
highly leveraged or other transaction involving the Company that may adversely
affect holders of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Junior Subordinated Indenture provides that when, among other
things, all Junior Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation (i) have become due and payable, (ii) will
become due and payable at the Stated Maturity 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 Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if any)
and interest to the date of the deposit or to the Stated Maturity, as the case
may be, then the Junior Subordinated Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will be
deemed to have satisfied and discharged the Junior Subordinated Indenture.
44
Subordination
The Junior Subordinated Debentures will be subordinate and junior in
right of payment, to the extent set forth in the Junior Subordinated Indenture,
to all Senior Indebtedness (as defined below) of the Company. If the Company
defaults in the payment of any principal, premium, if any, or interest, if any,
or any other amount payable on any Senior Indebtedness when the same becomes due
and payable, whether at maturity or at a date fixed for redemption or by
declaration of acceleration or otherwise, then, unless and until such default
has been cured or waived or has ceased to exist or all Senior Indebtedness has
been paid, no direct or indirect payment (in cash, property, securities, by
setoff or otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to
all or a portion of the assets of the Company and whether or not contingent, (i)
every obligation of the Company for money borrowed; (ii) every obligation of the
Company 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 the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company 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 the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person and all dividends of another person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise; provided
that "Senior Indebtedness" shall not include (i) any obligations which, by their
terms, are expressly stated to rank pari passu in right of payment with, or to
not be superior in right of payment to, the Junior Subordinated Debentures, (ii)
any Senior Indebtedness 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, (iii) any indebtedness of
the Company to any of its subsidiaries, (iv) indebtedness to any executive
officer or director of the Company, or (v) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing entity of the Company in
connection with the issuance by such financing entity of securities that are
similar to the Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will
45
be paid or delivered directly to the holders of Senior Indebtedness in
accordance with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount
of additional Senior Indebtedness that may be incurred by the Company. The
Company expects from time to time to incur additional indebtedness constituting
Senior Indebtedness.
Information Concerning the Debenture Trustee
The Debenture Trustee, other than during the occurrence and
continuance of a default by the Company in performance of its obligations under
the Junior Subordinated Debenture, is under no obligation to exercise any of the
powers vested in it by the Junior Subordinated Indenture at the request of any
holder of Junior Subordinated Debentures, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities that 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.
Bankers Trust Company, the Debenture Trustee, may serve from time to
time as trustee under other indentures or trust agreements with the Company or
its subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
Governing Law
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
46
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company
concurrently with the issuance of Preferred Securities by the Issuer Trust for
the benefit of the holders from time to time of the Preferred Securities.
Bankers Trust Company will act as Guarantee Trustee under the Guarantee. This
summary of certain provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all the
provisions of the Guarantee, including the definitions therein of certain terms.
A copy of the form of Guarantee is available upon request from the Guarantee
Trustee. The Guarantee Trustee will hold the Guarantee for the benefit of the
holders of the Preferred Securities.
General
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth in the Guarantee and described herein, the
Guarantee Payments (as defined below) to the holders of the Preferred
Securities, as and when due, regardless of any defense, right of set-off or
counterclaim that the Issuer Trust 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 the Issuer Trust (the "Guarantee Payments"),
will be subject to the Guarantee: (i) any accumulated and unpaid Distributions
required to be paid on such Preferred Securities, to the extent that the Issuer
Trust has funds on hand available therefor at such time, (ii) the Redemption
Price with respect to any Preferred Securities called for redemption, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (iii) upon a voluntary or involuntary dissolution, of the Issuer Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Preferred Securities), the lesser of (a) the aggregate of the Liquidation Amount
and all accumulated and unpaid Distributions to the date of payment, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Company's obligation 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 the Issuer Trust to pay such amounts to such
holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis
of the Issuer Trust's obligations under the Preferred Securities, but will apply
only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
any amounts payable in respect of the Preferred Securities and will not have
funds legally available therefor. The Guarantee will rank subordinate and junior
in right of payment to all Senior Indebtedness of the Company. See "-- Status of
the Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures and the Junior Subordinated Indenture, taken
together, fully, irrevocably and unconditionally guaranteed all the Issuer
Trust's obligations under the Preferred Securities on a subordinated basis. No
single document standing alone or operating in conjunction with fewer than all
the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of
47
providing a full, irrevocable and unconditional guarantee of the Issuer Trust's
obligations in respect of the Preferred Securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee."
