Filed Pursuant to Rule 424(b)(5)
Registration No. 333-18951
333-18951-02
333-25649
333-25649-01
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 6, 1997)
$120,000,000
NTC CAPITAL II
FLOATING RATE CAPITAL TRUST PASS-THROUGH SECURITIESSM (TRUPSSM)*, SERIES B
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
NORTHERN TRUST CORPORATION
The Floating Rate Capital Trust Pass-through SecuritiesSM, Series B (the
"Series B Capital Securities"), offered hereby represent beneficial ownership
interests in NTC Capital II, a statutory business trust created under the laws
of the State of Delaware (the "Series B Issuer"). Northern Trust Corporation,
a Delaware corporation (the "Corporation"), will be the owner of all of the
beneficial ownership interests represented by common securities of the Series
B Issuer ("Series B Common Securities" and, collectively with the Series B
Capital Securities, the "Series B Securities"). The First National Bank of
Chicago is the Property Trustee of the Series B Issuer. The
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SEE "RISK FACTORS" BEGINNING ON PAGE S-5 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE SERIES B CAPITAL SECURITIES, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON
THE SERIES B CAPITAL SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING THE SERIES B
PUBLIC(1) DISCOUNT ISSUER(1)(3)
Per Series B Capital Security............ 99.000% (2) 99.000%
Total.................................... $118,800,000 (2) $118,800,000
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(1) Plus accrued distributions, if any, from April 25, 1997.
(2) In view of the fact that the proceeds of the sale of the Series B Capital
Securities will be invested in the Series B Subordinated Debentures, the
Corporation has agreed to pay to the Underwriters as compensation
("Underwriters' Compensation") for arranging the investment therein of
such proceeds $10.00 per Series B Capital Security (or $1,200,000 in the
aggregate). See "Underwriting."
(3) Expenses of the offering, which are payable by the Corporation, are
estimated to be $120,000.
The Series B Capital Securities offered hereby are offered subject to receipt
and acceptance by the Underwriters, and subject to the Underwriters' right to
reject any order in whole or in part. It is expected that delivery of the
Series B Capital Securities will be made only in book-entry form through the
facilities of The Depository Trust Company, on or about April 25, 1997.
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* Salomon Brothers Inc has filed applications with the United States Patent
and Trademark Office for the registration of the "Capital Trust Pass-through
Securities" and "TruPS" service marks.
SALOMON BROTHERS INC MERRILL LYNCH & CO.
The date of this Prospectus Supplement is April 22, 1997.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES B CAPITAL
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING
AND AFTER THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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Series B Issuer exists for the sole purpose of issuing the Series B Securities
and investing the proceeds thereof in the Floating Rate Junior Subordinated
Deferrable Interest Debentures, Series B (the "Series B Subordinated
Debentures"), to be issued by the Corporation. The Series B Subordinated
Debentures will mature on April 15, 2027 (the "Stated Maturity"). The Series B
Capital Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption
or otherwise over the Series B Common Securities. See "Description of
Preferred Securities--Subordination of Common Securities" in the accompanying
Prospectus.
The Series B Capital Securities constitute "Preferred Securities" as
described in the accompanying Prospectus. Subject to the provisions described
herein, holders of the Series B Capital Securities will be entitled to receive
preferential cumulative cash distributions ("Distributions") accumulating from
the date of original issuance and payable quarterly in arrears on January 15,
April 15, July 15 and October 15 of each year, commencing July 15, 1997, in
respect of the Liquidation Amount of $1,000 per Capital Security at a rate per
annum equal to 3-Month LIBOR (as defined herein) plus 0.59% (the "Distribution
Rate"). Subject to certain exceptions, as described herein, the Corporation
has the right to defer payment of interest on the Series B 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 Series B Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all interest then accrued and
unpaid (together with interest thereon at the Distribution Rate, compounded
quarterly from the relevant payment date for such interest, to the extent
permitted by applicable law), the Corporation may elect to begin a new
Extension Period, subject to the requirements set forth herein. If interest
payments on the Series B Subordinated Debentures are so deferred,
Distributions on the Series B Capital Securities will also be deferred, and
the Corporation will not be permitted, subject to certain exceptions described
herein, to declare or pay any cash distributions with respect to the
Corporation's capital stock or debt securities that rank pari passu with or
junior to the Series B Subordinated Debentures, including $154,640,000 initial
principal amount of the Corporation's Floating Rate Junior Subordinated
Deferrable Interest Debentures, Series A (the "Series A Subordinated
Debentures"), issued in January 1997. During an Extension Period, interest on
the Series B Subordinated Debentures will continue to accrue (and the amount
of Distributions to which holders of the Series B Capital Securities are
entitled will accumulate) at the Distribution Rate, compounded quarterly from
the relevant payment date for such interest, and holders of Series B Capital
Securities will be required to accrue interest income for United States
federal income tax purposes. See "Certain Terms of Series B Subordinated
Debentures--Option to Defer Interest Payments" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The Series B Subordinated Debentures are unsecured and subordinate and
junior in right of payment to all Senior Debt (as defined in the accompanying
Prospectus) of the Corporation. Substantially all of the Corporation's
existing indebtedness other than the Series A Subordinated Debentures
constitutes Senior Debt; as of March 31, 1997, the Corporation had, on an
unconsolidated
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basis, approximately $279 million aggregate principal amount of Senior Debt
outstanding. In addition, because the Corporation is a holding company, the
right of the Corporation to participate in any distribution of assets of any
subsidiary, including The Northern Trust Company (the "Bank"), upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability
of holders of the Series B Capital Securities to benefit indirectly from such
distribution) is subject to the prior claims of creditors of that subsidiary,
except to the extent that the Corporation may itself be recognized as a
creditor of that subsidiary. Accordingly, the Series B Subordinated Debentures
(and therefore the Series B Capital Securities) will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries, and holders thereof should look only to the assets of the
Corporation for payments on the Series B Subordinated Debentures. The Series B
Subordinated Debentures rank pari passu with the Series A Subordinated
Debentures. See "Description of Junior Subordinated Debentures--Subordination"
in the accompanying Prospectus.
The Corporation has, through the Series B Guarantee, the Trust Agreement,
the Series B Subordinated Debentures, the Indenture and the Expense Agreement
(each as defined herein), taken together, fully, irrevocably and
unconditionally guaranteed all of the Series B Issuer's obligations under the
Series B Capital Securities. See "Relationship Among the Preferred Securities,
the Corresponding Junior Subordinated Debentures, the Expense Agreement and
the Guarantees--Full and Unconditional Guarantee" in the accompanying
Prospectus. The Series B Guarantee of the Corporation guarantees the payment
of Distributions and payments on liquidation or redemption of the Series B
Capital Securities, but only in each case to the extent of funds held by the
Series B Issuer, as described herein (the "Series B Guarantee"). See
"Description of Guarantees" in the accompanying Prospectus. If the Corporation
does not make interest payments on the Series B Subordinated Debentures held
by the Series B Issuer, the Series B Issuer will have insufficient funds to
pay Distributions on the Series B Capital Securities. The Series B Guarantee
does not cover payment of Distributions when the Series B Issuer has
insufficient funds to pay such Distributions. In such event, a holder of
Series B Capital Securities may institute a legal proceeding directly against
the Corporation pursuant to the terms of the Indenture to enforce payment of
amounts equal to such Distributions to such holder. See "Description of Junior
Subordinated Debentures--Enforcement of Certain Rights by Holders of Preferred
Securities" in the accompanying Prospectus. The obligations of the Corporation
under the Series B Guarantee and the Series B Capital Securities are
subordinate and junior in right of payment to all Senior Debt of the
Corporation.
The Series B Capital Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Series B Subordinated Debentures at
maturity or their earlier redemption. The Series B Subordinated Debentures are
redeemable prior to maturity at the option of the Corporation (i) on or after
April 15, 2007, 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 of a
Tax Event or Capital Treatment Event (each as defined herein) or, if the
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve") is then required for such redemption, on such later date as promptly
as practicable after such approval is obtained, in each case at a price equal
to the principal amount of the Series B Subordinated Debentures so redeemed
plus the accrued and unpaid interest on the Series B Subordinated Debentures
so redeemed to the date fixed for redemption. The Corporation has committed to
the Federal Reserve that it will not exercise its right to redeem the Series B
Subordinated Debentures prior to the Stated Maturity without having received
the prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve capital guidelines or policies.