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
Indebtedness of the Company in the same manner as the Junior Subordinated
Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
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. The manner of obtaining any such
approval will be as set forth under "Description of Preferred Securities --
Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall 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, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered 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 the Issuer Trust,
the Guarantee Trustee or any other person or entity.
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.
48
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 the occurrence of an event of 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 this
provision, 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 the
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
For information concerning the relationship between Bankers Trust
Company, as Guarantee Trustee, and the Company, see "Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect
upon full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior 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 the Preferred Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Issuer Trust has funds available for such payment)
are irrevocably guaranteed, on a subordinated basis, by the Company as and to
the extent set forth under "Description of Guarantee." Taken together, the
Company's obligations under the Junior Subordinated Debentures, the Junior
Subordinated Indenture, the Trust Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all 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 Issuer Trust's obligations in respect of the
Preferred Securities. If and to the extent that the Company does not make
payments on the Junior Subordinated Debentures, the Issuer Trust will not have
sufficient funds to pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of amounts payable with respect
to the Preferred Securities when the Issuer Trust does not have sufficient funds
to pay such amounts. In such event, the remedy of a holder of the Preferred
Securities is to institute a legal proceeding directly against
49
the Company for enforcement of payment of the Company's obligations under Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities held by such holder.
The obligations of the Company under the Junior Subordinated
Debentures and the Guarantee are subordinate and junior in right of payment to
all Senior Indebtedness.
Sufficiency of Payments
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Preferred
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Preferred Securities;
(iii) the Company will pay for any and all costs, expenses and liabilities of
the Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
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, the Issuer
Trust or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the
Company would not constitute a default or Event of Default in respect of the
Preferred Securities. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Company, the subordination
provisions of the Junior Subordinated Indenture provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. See "Description of Junior Subordinated Debentures
- --Subordination."
Limited Purpose of Issuer Trust
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and the Issuer Trust exists for the
sole purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of a Preferred Security and a holder
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company payments on Junior
Subordinated Debentures held, while a holder of Preferred Securities is entitled
to receive Distributions or other amounts distributable with respect to the
Preferred Securities from the
50
Issuer Trust (or from the Company under the Guarantee) only if and to the extent
the Issuer Trust has funds available for the payment of such Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the Issuer Trust,
other than any such dissolution involving the distribution of the Junior
Subordinated Debentures, after satisfaction of liabilities to creditors of the
Issuer Trust as required by applicable law, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Issuer Trust,
the Liquidation Distribution in cash. See "Description of Preferred Securities
- -- Liquidation Distribution Upon Dissolution." Upon any voluntary or involuntary
liquidation or bankruptcy of the Company, the Issuer Trust, as registered holder
of the Junior Subordinated Debentures, would be a subordinated creditor of the
Company, subordinated and junior in right of payment to all Senior Indebtedness
as set forth in the Junior Subordinated Indenture, but entitled to receive
payment in full of all amounts payable with respect to the Junior Subordinated
Debentures before any stockholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed under the Junior Subordinated Indenture to pay for all costs, expenses
and liabilities of the Issuer Trust (other than the Issuer Trust's obligations
to the holders of the Trust Securities), the positions of a holder of the
Preferred Securities and a holder of such Junior Subordinated Debentures
relative to other creditors and to stockholders 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
The following is a summary of the material United States federal
income tax consequences of the purchase, ownership and disposition of Preferred
Securities. This summary only addresses the tax consequences to a person that
acquires Preferred Securities on their original issue at their original offering
price and that is, except as noted below, (i) an individual citizen or resident
of the United States, (ii) a corporation, partnership, or other entity organized
under the laws of the United States or any state thereof or the District of
Columbia, (iii) an estate the income of which is subject to United States
federal income tax regardless of source, or (iv) a trust if (a) a United States
court of law is able to exercise primary supervision over the trust's
administration and (b) one or more United States fiduciaries have the authority
to control all of the trust's substantial decisions (a "United States Person").
This summary does not address all tax consequences that may be applicable to a
United States Person that is a beneficial owner of Preferred Securities, nor
does it address the tax consequences to, except as noted below, (i) persons that
are not United States Persons, (ii) persons that may be subject to special
treatment under United States federal income tax law, such as banks, insurance
companies, thrift institutions, regulated investment companies, real estate
investment trusts, tax-exempt investors and dealers in securities or currencies,
(iii) persons that will hold Preferred Securities as part of a position in a
"straddle" or as part of a "hedging," "conversion" or other integrated
investment transaction for United States federal income tax purposes, (iv)
persons whose functional currency is not the United States dollar or (v) persons
that do not hold Preferred Securities as capital assets. In addition, this
summary does not include any description of alternative minimum tax consequences
or the tax laws of any state, local or foreign government that may be applicable
to a holder of Preferred Securities.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of Malizia, Spidi, Sloane & Fisch, P.C., in its capacity
as special tax counsel to the Company and the Issuer Trust ("Tax Counsel"). This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial
51
decisions now in effect, all of which are subject to change at any time. Such
changes may be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences described below,
possibly adversely affecting a beneficial owner of Preferred Securities. In
particular, legislation has been proposed that could adversely affect the
Company's ability to deduct interest on the Junior Subordinated Debentures,
which may in turn permit the Company to cause a redemption of the Preferred
Securities. See "-- Possible Tax Law Changes." The authorities on which this
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.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE UNITED STATES
FEDERAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF PREFERRED
SECURITIES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Classification of the Junior Subordinated Debentures and the Issuer Trust
Under current law and assuming compliance with the terms of the Trust
Agreement, the Issuer Trust will not be taxable as a corporation but will
instead be classified as a grantor trust for United States federal income tax
purposes. As a result, each beneficial owner of Preferred Securities (a
"Securityholder") will be treated for federal income tax purposes as a holder of
its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust. Accordingly, each Securityholder will be required to include in its gross
income its pro rata share of the interest income, including OID, paid or accrued
with respect to the Junior Subordinated Debentures whether or not cash is
actually distributed to the Securityholders. See "-- Interest Income and
Original Issue Discount." The Junior Subordinated Debentures will be classified
as indebtedness of the Company for United States federal income tax purposes.
The Company, the Issuer Trust and holders of the Preferred Securities
(by the acceptance of a beneficial interest in a Preferred Security) will agree
to treat the Junior Subordinated Debentures as indebtedness for United States
federal income tax purposes. In connection with the issuance of the Junior
Subordinated Debentures, Tax Counsel is of the opinion that, under current law,
and based on the representations, facts and assumptions set forth herein, the
Junior Subordinated Debentures will be classified as indebtedness for United
States federal income tax purposes.
Interest Income and Original Issue Discount
Under applicable Treasury regulations (the "Regulations"), a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Company believes
that the likelihood of its exercising its option to defer payments of interest
is remote. Based on the foregoing, the Company believes that the Junior
Subordinated Debentures will not be considered to be issued with OID at the time
of their original issuance and, accordingly, a Securityholder should include in
gross income such Securityholder's allocable share of interest on the Junior
Subordinated Debentures in accordance with such Securityholder's method of tax
accounting.
52
Under the Regulations, if the Company exercised its option to defer
any payment of interest, the Junior Subordinated Debentures would at that time
be treated as issued with OID, and all stated interest (and de minimis OID, if
any) on the Junior Subordinated Debentures would thereafter be treated as OID as
long as the Junior Subordinated Debentures remained outstanding. In such event,
all of a Securityholder's taxable interest income with respect to the Junior
Subordinated Debentures would be accounted for as OID on an economic accrual
basis regardless of such Securityholder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a Securityholder would be required to include in gross income OID
even though the Company would not make any actual cash payments during an
Extension Period.
The Regulations have not been addressed in any published rulings or
other published interpretations by the IRS, and it is possible that the IRS
could take a position contrary to the interpretation herein.
Because income on the Preferred Securities will constitute interest or
OID, corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Preferred
Securities.
Subsequent uses of the term "interest" in this summary include income
in the form of OID.