The Corporation will have the right at any time to terminate the Series B
Issuer. The Corporation has committed to the Federal Reserve that, so long as
the Corporation (or any affiliate) is a holder of Series B Common Securities,
it will not so terminate the Series B Issuer without having received the prior
approval of the Federal Reserve to do so, if then required under applicable
Federal Reserve
S-3
(cover page continued)
capital guidelines or policies. See "Certain Terms of Series B Capital
Securities--Liquidation of Series B Issuer and Distribution of Series B
Subordinated Debentures to Holders." In the event of the termination of the
Series B Issuer, after satisfaction of liabilities to creditors of the Series
B Issuer as required by applicable law, the holders of the Series B Capital
Securities will be entitled to receive a Liquidation Amount of $1,000 per
Series B Capital Security plus accumulated and unpaid Distributions thereon to
the date of payment, which may be in the form of a distribution of such amount
in Series B Subordinated Debentures in exchange therefor, subject to certain
exceptions. See "Description of Preferred Securities--Liquidation Distribution
Upon Termination" in the accompanying Prospectus.
The Series B Capital Securities will be represented by global certificates
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Series B Capital Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described in the accompanying Prospectus,
Series B Capital Securities in certificated form will not be issued in
exchange for the global certificates. See "Certain Terms of Series B Capital
Securities--Registration of Series B Capital Securities."
The information in this Prospectus Supplement supplements and should be read
in conjunction with the information contained in the accompanying Prospectus.
As used herein, (i) the "Indenture" means the Junior Subordinated Indenture,
as amended and supplemented from time to time, between the Corporation and The
First National Bank of Chicago, as trustee (the "Debenture Trustee"), and (ii)
the "Trust Agreement" means the Amended and Restated Trust Agreement relating
to the Series B Issuer among the Corporation, as Depositor, The First National
Bank of Chicago, as Property Trustee (the "Property Trustee"), First Chicago
Delaware Inc., as Delaware Trustee (the "Delaware Trustee"), the
Administrative Trustees named therein (collectively, with the Property Trustee
and Delaware Trustee, the "Issuer Trustees") and the holders from time to time
of undivided beneficial interests of the Series B Issuer. Each of the other
capitalized terms used in this Prospectus Supplement and not otherwise defined
in this Prospectus Supplement has the meaning set forth in the accompanying
Prospectus.
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RISK FACTORS
Prospective purchasers of the Series B Capital Securities should carefully
review the information contained elsewhere in this Prospectus Supplement and
in the accompanying Prospectus and should particularly consider the following
matters. In addition, because holders of Series B Capital Securities may
receive Series B Subordinated Debentures in exchange therefor upon liquidation
of the Series B Issuer, prospective purchasers of Series B Capital Securities
are also making an investment decision with regard to the Series B
Subordinated Debentures and should carefully review all the information
regarding the Series B Subordinated Debentures contained herein.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE SERIES B GUARANTEE AND THE
SERIES B SUBORDINATED DEBENTURES
The obligations of the Corporation under the Series B Guarantee issued by
the Corporation for the benefit of the holders of Series B Capital Securities
and under the Series B Subordinated Debentures are unsecured and rank
subordinate and junior in right of payment to all Senior Debt of the
Corporation. Substantially all of the Corporation's existing indebtedness
other than the Series A Subordinated Debentures constitutes Senior Debt; as of
March 31, 1997, the Corporation had, on an unconsolidated basis, approximately
$279 million aggregate principal amount of Senior Debt outstanding. In
addition, because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary,
including the Bank, upon such subsidiary's liquidation or reorganization or
otherwise (and thus the ability of holders of the Series B Capital Securities
to benefit indirectly from such distribution), is subject to the prior claims
of creditors of that subsidiary, except to the extent that the Corporation may
itself be recognized as a creditor of that subsidiary. Accordingly, the Series
B Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries, and holders of Series B
Subordinated Debentures should look only to the assets of the Corporation for
payments on the Series B Subordinated Debentures. See "The Corporation." None
of the Indenture, the Series B Guarantee, the Trust Agreement or the Expense
Agreement places any limitation on the amount of secured or unsecured debt,
including Senior Debt, that may be incurred by the Corporation. See
"Description of Guarantees--Status of the Guarantees" and "Description of
Junior Subordinated Debentures--Subordination" in the accompanying Prospectus.
The ability of the Series B Issuer to pay amounts due on the Series B
Capital Securities is solely dependent upon the Corporation making payments on
the Series B Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX AND MARKET PRICE CONSEQUENCES
So long as no event of default under the Indenture has occurred or is
continuing, the Corporation has the right under the Indenture to defer payment
of interest on the Series B 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 Series B Subordinated Debentures. As a
consequence of any such deferral of interest payments by the Corporation,
quarterly Distributions on the Series B Capital Securities by the Series B
Issuer will also be deferred (and the amount of Distributions to which holders
of the Series B Capital Securities are entitled will accumulate additional
Distributions thereon at the Distribution Rate, compounded quarterly from the
relevant payment date for such Distributions) during any such Extension
Period. During any such Extension Period, the Corporation may not (i) declare
or pay any dividends or distributions on, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of the Corporation'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 Corporation that
rank pari passu in all respects with or junior in interest to the Series B
Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Corporation in
S-5
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Corporation (or securities convertible into or exercisable for
such capital stock) as consideration in an acquisition transaction entered
into prior to the applicable Extension Period, (b) as a result of any exchange
or conversion of any class or series of the Corporation's capital stock (or
any capital stock of a subsidiary of the Corporation) for any class or series
of the Corporation's capital stock or of any class or series of the
Corporation's indebtedness for any class or series of the Corporation's
capital stock, (c) the purchase of fractional interests in shares of the
Corporation'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 rights plan, or
the issuance of rights, stock or other property under any stockholder 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 Corporation may further defer the payment of
interest on the Series B Subordinated Debentures, provided that no Extension
Period may exceed 20 consecutive quarterly periods or extend beyond the Stated
Maturity of the Series B Subordinated Debentures. The Corporation has an
identical right to defer payment of interest on the Series A Subordinated
Debentures; because the two series of Subordinated Debentures rank pari passu
with each other, the Corporation's election to defer payment of interest with
respect to one series will result in a deferral with respect to both series.
Upon the termination of any Extension Period and the payment of all interest
then accrued and unpaid (together with interest thereon at the Distribution
Rate, compounded quarterly from the interest payment date for such interest,
to the extent permitted by applicable law), the Corporation may elect to begin
a new Extension Period, subject to the above requirements. There is no
limitation on the number of times that the Corporation may elect to begin an
Extension Period. See "Certain Terms of Series B Capital Securities--
Distributions" and "Certain Terms of Series B Subordinated Debentures--Option
to Defer Interest Payments."
Should an Extension Period occur, a holder of Series B Capital Securities
will be required to recognize income (in the form of original issue discount)
in respect of its pro rata share of the Series B Subordinated Debentures held
by the Series B Issuer for United States federal income tax purposes. As a
result, a holder of Series B Capital Securities will be required to include
such income in gross income for United States federal income tax purposes in
advance of the receipt of cash attributable to such income, and will not
receive the cash related to such income from the Series B Issuer if the holder
disposes of the Series B Capital Securities prior to the record date for the
payment of Distributions. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount" and "--Sale or Redemption of
Series B Capital Securities."
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series B
Subordinated Debentures or the Series A Subordinated Debentures. However,
should the Corporation elect to exercise such right in the future, the market
price of the Series B Capital Securities is likely to be affected. A holder
that disposes of its Series B Capital Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder
that continues to hold its Series B Capital Securities.
TAX EVENT OR CAPITAL TREATMENT EVENT
The Corporation has the right to redeem the Series B Subordinated Debentures
in whole but not in part at any time within 90 days following the occurrence
of a Tax Event or Capital Treatment Event (or, if the approval of the Federal
Reserve is then required for such redemption, on such later date as promptly
as practicable after such approval is obtained) at a price equal to the
principal amount of the
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Series B Subordinated Debentures so redeemed plus the accrued and unpaid
interest on the Series B Subordinated Debentures so redeemed to the date fixed
for redemption. The Corporation has committed to the Federal Reserve that it
will not exercise such right without having received the prior approval of the
Federal Reserve to do so, if then required under applicable Federal Reserve
capital guidelines or policies.