Distribution of Junior Subordinated Debentures to Securityholders
Under current law, a distribution by the Issuer Trust of the Junior
Subordinated Debentures as described under the caption "Description of Preferred
Securities -- Liquidation Distribution Upon Dissolution" will be non-taxable and
will result in the Securityholder receiving directly its pro rata share of the
Junior Subordinated Debentures previously held indirectly through the Issuer
Trust, with a holding period and aggregate tax basis equal to the holding period
and aggregate tax basis such Securityholder had in its Preferred Securities
before such distribution. If, however, the liquidation of the Issuer Trust were
to occur because the Issuer Trust is subject to United States federal income tax
with respect to income accrued or received on the Junior Subordinated
Debentures, the distribution of Junior Subordinated Debentures to
Securityholders by the Issuer Trust would be a taxable event to the Issuer Trust
and each Securityholder, and the Securityholder would recognize gain or loss as
if the Securityholder had exchanged its Preferred Securities for the Junior
Subordinated Debentures it received upon the liquidation of the Issuer Trust. A
Securityholder will accrue interest in respect of Junior Subordinated Debentures
received from the Issuer Trust in the manner described above under "-- Interest
Income and Original Issue Discount."
Under certain circumstances described herein (see "Description of
Junior Subordinated Debentures -- Redemption"), the Junior Subordinated
Debentures may be redeemed by the Company for cash and the proceeds of such
redemption distributed by the Issuer Trust 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
it sold such redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities."
53
Sales of Preferred Securities
A Securityholder that sells Preferred Securities will recognize gain
or loss equal to the difference between its adjusted tax basis in the Preferred
Securities and the amount realized on the sale of such Preferred Securities.
Assuming that the Company does not exercise its option to defer payment of
interest on the Junior Subordinated Debentures, and the Preferred Securities are
not considered issued with OID, a Securityholder's adjusted tax basis in the
Preferred Securities generally will be its initial purchase price. If the Junior
Subordinated Debentures are deemed to be issued with OID as a result of the
Company's deferral of any interest payment, or otherwise, a Securityholder's tax
basis in the Preferred Securities generally will be its initial purchase price,
increased by OID previously includible in such Securityholder's gross income to
the date of disposition and decreased by distributions or other payments
received on the Preferred Securities since and including the date of
commencement of the first Extension Period. Such gain or loss generally will be
a capital gain or loss (except to the extent of any accrued interest with
respect to such Securityholder's pro rata share of the Junior Subordinated
Debentures required to be included in income) and generally will be a long-term
capital gain or loss if the Preferred Securities have been held for more than
one year.
Should the Company exercise its option to defer any payment of
interest on the Junior Subordinated Debentures, 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 Junior Subordinated Debentures.
In the event of such a deferral, a Securityholder that disposes of its Preferred
Securities between record dates for payments of distributions thereon will be
required to include in income as ordinary income its share of accrued but unpaid
interest on the Junior Subordinated Debentures to the date of disposition as
OID, but may not receive the cash related thereto. However, such Securityholder
will add such amount to its adjusted tax basis in the Preferred Securities. To
the extent the selling price is less than the Securityholder's adjusted tax
basis, such Securityholder 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.
Backup Withholding Tax and Information Reporting
The amount of interest income paid or accrued on the Preferred
Securities held of record by United States Persons (other than corporations and
other exempt Securityholders) will be reported to the IRS. "Backup" withholding
at a rate of 31%, or other rate as may be required by the Code or the Treasury
Regulations, will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions.
Payment of the proceeds from the disposition of Preferred Securities
to or through the United States office of a broker is subject to information
reporting and backup withholding unless the Securityholder establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup
withholding rules will be allowed as a refund or a credit against such
Securityholder's United States federal income tax liability, provided the
required information is furnished to the IRS.
54
It is anticipated that income on the Preferred Securities will be
reported to Securityholders on Form 1099 and mailed to Securityholders by
January 31 following each calendar year.
These backup withholding tax and information reporting rules currently
are under review by the United States Treasury Department and proposed Treasury
regulations issued on April 15, 1996 would modify certain of such rules
generally with respect to payments made after December 31, 1997. Accordingly,
the application of such rules to the Preferred Securities could be changed.