A "Tax Event" means the receipt by the Series B Issuer of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance
of the Series B Capital Securities under the Trust Agreement, there is more
than an insubstantial risk that (i) the Series B Issuer is, or will be within
90 days of the date of such opinion, subject to United States federal income
tax with respect to income received or accrued on the Series B Subordinated
Debentures, (ii) interest payable by the Corporation on the Series B
Subordinated Debentures is not, or within 90 days of the date of such opinion
will not be, deductible by the Corporation, in whole or in part, for United
States federal income tax purposes, or (iii) the Series B Issuer is, or will
be within 90 days of the date of the opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
See "Risk Factors--Possible Tax Law Changes Affecting the Series B Capital
Securities" for a discussion of certain legislative proposals that, if
adopted, could give rise to a Tax Event, which may permit the Corporation to
cause a redemption of the Series B Capital Securities prior to April 15, 2007.
A "Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws, rules or regulations, which
amendment or change is effective or which pronouncement, action or decision is
announced on or after the date of issuance of the Series B Capital Securities
under the Trust Agreement, there is more than an insubstantial risk that the
Corporation will not be entitled to treat an amount equal to the aggregate
Liquidation Amount of the Series B Capital Securities as "Tier 1" capital (or
the then equivalent thereof) for purposes of the capital adequacy guidelines
of the Federal Reserve, as then in effect and applicable to the Corporation.
EXCHANGE OF SERIES B CAPITAL SECURITIES FOR SERIES B SUBORDINATED DEBENTURES
The Corporation will have the right at any time to terminate the Series B
Issuer and, after satisfaction of liabilities to creditors of the Series B
Issuer as required by applicable law, cause the Series B Subordinated
Debentures to be distributed to the holders of the Series B Securities in
exchange therefor upon liquidation of the Series B Issuer. The exercise of
such right is subject to the Corporation having received the prior approval of
the Federal Reserve, if then required under applicable Federal Reserve capital
guidelines or policies. See "Certain Terms of Series B Capital Securities--
Liquidation of Series B Issuer and Distribution of Series B Subordinated
Debentures to Holders."
Under current United States federal income tax law and interpretations, a
distribution of the Series B Subordinated Debentures upon liquidation of the
Series B Issuer will not be a taxable event to holders of the Series B Capital
Securities. However, if a Tax Event were to occur which would cause the Series
B Issuer to be subject to United States federal income tax with respect to
income received or accrued on the Series B Subordinated Debentures, a
distribution of the Series B Subordinated Debentures by the Series B Issuer
could be a taxable event to the Series B Issuer and the holders of
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the Series B Capital Securities. See "Certain Federal Income Tax
Consequences--Distribution of Series B Subordinated Debentures to Holders of
Series B Capital Securities."
MARKET PRICES
There can be no assurance as to the market prices for Series B Capital
Securities or Series B Subordinated Debentures that may be distributed in
exchange for Series B Capital Securities upon liquidation of the Series B
Issuer. Accordingly, the Series B Capital Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary
market, or the Series B Subordinated Debentures that a holder of Series B
Capital Securities may receive on liquidation of the Series B Issuer, may
trade at a discount to the price that the investor paid to purchase the Series
B Capital Securities offered hereby. As a result of the existence of the
Corporation's right to defer interest payments, the market price of the Series
B Capital Securities (which represent beneficial ownership interests in the
Series B Issuer) may be more volatile than the market prices of other
securities on which original issue discount accrues that are not subject to
such deferrals. See "Certain Terms of Series B Subordinated Debentures" herein
and "Description of Junior Subordinated Debentures--Corresponding Junior
Subordinated Debentures" in the accompanying Prospectus.
TRADING CHARACTERISTICS OF SERIES B CAPITAL SECURITIES
The Corporation does not intend to have the Series B Capital Securities
listed or approved for quotation on any securities exchange or automated
quotation system. The Series B Capital Securities may trade at prices that do
not fully reflect the value of accrued but unpaid interest with respect to the
underlying Series B Subordinated Debentures. A holder of Series B Capital
Securities that disposes of its Series B Capital Securities between record
dates for payments of Distributions (and consequently does not receive a
Distribution from the Series B Issuer for the period prior to such
disposition) will nevertheless be required to include accrued but unpaid
interest on the Series B Subordinated Debentures through the date of
disposition in income as ordinary income and to add such amount to its
adjusted tax basis in the Series B Capital Securities disposed of. Such holder
will recognize a capital loss to the extent the selling price (which may not
fully reflect the value of accrued but unpaid interest) is less than its
adjusted tax basis (which will include accrued but unpaid interest). Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences--Sale or Redemption of Series B Capital
Securities."
RIGHTS UNDER THE SERIES B GUARANTEE; DIRECT ACTION
The Series B Guarantee guarantees to the holders of the Series B Securities
the following payments, to the extent not paid by the Series B Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Series B
Capital Securities, to the extent that the Series B Issuer has funds on hand
available therefor at such time, (ii) the redemption price with respect to any
Series B Capital Securities called for redemption, to the extent that the
Series B Issuer has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of the
Series B Issuer (unless the Series B Subordinated Debentures are distributed
to holders of the Series B 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 Series B Issuer has funds on hand available
therefor at such time and (b) the amount of assets of the Series B Issuer
remaining available for distribution to holders of the Series B Securities
after payment of creditors of the Series B Issuer as required by applicable
law. The Series B Guarantee will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The First
National Bank of Chicago will act as the indenture trustee under the Series B
Guarantee (the "Guarantee Trustee") for the purposes of compliance with the
Trust Indenture Act and will hold the Series B Guarantee for the benefit of
the holders of the Series B Securities. The First National Bank of Chicago
will also act as Debenture Trustee for the Series B Subordinated Debentures
and as Property Trustee under the Trust Agreement, and First Chicago Delaware
Inc. will act as Delaware Trustee under the Trust Agreement.
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The holders of not less than a majority in aggregate Liquidation Amount of
the Series B Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Series B Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Series B Guarantee.
Any holder of the Series B Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series B
Guarantee without first instituting a legal proceeding against the Series B
Issuer, the Guarantee Trustee or any other person or entity. If the
Corporation were to default on its obligation to pay amounts payable under the
Series B Subordinated Debentures, the Series B Issuer would lack funds for the
payment of Distributions or amounts payable on redemption of the Series B
Securities or otherwise, and, in such event, holders of the Series B Capital
Securities would not be able to rely upon the Series B Guarantee for payment
of such amounts. Instead, in the event a Debenture Event of Default shall have
occurred and be continuing and such event is attributable to the failure of
the Corporation to pay interest on or principal of the Series B Subordinated
Debentures on the payment date on which such payment is due and payable, then
a holder of Series B Capital Securities may institute a legal proceeding
directly against the Corporation for enforcement of payment to such holder of
the principal of or interest on such Series B Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Series B
Capital Securities of such holder (a "Direct Action"). In connection with such
Direct Action, the Corporation will have a right of set-off under the
Indenture to the extent of any payment made by the Corporation to such holder
of Series B Capital Securities in the Direct Action. Except as described
herein, holders of Series B Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Series B
Subordinated Debentures or assert directly any other rights in respect of the
Series B Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Preferred Securities"
and "--Debenture Events of Default" and "Description of Guarantees" in the
accompanying Prospectus. The Trust Agreement provides that each holder of
Series B Capital Securities by acceptance thereof agrees to the provisions of
the Series B Guarantee, the Expense Agreement and the Indenture.
LIMITED VOTING RIGHTS
Holders of Series B Capital Securities generally will have limited voting
rights relating only to the modification of the Series B Capital Securities
and the exercise of the Series B Issuer's rights as holder of Series B
Subordinated Debentures and the Series B Guarantee. Holders of Series B
Capital Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee, the Delaware Trustee or any Administrative Trustee,
which voting rights are vested exclusively in the holder of the Series B
Common Securities except, with respect to the Property Trustee and the
Delaware Trustee, upon the occurrence of certain events described in the
accompanying Prospectus. The Property Trustee, the Administrative Trustees and
the Corporation may amend the Trust Agreement without the consent of holders
of Series B Capital Securities to ensure that the Series B Issuer will not be
taxable as a corporation or classified as other than a grantor trust for
United States federal income tax purposes unless such action adversely affects
in any material respect the interests of such holders. See "Description of
Preferred Securities--Voting Rights; Amendment of Each Trust Agreement" and
"--Removal of Issuer Trustees" in the accompanying Prospectus.