Possible Tax Law Changes
On February 6, 1997, President Clinton released his budget proposals
for fiscal year 1998. One of the revenue provisions of those proposals would
generally deny interest deductions for interest on an instrument issued by a
corporation that has a maximum term of more than 15 years and that is not shown
as indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. If enacted as
proposed by the President, this provision would be effective for instruments
issued on or after the date of first action by a Congressional committee with
respect to the proposal. It is not clear from the President's proposals as to
what constitutes Congressional "committee action" with respect to this proposal.
If the proposed provision were to apply to the Junior Subordinated Debentures,
the Company would be unable to deduct interest on the Junior Subordinated
Debentures. Under current law, the Company will be able to deduct interest on
the Junior Subordinated Debentures, however, the Company and the Issuer Trust
have been advised by Tax Counsel that such recently proposed legislation would
change the deductibility of the interest paid by the Company on the Junior
Subordinated Debentures for federal income tax purposes, and that Congress could
amend such legislation giving it retroactive effect prior to its enactment into
law. There can be no assurance that future legislative proposals or final
legislation will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company to cause a redemption of the Preferred Securities,
as described more fully in this Prospectus under "Description of Preferred
Securities -- Redemption."
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be
considered a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a "disqualified person"
within the meaning of Section 4975 of the Code with respect to many employee
benefit plans ("Plans") that are subject to ERISA. The purchase of the Preferred
Securities by a Plan that is subject to the fiduciary responsibility provisions
of ERISA or the prohibited transaction provisions of Section 4975(e)(1) of the
Code) and with respect to which the Company, or any affiliate of the Company is
a service provider (or otherwise is a party in interest or a disqualified
person) may constitute or result in a prohibited transaction under ERISA or
Section 4975 of the Code, unless the Preferred Securities are acquired pursuant
to and in accordance with an applicable exemption. Any pension or other employee
benefit plan proposing to acquire any Preferred Securities should consult with
its counsel.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated May 8, 1997, among the Company, the Issuer Trust
and Ryan, Beck (the "Underwriter"), the Issuer Trust has agreed to sell to the
Underwriter, and the Underwriter has agreed
55
to purchase from the Issuer Trust $10,000,000 aggregate Liquidation Amount of
Preferred Securities at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the
Underwriter is subject to certain conditions precedent and that the Underwriter
will purchase all of the Preferred Securities offered hereby if any of such
Preferred Securities are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes 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 $0.20 per Preferred Security. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $0.15 per Preferred Security to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Underwriter.
The Company has granted to the Underwriter an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional $1,000,000 aggregate Liquidation Amount of the Preferred Securities
at the public offering price plus accrued Distributions, if any, from May 13,
1997. To the extent that the Underwriter exercises such option, the Company will
be obligated, pursuant to the option, to sell such Preferred Securities to the
Underwriter. The Underwriter may exercise such option only to cover
over-allotments made in connection with the sale of the Preferred Securities
offered hereby. If purchased, the Underwriter will offer such additional
Preferred Securities on the same terms as those on which the $10,000,000
aggregate Liquidation Amount of the Preferred Securities are being offered.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $0.30 per Preferred Security (or $300,000 ($330,000 if the
over-allotment option is exercised in full) in the aggregate) and an advisory
fee equal to 1% of the gross proceeds of the Offering to the account of the
Underwriter. The Company has also agreed to reimburse the Underwriter for its
reasonable out-of-pocket expenses, including legal fees and expenses related to
the Offering of the Preferred Securities.
Because the National Association of Securities Dealers, Inc. ("NASD")
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
The Preferred Securities are a new issue of securities with no
established trading market. The Company and the Issuer Trust have been advised
by the Underwriter that it intends to make a market in the Preferred Securities.
However, the Underwriter is not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion of
the Underwriter. Application has been made by the Company to list the Preferred
Securities in the Nasdaq National Market, but one of the requirements for
listing and continuing listing is the presence of two market makers for the
Preferred Securities, and the presence of a second market maker cannot be
assured. Accordingly, no assurance can be given as to the development or
liquidity of any market for the Preferred Securities.