POSSIBLE TAX LAW CHANGES AFFECTING THE SERIES B CAPITAL SECURITIES
On February 6, 1997, President Clinton's Fiscal 1998 Budget Proposal was
released. The Budget Proposal contains provisions which, if enacted, would
generally deny interest deductions for interest paid or accrued 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 a 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. For purposes of determining the term of an instrument, any
right to extend
S-9
the maturity of such instrument would be treated as exercised. The above-
described provisions were proposed to be effective generally for instruments
issued on or after the date of the first Congressional committee action on the
proposed legislation. If these provisions were to apply to the Series B
Subordinated Debentures, the Corporation would not be able to deduct the
interest on the Series B Subordinated Debentures. There can be no assurance
that the proposed legislation or future legislative proposals will not
adversely affect the ability of the Corporation to deduct interest on the
Series B Subordinated Debentures or otherwise affect the tax treatment of the
transactions described herein. Such a change could give rise to a Tax Event,
which would permit the Corporation to cause a redemption of the Series B
Capital Securities before April 15, 2007.
The Corporation has committed to the Federal Reserve that it will not
exercise its right to redeem the Series B Subordinated Debentures prior to the
Stated Maturity without having received the prior approval of the Federal
Reserve to do so, if then required under applicable Federal Reserve capital
guidelines and policies. See "Certain Terms of Series B Subordinated
Debentures--Redemption" in this Prospectus Supplement and "Description of
Preferred Securities--Redemption or Exchange--Mandatory Redemption--Tax Event
or Capital Treatment Event Redemption" in the accompanying Prospectus. See
also "Certain Federal Income Tax Consequences--Possible Tax Law Changes."
NTC CAPITAL II
NTC Capital II is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement of the Series B Issuer dated as of
December 27, 1996 and (ii) the certificate of trust filed with the Delaware
Secretary of State on December 27, 1996. The Series B Issuer's business and
affairs are conducted by the Issuer Trustees: The First National Bank of
Chicago, as Property Trustee, and First Chicago Delaware Inc., as Delaware
Trustee, and two individual Administrative Trustees who are employees or
officers of or affiliated with the Corporation. The Series B Issuer exists for
the exclusive purposes of (i) issuing and selling the Series B Securities,
(ii) using the proceeds from the sale of Series B Securities to acquire Series
B Subordinated Debentures issued by the Corporation and (iii) engaging in only
those other activities necessary or incidental thereto (such as registering
the transfer of the Series B Capital Securities). Accordingly, the Series B
Subordinated Debentures will be the sole assets of the Series B Issuer, and
payments under the Series B Subordinated Debentures will be the sole revenue
of the Series B Issuer. All of the Series B Common Securities will be owned by
the Corporation. The Series B Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Series B Capital Securities,
except that upon the occurrence and continuance of an event of default under
the Trust Agreement resulting from an Event of Default under the Indenture,
the rights of the Corporation, as holder of the Series B 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 Series B
Capital Securities. See "Description of Preferred Securities--Subordination of
Common Securities" in the accompanying Prospectus. The Corporation will
acquire Series B Common Securities in an aggregate liquidation amount equal to
3% of the total capital of the Series B Issuer. The Series B Issuer has a term
of 55 years, but may terminate earlier as provided in the Trust Agreement. The
principal executive office of the Series B Issuer is Fifty South LaSalle
Street, Chicago, Illinois 60675, Attention: Secretary, and its telephone
number is (312) 630-6000. See "The Issuers" in the accompanying Prospectus.
It is anticipated that the Series B Issuer will not be subject to the
reporting requirements under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
S-10
THE CORPORATION
Northern Trust Corporation is a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended. The Corporation was
organized in Delaware in 1971 and that year became the owner of all of the
outstanding capital stock (except directors' qualifying shares) of the Bank,
the Corporation's principal banking subsidiary. At March 31, 1997, the
Corporation owned, in addition to the Bank, banking subsidiaries in Arizona,
California, Florida and Texas, trust companies in Connecticut and New York and
various other non-bank subsidiaries, including a securities brokerage firm, a
retirement services company and a futures commission merchant.
The Bank was founded by Byron L. Smith in 1889 to provide banking and trust
services to the public. Currently in its one hundred and eighth year, the
Bank's growth has come primarily from internal sources rather than through
merger or acquisition. At March 31, 1997, the Bank had consolidated assets of
approximately $19.8 billion. At June 30, 1996, the Bank was the second largest
bank in Illinois and the 33rd largest in the United States, based on
consolidated total assets of approximately $18.6 billion on that date.
The Corporation expects that, although the operations of other subsidiaries
will be of increasing significance, the Bank will in the foreseeable future
continue to be the major source of the Corporation's assets, revenues and net
income. At March 31, 1997, the Corporation had consolidated total assets of
approximately $23.2 billion and stockholders' equity of approximately $1.6
billion. At December 31, 1996, the Corporation was the second largest bank
holding company headquartered in Illinois and the 35th largest in the United
States, based on consolidated total assets of approximately $21.6 billion on
that date.
The Corporation provides client services through two principal business
units: Corporate and Institutional Services and Personal Financial Services.
The Worldwide Operations and Technology business unit encompasses all trust
and banking operations and systems activities to support the two principal
business units. The Investment Services Group provides investment management
services to corporate and institutional clients, as well as to personal
clients. The Risk Management business unit oversees financial, interest rate
and credit risk throughout the Corporation.
CORPORATE AND INSTITUTIONAL SERVICES
Corporate and Institutional Services ("C&IS") provides trust, commercial
banking and treasury management services to corporate and institutional
clients. Trust activities encompass trust and custody services for owners of
securities in the United States and foreign markets, as well as securities
lending, asset management and related cash management services. Services with
respect to securities traded in markets foreign to the client are provided
primarily through the Bank's London Branch. Related foreign exchange services
are rendered at the London and Singapore Branches, as well as in Chicago.
A full range of commercial banking services is offered through the Bank,
which places special emphasis on developing institutional relationships in two
target markets: large domestic corporations and financial institutions (both
domestic and international). Treasury management services are provided to
corporations and financial institutions and include a variety of products and
services to accelerate cash collections, control disbursements outflows and
generate information to manage cash positions.
The Corporation provides retirement benefit plan services for C&IS clients
through its subsidiary Northern Trust Retirement Consulting, Inc., located in
Atlanta, Georgia. Northern Trust Global Advisors, Inc., located in Stamford,
Connecticut, is an international provider of institutional investment
management services and the parent of RCB Trust Company.
S-11
PERSONAL FINANCIAL SERVICES
Services to individuals are another major dimension of the Corporation's
trust business. Personal Financial Services ("PFS") encompasses personal
trust, estate administration, personal banking, mortgage lending and trust and
banking services to middle market companies. A key element of the personal
trust business is to provide private banking and trust services to targeted
high net worth individuals in rapidly growing areas of wealth concentration
through the Corporation's bank subsidiaries.
The Bank operates sixteen offices in the Chicago metropolitan area. The
Corporation's Florida banking subsidiary, Northern Trust Bank of Florida N.A.,
headquartered in Miami, currently has twenty-three offices located throughout
Florida and had total assets of approximately $2.1 billion at March 31, 1997.
The Corporation's Arizona banking subsidiary, Northern Trust Bank of Arizona
N.A., is headquartered in Phoenix, currently serves clients from six office
locations and had assets of approximately $414 million at March 31, 1997. The
Corporation's Texas banking subsidiary, Northern Trust Bank of Texas N.A., is
headquartered in Dallas, currently has seven office locations and had total
assets of approximately $532 million at March 31, 1997. The Corporation's
California banking subsidiary, Northern Trust Bank of California N.A., is
headquartered in Santa Barbara. It currently has eight office locations and
had total assets of approximately $446 million at March 31, 1997.
WORLDWIDE OPERATIONS AND TECHNOLOGY
Supporting all of the Corporation's business activities is the Worldwide
Operations and Technology Unit, which supports the sales, relationship
management, transaction processing and product management activities for C&IS
and PFS.
INVESTMENT SERVICES
The Investment Services Group provides equity and fixed income research and
portfolio management services to clients of C&IS and PFS. The Group also acts
as the investment advisor to the Corporation's two families of mutual funds,
the Northern Funds and The Benchmark Funds.
RISK MANAGEMENT
The Risk Management Unit includes the Treasury, Credit Policy and Controller
functions. The Treasury Department is responsible for managing the Bank's
wholesale funding and interest rate risk, as well as the portfolio of interest
rate risk management instruments under the direction of the Corporate Asset
and Liability Policy Committee. It is also responsible for the investment
portfolios of the Corporation and the Bank and provides investment advice and
management services to the subsidiary banks. Credit Policy is responsible for
credit risk management throughout the Corporation.
The Corporation's principal executive offices are located at Fifty South
LaSalle Street, Chicago, Illinois 60675, and its telephone number is (312)
630-6000.
S-12
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges and ratios of earnings to fixed charges and preferred stock dividend
requirements for the Corporation for each of the years in the five-year period
ended December 31, 1996 and for the three months ended March 31, 1997. For
purposes of computing these ratios, earnings represent net income, plus total
taxes based on income, plus fixed charges. Fixed charges include interest
expense (ratios are presented both excluding and including interest on
deposits), the estimated interest component of net rental expense and
amortization of debt expense. Pre-tax earnings required for preferred stock
dividends were computed using effective tax rates for the applicable year.
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------
1997 1996 1995 1994 1993 1992
------------ ----- ----- ----- ----- -----
Earnings to Fixed Charges:
Including interest on deposits... 1.55x 1.50x 1.42x 1.50x 1.60x 1.49x
Excluding interest on deposits... 2.29x 2.17x 2.01x 2.14x 2.50x 2.54x
Earnings to Fixed Charges and
Preferred Stock Dividend
Requirements:
Including interest on deposits... 1.55x 1.49x 1.41x 1.48x 1.58x 1.47x
Excluding interest on deposits... 2.28x 2.15x 1.97x 2.09x 2.43x 2.45x
USE OF PROCEEDS
All of the proceeds from the sale of Series B Securities will be invested by
the Series B Issuer in Series B Subordinated Debentures. The Corporation
intends that the proceeds from the sale of such Series B Subordinated
Debentures will be added to its general corporate funds and will be used for
general corporate purposes.
The Corporation is required by the Federal Reserve to maintain certain
levels of capital for bank regulatory purposes. On October 21, 1996, the
Federal Reserve announced that cumulative preferred securities having the
characteristics of the Series B Capital Securities which qualify as a minority
interest could be included as "Tier 1" capital for bank holding companies. See
"Certain Regulatory Considerations--Capital Adequacy" in the accompanying
Prospectus. Such Tier 1 capital treatment, together with the Corporation's
ability to deduct, for income tax purposes, interest payable on the Series B
Subordinated Debentures, will provide the Corporation with a more cost-
effective means of obtaining capital for regulatory purposes than other Tier 1
capital alternatives currently available to it.
S-13
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation and its subsidiaries as of March 31, 1997 and as adjusted to give
effect to the consummation of the offering of the Series B Capital Securities.
The following data should be read in conjunction with the consolidated
financial statements and notes thereto of the Corporation and its subsidiaries
incorporated herein by reference.
MARCH 31, 1997
----------------
AS
ACTUAL ADJUSTED
------ --------
(IN MILLIONS)
Junior Subordinated Deferrable Interest Debentures, Series
A(a)........................................................ $ 149 $ 149
Junior Subordinated Deferrable Interest Debentures, Series
B(b)........................................................ -- 119
Other Long-term Debt......................................... 427 427
------ ------
Total Long-term Debt..................................... 576 695
------ ------
Stockholders' Equity
Preferred Stock............................................ 120 120
Common Stock............................................... 190 190
Capital Surplus............................................ 228 228
Retained Earnings.......................................... 1,160 1,160
Common Stock Issuable--Performance Plan.................... 13 13
Deferred Compensation...................................... (38) (38)
Treasury Stock, at Cost.................................... (80) (80)
------ ------
Total Stockholders' Equity............................... 1,593 1,593
------ ------
Total Capitalization................................... $2,169 $2,288
====== ======
- --------
(a) On January 16, 1997, NTC Capital I (the "Series A Issuer") issued
$150,000,000 liquidation amount of Floating Rate Capital Securities,
Series A, at an aggregate price of $148,500,000 and used the proceeds to
purchase $150,000,000 initial principal amount of the Corporation's
Floating Rate Series A Subordinated Debentures at an aggregate price of
$148,500,000. The Series A Issuer also issued $4,640,000 liquidation
amount of common securities to the Corporation and used the proceeds to
purchase Series A Subordinated Debentures. The sole assets of the Series A
Issuer are such $154,640,000 of Series A Subordinated Debentures. The
Series A Subordinated Debentures will mature on January 15, 2027.
(b) As described herein, the Series B Issuer will issue $120,000,000
liquidation amount of Floating Rate Capital Securities, Series B, at an
aggregate price of $118,800,000 and use the proceeds to purchase
$120,000,000 initial principal amount of Floating Rate Series B
Subordinated Debentures at an aggregate price of $118,800,000. The Series
B Issuer will also issue $3,712,000 liquidation amount of common
securities to the Corporation and use the proceeds to purchase Series B
Subordinated Debentures. The sole assets of the Series B Issuer will be
such $123,712,000 of Series B Subordinated Debentures. The Series B
Subordinated Debentures will mature on April 15, 2027.
S-14
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
The following summary is qualified in its entirety by the consolidated
financial statements and notes thereto of the Corporation and its subsidiaries
and the other information incorporated herein by reference. See "Incorporation
of Certain Documents by Reference" in the accompanying Prospectus. The results
for the three months ended March 31, 1997 and March 31, 1996 are unaudited
but, in the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results of
operations for such period have been included.
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net Interest Income..... $ 106.1 $ 93.4 $ 388.3 $ 357.6 $ 334.6 $ 327.9 $ 310.3
Provision for Credit
Losses................. .5 5.0 12.0 6.0 6.0 19.5 29.5
Noninterest Income
Trust Fees............ 157.7 143.9 592.3 505.0 453.4 404.8 368.4
Other Noninterest
Income............... 51.0 43.8 185.6 173.1 180.0 149.0 141.9
Noninterest Expenses.... 205.9 184.0 766.8 709.2 700.5 628.2 584.6
Provision for Income
Taxes.................. 36.7 30.6 128.6 100.5 79.3 66.1 57.0
Net Income.............. 71.7 61.5 258.8 220.0 182.2 167.9 149.5
Net Income Applicable to
Common Stock........... 70.5 60.2 253.9 211.5 174.9 161.6 142.7
Per Common Share
Net Income
--Primary............ .62 .52 2.21 1.88 1.59 1.48 1.32
--Fully Diluted...... .62 .52 2.20 1.85 1.58 1.48 1.32
Pro Forma (a)
--Basic.............. .64 .54 2.27 1.91 1.62 1.52 1.37
--Diluted............ .62 .52 2.21 1.86 1.58 1.48 1.32
Dividends Declared.... .18 .16 .65 .55 .46 .39 .33
Average Total Assets.... 22,376.9 20,850.0 20,964.3 19,409.5 17,885.8 15,700.2 13,418.0
Senior Notes and Long-
term Debt at Period
End.................... 781.3 641.1 732.8 351.6 791.8 1,143.8 545.2
- --------
(a) The pro forma earnings per share ("EPS") data, which is shown for
comparative purposes only, was computed in accordance with the Financial
Accounting Standards Board's recently issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"). SFAS 128 replaces the
presentation of "primary" EPS with "basic" EPS. "Diluted" EPS is computed
similarly to "fully diluted" EPS under current accounting standards. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997.
ACCOUNTING TREATMENT
For financial reporting purposes, the Series B Issuer will be treated as a
subsidiary of the Corporation and, accordingly, the accounts of the Series B
Issuer will be included in the consolidated financial statements of the
Corporation. The Series B Capital Securities will be presented as a liability
in the consolidated balance sheets of the Corporation, and appropriate
disclosures about the Series B Capital Securities, the Series B Guarantee and
the Series B Subordinated Debentures will be included in the notes to the
consolidated financial statements. For financial reporting purposes, the
Corporation will record Distributions payable on the Series B Capital
Securities as interest expense in the consolidated statements of income.
S-15
CERTAIN TERMS OF SERIES B CAPITAL SECURITIES
GENERAL
The following summary of certain terms and provisions of the Series B
Capital Securities supplements the description of the terms and provisions of
the Preferred Securities set forth in the accompanying Prospectus under the
heading "Description of Preferred Securities," to which description reference
is hereby made. The Series B Capital Securities constitute "Preferred
Securities" as described in the accompanying Prospectus. This summary of
certain terms and provisions of the Series B Capital Securities, which
describes the material provisions thereof, does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the Trust
Agreement, to which reference is hereby made. The form of the Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and accompanying Prospectus form a part.