56
The Company and the Issuer Trust have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF SECURITIES
The validity of the Guarantee and the Junior Subordinated Debentures
and certain tax matters will be passed upon for the Company by Malizia, Spidi,
Sloane & Fisch, P.C., Washington, D.C., counsel to the Company. Certain legal
matters will be passed upon and for the Underwriter by Pitney, Hardin, Kipp &
Szuch, Morristown, New Jersey. Certain matters of Delaware law relating to the
validity of the Preferred Securities, the enforceability of the Trust Agreement
and the creation of the Issuer Trust will be passed upon by Richards, Layton &
Finger, special Delaware counsel to the Company and the Issuer Trust. Malizia,
Spidi, Sloane & Fisch, P.C. and Pitney, Hardin, Kipp & Szuch, will rely as to
certain matters of Delaware law on the opinion of Richards, Layton & Finger.
EXPERTS
The consolidated financial statements of the Company as of September
30, 1996 and 1995, and for each of the years in the three-year period ended
September 30, 1996, appearing in the 1996 Annual Report of the Company to its
stockholders and incorporated by reference in the Annual Report on Form 10-KSB
for the year ended September 30, 1996, have been incorporated by reference in
the Prospectus and in the Registration Statement of which this Prospectus forms
a part, in reliance upon the report of KPMG Peat Marwick LLP, independent public
accountants, incorporated by reference herein, whose report thereon appears
therein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP refers to a change in the method
of accounting for income taxes and accounting for certain investments in debt
and equity securities as of October 1, 1993 and 1994, respectively.
AVAILABLE INFORMATION
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. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center,
14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Such material also may be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. This Prospectus
does not contain all the information set forth in the Registration Statement and
exhibits thereto, which the Company has filed with the Commission under the
Securities Act and to which reference is hereby made.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"FB Capital Trust," "Description of Preferred Securities,"
57
"Description of Junior Subordinated Debentures" and "Description of Guarantee."
In addition, the Company does not expect that the Issuer Trust will be filing
reports under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1996 as amended by Form 10-KSB/A filed on January 28, 1997 and Form 10-KSB/A,
filed on April 24, 1997, the Company's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1996, and the Company's Current Report on Form 8-K
for an event dated April 18, 1997, previously filed by the Company with the
Commission pursuant to Section 13 of the Exchange Act. Copies of the Company's
1996 Annual Report to Stockholders and Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1996 are being delivered with this Prospectus.
Any statement contained herein, or in any document all or a portion of
which is incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than certain exhibits to such
documents). Written requests should be directed to the Office of the Secretary,
Fidelity Bancorp, Inc., 1009 Perry Highway, Pittsburgh, Pennsylvania 15237.
Telephone requests may be directed to (412) 367- 3300.
58
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No person has been authorized in connection
with the offering made hereby to give any
information or to make any representation not
contained in this prospectus and, if given or
made, such information or representation must
not be relied upon as having been authorized by
the company or the underwriter. This [Logo]
prospectus does not constitute an offer to sell or
a solicitation of any offer to buy any of the $10,000,000
securities offered hereby to any person or by
anyone in any jurisdiction in which it is
unlawful to make such offer or solicitation. FB CAPITAL TRUST
Neither the delivery of this prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication that the 9.75% Preferred Securities
information contained herein is correct as of (Liquidation Amount $10 per
any date subsequent to the date hereof. Preferred Security)
guaranteed, as described herein, by
TABLE OF CONTENTS
PAGE FIDELITY BANCORP, INC.
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Summary....................................... 5
Selected Consolidated Financial Data..........10
Risk Factors..................................12
FB Capital Trust..............................19
Use of Proceeds...............................20 ----------
Capitalization................................21 PROSPECTUS
Accounting Treatment..........................22 ----------
Description of Preferred Securities...........22
Description of Junior Subordinated Ryan, Beck & Co.
Debentures..................................37
Description of Guarantee......................47
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee................49 May 8, 1997
Certain Federal Income Tax
Consequences................................51
Certain ERISA Considerations..................55
Underwriting..................................55
Validity of Securities........................57
Experts.......................................57
Available Information.........................57
Incorporation of Certain Documents By
Reference....................................58
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