DISTRIBUTIONS
The Series B Capital Securities represent undivided beneficial interests in
the assets of the Series B Issuer. Each Series B Capital Security will be
entitled to preferential Distributions at the Distribution Rate, applied to
the Liquidation Amount of $1,000, payable quarterly in arrears on January 15,
April 15, July 15 and October 15 of each year (each, a "Distribution Date"),
to the holders of the Series B Capital Securities on the relevant record
dates. The record dates for the Series B Capital Securities will be, for so
long as the Series B Capital Securities remain in book-entry form, one
Business Day (as defined in the accompanying Prospectus) prior to the relevant
Distribution payment date and, in the event the Series B Capital Securities
are not in book-entry form, the fifteenth day (whether or not a Business Day)
prior to the relevant Distribution payment date. Distributions will accumulate
from the date of original issuance. The first Distribution payment date for
the Series B Capital Securities will be July 15, 1997. In the event that any
date on which Distributions are payable on the Series B Capital Securities is
not a Business Day, then payment of the Distributions payable on such date
will be made on the next succeeding day that is a Business Day (and without
any additional Distributions or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar month,
such payment will be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on the date such payment was
originally payable. The period beginning on, and including, the date of
original issuance, and ending on, but excluding, the first Distribution Date,
and each successive period beginning on, and including, a Distribution Date,
and ending on, but excluding, the next succeeding Distribution Date is herein
called a "Distribution Period." The Paying Agent for the Preferred Securities
will be the Property Trustee. See "Description of Preferred Securities--
Distributions" in the accompanying Prospectus.
DETERMINATION OF 3-MONTH LIBOR
The Distribution Rate in respect of the Series B Capital Securities will be
a floating rate per annum determined by reference to 3-Month LIBOR, determined
as described below, plus a margin of 0.59%. "3-Month LIBOR" means the London
interbank offered rate for three-month U.S. dollar deposits and with respect
to any Distribution Period will be calculated by the Debenture Trustee as
follows:
(a) On the second Market Day (as defined below) preceding the
commencement of such Distribution Period (each, a "Determination Date"), 3-
Month LIBOR will be determined on the basis of the offered rate for
deposits of not less than U.S.$1,000,000 for a period of three months (the
"Index Maturity"), commencing on the second Market Day immediately
preceding the commencement of such Distribution Period, which appears on
the display designated as Page 3750 on the Dow Jones Telerate Service (or
such other pages as may replace Page 3750 on that service for the purpose
of displaying London interbank offered rates of major banks) ("Telerate
Page 3750") as of 11:00 a.m., London time. If no such offered rate appears,
3-Month LIBOR with respect to such Distribution Period will be determined
as described in (b) below.
S-16
(b) With respect to a Determination Date on which no such offered rate
appears on Telerate Page 3750 as described in (a) above, 3-Month LIBOR
shall be the arithmetic mean, expressed as a percentage, of the offered
rates for deposits in U.S. dollars for the Index Maturity which appears on
the display designated as "LIBO" on the Reuters Monitor Money Market Rates
Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks) ("Reuters Screen LIBO Page") as of 11:00 a.m., London time, on such
date. If, in turn, such rate is not displayed on the Reuters Screen LIBO
Page at such time, the Debenture Trustee will obtain from each of four
reference banks in London selected by the Debenture Trustee ("Reference
Banks") such bank's offered quotation (expressed as a percentage per annum)
as of approximately 11:00 a.m., London time, on such date for deposits in
U.S. dollars to prime banks in the London interbank market for the Index
Maturity. If two or more such quotations are provided as requested, then 3-
Month LIBOR for such date shall be the arithmetic average of such
quotations. If, in turn, fewer than two such quotations are provided as
requested, then 3-Month LIBOR for such date will be obtained from the
preceding Market Day for which the Reuters Screen LIBO Page displayed a
rate for the Index Maturity.
(c) If on any Determination Date, the Debenture Trustee is required but
unable to determine 3-Month LIBOR in the manner provided in paragraphs (a)
and (b) above, 3-Month LIBOR for such Distribution Period shall be 3-Month
LIBOR as determined on the previous Determination Date.
The term "Market Day" means any Business Day on which commercial banks and
foreign exchange markets are open for business (including dealings in foreign
exchange and foreign currency deposits) in New York and London.
The Distribution Rate for any Distribution Period will at no time be higher
than the maximum rate then permitted by Illinois law as the same may be
modified by United States law.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded, if necessary, to the nearest multiple
of 1/100 of 1% (with 5/1000 of 1% or more being rounded upwards) and all U.S.
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent or more being rounded upwards).
DETERMINATION OF DISTRIBUTION RATE AND CALCULATION OF DISTRIBUTION AMOUNT
The Debenture Trustee shall, as soon as practicable after 11:00 a.m., London
time, on each Determination Date, determine the Distribution Rate and
calculate the amount of Distributions payable in respect of the following
Distribution Period (the "Distribution Amount"). The Distribution Amount shall
be calculated by applying the Distribution Rate to the Liquidation Amount of
each Series B Capital Security outstanding at the commencement of the
Distribution Period, multiplying each such amount by the actual number of days
in the Distribution Period concerned (which actual number of days shall
include the first day but exclude the last day of such Distribution Period)
divided by 360 and rounding the resultant figure to the nearest cent (with
one-half cent or more being rounded upwards). The determination of the
Distribution Rate and the Distribution Amount by the Debenture Trustee will
(in the absence of wilful default, bad faith or manifest error) be final,
conclusive and binding on all concerned. None of the Debenture Trustee, the
Issuer Trustees, the Series B Issuer or the Corporation (or any of their
respective officers, directors, agents, beneficiaries, employees or
affiliates) shall have any liability to any person for (i) the selection of
any Reference Bank or (ii) any inability to retain major banks in the London
interbank market, in the case of the Debenture Trustee, which is caused by
circumstances beyond its reasonable control.
Upon the request of a holder of a Series B Capital Security, the Debenture
Trustee will provide the Distribution Rate then in effect and, if determined,
the Distribution Rate for the next Distribution Period with respect to the
Series B Capital Securities. Each such Distribution Rate may be obtained by
telephoning the Debenture Trustee at (312) 407-4660.
S-17
NOTIFICATION OF DISTRIBUTION RATE, DISTRIBUTION AMOUNT AND DISTRIBUTION DATE
The Debenture Trustee will cause the Distribution Rate, the Distribution
Amount in respect of each Series B Capital Security and the Distribution Date
for each Distribution Period to be notified to the Property Trustee, each of
the Paying Agents appointed by the Series B Issuer in relation to the Series B
Capital Securities and any securities exchange or interdealer quotation system
on which the Series B Capital Securities are listed, in each case as soon as
practicable after the determination thereof but in no event later than the
second Business Day of the relevant Distribution Period. The Property Trustee
will cause the Distribution Rate, the Distribution Amount in respect of each
Series B Capital Security and the Distribution Date for each Distribution
Period to be notified to each registered holder of Series B Capital Securities
at the address of such holder set forth in the Securities Register with
respect to the Series B Capital Securities. So long as the Series B Capital
Securities are represented by global certificates registered in the name of
DTC or its nominee, notices to the holders of Series B Capital Securities will
be given by delivery of the notice to DTC for communication by DTC to its
Participants in accordance with its customary procedures.
CERTIFICATES TO BE FINAL
All certificates, communications, opinions, determinations, calculations,
quotations and decisions given, expressed, made or obtained for the purposes
of the provisions relating to the payment and calculation of Distributions on
the Series B Capital Securities, whether by the Reference Banks (or any of
them) or the Debenture Trustee, will (in the absence of wilful default, bad
faith or manifest error) be binding on the Series B Issuer, the Corporation,
the Issuer Trustees and all of the holders of the Series B Capital Securities,
and no liability will (in the absence of wilful default, bad faith or manifest
error) attach to the Debenture Trustee in connection with the exercise or non-
exercise by it of its powers, duties and discretion.
DEFERRAL OF DISTRIBUTIONS
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture to defer payment
of interest on the Series B 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 Series B Subordinated Debentures. As a
consequence of any such deferral of interest payments by the Corporation,
quarterly Distributions on the Series B Capital Securities will also be
deferred by the Series B Issuer during any such Extension Period.
Distributions to which holders of the Series B Capital Securities are entitled
will accumulate additional Distributions thereon at the Distribution Rate,
compounded quarterly from the relevant payment date for such Distributions.
The term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Corporation may not (i)
declare or pay any dividends or distributions on, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of the
Corporation'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 Corporation that rank pari passu in all respects with or
junior in interest to the Series B Subordinated Debentures (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of
the Corporation in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of
capital stock of the Corporation (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of any exchange or conversion of any class or series of the
Corporation's capital stock (or any capital stock of a subsidiary of the
Corporation) for any class or series of the Corporation's capital stock or of
any class or series of the Corporation's indebtedness for any class or series
of the Corporation's capital stock, (c) the purchase
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of fractional interests in shares of the Corporation'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 rights plan, or the issuance of rights, stock or other
property under any stockholder 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 Corporation
may further defer the payment of interest on the Series B Subordinated
Debentures, provided that no Extension Period may exceed 20 consecutive
quarterly periods or extend beyond the Stated Maturity of the Series B
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all interest then accrued and unpaid (together with interest
thereon at the Distribution Rate, compounded quarterly from the interest
payment date for such interest, to the extent permitted by applicable law),
the Corporation may elect to begin a new Extension Period, subject to the
requirements set forth herein. There is no limitation on the number of times
that the Corporation may elect to begin an Extension Period subject to the
above requirements. See "Certain Terms of Series B Subordinated Debentures--
Option to Defer Interest Payments" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series B
Subordinated Debentures.
REDEMPTION
The Series B Subordinated Debentures will mature on April 15, 2027. The
Corporation has the right to redeem the Series B Subordinated Debentures (i)
on or after April 15, 2007, 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 of a Tax Event or Capital Treatment Event (or, if the approval of
the Federal Reserve is then required for such redemption, on such later date
as promptly as practicable after such approval is obtained), in each case at a
price equal to the principal amount of the Series B Subordinated Debentures so
redeemed plus the accrued and unpaid interest on the Series B Subordinated
Debentures so redeemed to the date fixed for redemption.
Upon the repayment or redemption, in whole or in part, of the Series B
Subordinated Debentures, whether at Stated Maturity or upon earlier redemption
as provided in the Indenture, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
in the accompanying Prospectus) of the Series B Securities, upon not less than
30 nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price, with respect to the Series B Capital
Securities, equal to the aggregate Liquidation Amount of such Series B Capital
Securities plus accumulated and unpaid Distributions thereon to the date of
redemption (the "Redemption Date"). See "Description of Preferred Securities--
Redemption or Exchange" in the accompanying Prospectus. If less than all of
the Series B 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 Series B Capital Securities and
the Series B Common Securities.
LIQUIDATION OF SERIES B ISSUER AND DISTRIBUTION OF SERIES B SUBORDINATED
DEBENTURES TO HOLDERS
The Corporation will have the right at any time to liquidate the Series B
Issuer and, after satisfaction of liabilities to creditors of the Series B
Issuer as required by applicable law, cause the Series B Subordinated
Debentures to be distributed to the holders of the Series B Capital Securities
in exchange therefor upon liquidation of the Series B Issuer. The Corporation
has committed to the
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Federal Reserve that, so long as the Corporation (or any affiliate) is a
holder of Series B Common Securities, the Corporation will not exercise such
right without having received the prior approval of the Federal Reserve to do
so, if then required under applicable Federal Reserve capital guidelines or
policies.
Under current United States federal income tax law, a distribution of Series
B Subordinated Debentures in exchange for Series B Capital Securities will not
be a taxable event to holders of the Series B Capital Securities. Should there
be a change in law, a change in legal interpretation, a Tax Event or other
circumstances, however, the distribution of the Series B Subordinated
Debentures could be a taxable event to holders of the Series B Capital
Securities. See "Certain Federal Income Tax Consequences--Distribution of
Series B Subordinated Debentures to Holders of Series B Capital Securities."
If the Corporation elects neither to redeem the Series B Subordinated
Debentures prior to maturity nor to liquidate the Series B Issuer and
distribute the Series B Subordinated Debentures to holders of the Series B
Capital Securities in exchange therefor, the Series B Capital Securities will
remain outstanding until the Stated Maturity of the Series B Subordinated
Debentures.
If the Corporation elects to liquidate the Series B Issuer and thereby
causes the Series B Subordinated Debentures to be distributed to holders of
the Series B Capital Securities in exchange therefor upon liquidation of the
Series B Issuer, the Corporation will continue to have the right to redeem the
Series B Subordinated Debentures in certain circumstances as described under
"Certain Terms of Series B Subordinated Debentures--Redemption."
LIQUIDATION VALUE
The amount payable on the Series B Capital Securities in the event of any
liquidation of the Series B Issuer is $1,000 per Series B Capital Security
plus accumulated and unpaid Distributions, which may be in the form of a
distribution of a Like Amount in Series B Subordinated Debentures, subject to
certain exceptions. See "Description of Preferred Securities--Liquidation
Distribution Upon Termination" in the accompanying Prospectus.
REGISTRATION OF SERIES B CAPITAL SECURITIES
The Series B Capital Securities will be represented by global certificates
registered in the name of DTC or its nominee. Beneficial interests in the
Series B Capital Securities will be shown on, and transfers thereof will be
effected only through, records maintained by Participants (as defined in the
accompanying Prospectus) in DTC. Except as described below and in the
accompanying Prospectus, Series B Capital Securities in certificated form will
not be issued in exchange for the global certificates. See "Book-Entry
Issuance" in the accompanying Prospectus.
A global security shall be exchangeable for Series B Capital Securities
registered in the names of persons other than DTC or its nominee only if (i)
DTC notifies the Series B Issuer that it is unwilling or unable to continue as
a depositary for such global security and no successor depositary shall have
been appointed, or if at any time DTC ceases to be a clearing agency
registered under the Exchange Act, at a time when DTC is required to be so
registered to act as such depositary, (ii) the Series B Issuer in its sole
discretion determines that such global security shall be so exchangeable, or
(iii) there shall have occurred and be continuing an event of default under
the Indenture with respect to the Series B Subordinated Debentures. Any global
security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for definitive certificates registered in such names as DTC shall
direct. It is expected that such instructions will be based upon directions
received by DTC from its Participants with respect to ownership of beneficial
interests in such global security. In the event that Series B Capital
Securities are issued in definitive form, such Series B Capital Securities
will be in denominations of $1,000 and integral multiples thereof and may be
transferred or exchanged at the offices described below.
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Payments on Series B Capital Securities represented by a global security
will be made to DTC, as the depositary for the Series B Capital Securities. In
the event Series B Capital Securities are issued in certificated form, the
Liquidation Amount and Distributions will be payable, the transfer of the
Series B Capital Securities will be registrable, and Series B Capital
Securities will be exchangeable for Series B Capital Securities of other
denominations of a like aggregate Liquidation Amount, at the corporate trust
office of the Property Trustee in Chicago, Illinois, or at the offices of any
paying agent or transfer agent appointed by the Administrative Trustees,
provided that payment of any Distribution may be made at the option of the
Administrative Trustees by check mailed to the address of the persons entitled
thereto or by wire transfer. In addition, if the Series B Capital Securities
are issued in certificated form, the record dates for payment of Distributions
will be fifteen days prior to the relevant Distribution payment date. For a
description of DTC and the terms of the depositary arrangements relating to
payments, transfers, voting rights, redemptions and other notices and other
matters, see "Book-Entry Issuance" in the accompanying Prospectus.
CERTAIN TERMS OF SERIES B SUBORDINATED DEBENTURES
GENERAL
The following summary of certain terms and provisions of the Series B
Subordinated Debentures supplements the description of the terms and
provisions of the Corresponding Junior Subordinated Debentures set forth in
the accompanying Prospectus under the heading "Description of Junior
Subordinated Debentures," to which description reference is hereby made. The
summary of certain terms and provisions of the Series B Subordinated
Debentures set forth below, which describes the material provisions thereof,
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Indenture to which reference is hereby made. The
form of Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus Supplement and accompanying Prospectus form a part.
Concurrently with the issuance of the Series B Capital Securities, the
Series B Issuer will invest the proceeds thereof, together with the
consideration paid by the Corporation for the Series B Common Securities, in
the Series B Subordinated Debentures issued by the Corporation. The Series B
Subordinated Debentures will bear interest, accruing from the date of original
issuance, in respect of the principal amount thereof, at a rate per annum
equal to 3-Month LIBOR (determined in the same manner as with respect to the
Distribution Rate, as described under "Certain Terms of Series B Capital
Securities--Distributions--Determination of 3-Month LIBOR") plus 0.59% (the
"Interest Rate"), payable quarterly in arrears on January 15, April 15, July
15 and October 15 of each year (each, an "Interest Payment Date"), commencing
July 15, 1997, to the person in whose name each Series B Subordinated
Debenture is registered at the close of business on the relevant record date.
The record dates for the Series B Subordinated Debentures will be, for so long
as they are held by an Issuer or in global form, the Business Day next
preceding each Interest Payment Date and, in the case of Series B Subordinated
Debentures not held by an Issuer or in global form, the fifteenth day (whether
or not a Business Day) prior to each Interest Payment Date. It is anticipated
that, until the liquidation, if any, of the Series B Issuer, the Series B
Subordinated Debentures will be held in the name of the Property Trustee in
trust for the benefit of the holders of the Series B Securities. In the event
that any date on which interest is payable on the Series B Subordinated
Debentures is not a Business Day, then payment of the interest payable on such
date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar month, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date such payment was
originally payable. 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 Interest Rate, compounded quarterly from
the relevant Interest Payment Date. The term "interest"
S-21
as used herein shall include 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 period beginning on, and including, the date of original issuance, and
ending on, but excluding, the first Interest Payment Date, and each successive
period beginning on, and including, an Interest Payment Date, and ending on,
but excluding, the next succeeding Interest Payment Date, is herein called an
"Interest Period."
The Interest Rate and the amount of interest payable in respect of each
Interest Period will be calculated by the Debenture Trustee in the same manner
as the Distribution Rate and Distribution Amount in respect of each
Distribution Period, as described under "Certain Terms of Series B Capital
Securities--Distributions."
The Series B Subordinated Debentures will be issued as a series of junior
subordinated deferrable interest debentures under the Indenture. The Series B
Subordinated Debentures will mature on April 15, 2027 (the "Stated Maturity").
The Series B Subordinated Debentures are unsecured and subordinate and
junior in right of payment to all Senior Debt of the Corporation. See
"Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus. Substantially all of the Corporation's existing
indebtedness other than the Series A Subordinated Debentures constitutes
Senior Debt; as of March 31, 1997, the Corporation had, on an unconsolidated
basis, approximately $279 million aggregate principal amount of Senior Debt
outstanding. In addition, because the Corporation is a holding company, the
right of the Corporation to participate in any distribution of assets of any
subsidiary, including the Bank, upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Series B
Capital Securities to benefit indirectly from such distribution) is subject to
the prior claims of creditors of that subsidiary, except to the extent that
the Corporation may itself be recognized as a creditor of that subsidiary.
Accordingly, the Series B Subordinated Debentures (and therefore the Series B
Capital Securities) will be effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries, and holders of Series B
Subordinated Debentures should look only to the assets of the Corporation for
payments on the Series B Subordinated Debentures. The Indenture does not limit
the incurrence or issuance of other secured or unsecured debt of the
Corporation, including Senior Debt, whether under the Indenture or any
existing or other indenture that the Corporation may enter into in the future
or otherwise. See "Description of Junior Subordinated Debentures--
Subordination" in the accompanying Prospectus.
OPTION TO DEFER INTEREST PAYMENTS
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture at any time or
from time to time during the term of the Series B Subordinated Debentures to
defer payment of interest on the Series B Subordinated Debentures 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 Series B Subordinated Debentures. At the end of such Extension
Period, the Corporation must pay all interest then accrued and unpaid on the
Subordinated Debentures (together with interest on such unpaid interest at the
Interest Rate, compounded quarterly from the relevant Interest Payment Date,
to the extent permitted by applicable law). During an Extension Period,
interest will continue to accrue and holders of Series B Subordinated
Debentures (or holders of Series B Capital Securities while such series is
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 Corporation may not (i) declare or pay
any dividends or distributions on, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of
S-22
the Corporation'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 Corporation (including the Series A Subordinated Debentures
and other Junior Subordinated Debentures) that rank pari passu in all respects
with or junior in interest to the Series B Subordinated Debentures (other than
(a) repurchases, redemptions or other acquisitions of shares of capital stock
of the Corporation in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of
capital stock of the Corporation (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of any exchange or conversion of any class or series of the
Corporation's capital stock (or any capital stock of a subsidiary of the
Corporation) for any class or series of the Corporation's capital stock or of
any class or series of the Corporation's indebtedness for any class or series
of the Corporation's capital stock, (c) the purchase of fractional interests
in shares of the Corporation'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 rights plan, or the issuance of rights, stock or other property
under any stockholder 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 Corporation may
further defer the payment of interest on the Series B Subordinated Debentures,
provided that no Extension Period may exceed 20 consecutive quarterly periods
or extend beyond the Stated Maturity of the Series B Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all
interest then accrued and unpaid (together with interest thereon at the
Interest Rate, compounded quarterly from the relevant Interest Payment Date,
to the extent permitted by applicable law), the Corporation may elect to begin
a new Extension Period, subject to the above requirements. No interest shall
be due and payable during an Extension Period, except at the end thereof. The
Corporation must give the Property Trustee, the Administrative Trustees and
the Debenture Trustee notice of its election to begin such Extension Period at
least one Business Day prior to the earliest of (i) the date interest on the
Series B Subordinated Debentures would have been payable except for the
election to begin such Extension Period, (ii) the date on which the
Administrative Trustees are required to give notice to any securities exchange
or automated quotation system on which the Series B Capital Securities are
then listed or quoted or to holders of Series B Capital Securities of the
record date and (iii) the date such interest is payable, but in any event not
less than one Business Day prior to such record date. The Debenture Trustee
shall give notice of the Corporation's election to begin a new Extension
Period to the holders of the Series B Subordinated Debentures. There is no
limitation on the number of times that the Corporation may elect to begin an
Extension Period. See "Description of Junior Subordinated Debentures--Option
to Defer Interest Payments" in the accompanying Prospectus.
ADDITIONAL SUMS
If the Series B Issuer is required to pay any additional taxes, duties or
other governmental charges as a result of a Tax Event, the Corporation will
pay as additional amounts on the Series B Subordinated Debentures such amounts
("Additional Sums") as shall be required so that the Distributions payable by
the Series B Issuer shall not be reduced as a result of any such additional
taxes, duties or other governmental charges.
REDEMPTION
The Series B Subordinated Debentures are redeemable prior to maturity at the
option of the Corporation (i) on or after April 15, 2007, 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 of a Tax Event or Capital
S-23
Treatment Event (or, if the approval of the Federal Reserve is then required
for such redemption, on such later date as promptly as practicable after such
approval is obtained), in each case at a price equal to the principal amount
of the Series B Subordinated Debentures so redeemed plus the accrued and
unpaid interest on the Series B Subordinated Debentures so redeemed to the
date fixed for redemption. The Corporation has committed to the Federal
Reserve that it will not exercise its right to redeem the Series B
Subordinated Debentures prior to the Stated Maturity without having received
the prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve capital guidelines or policies. The proceeds of any
such redemption will be used by the Series B Issuer to redeem the Series B
Securities.
DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES
As described under "Certain Terms of Series B Capital Securities--
Liquidation of Series B Issuer and Distribution of Series B Subordinated
Debentures to Holders," under certain circumstances involving the termination
of the Series B Issuer, Series B Subordinated Debentures may be distributed to
the holders of the Series B Capital Securities in exchange therefor upon
liquidation of the Series B Issuer after satisfaction of liabilities to
creditors of the Series B Issuer as provided by applicable law. If distributed
to holders of Series B Capital Securities, the Series B Subordinated
Debentures will initially be issued in the form of one or more global
securities and DTC, or any successor depositary for the Series B Capital
Securities, will act as depositary for the Series B Subordinated Debentures.
It is anticipated that the depositary arrangements for the Series B
Subordinated Debentures would be substantially identical to those in effect
for the Series B Capital Securities. There can be no assurance as to the
market price of any Series B Subordinated Debentures that may be distributed
to the holders of Series B Capital Securities.
REGISTRATION OF SERIES B SUBORDINATED DEBENTURES
The Series B Subordinated Debentures will be registered in the name of the
Series B Issuer. In the event that the Series B Subordinated Debentures are
distributed to holders of Series B Capital Securities, it is anticipated that
the depositary and other arrangements for the Series B Subordinated Debentures
will be substantially identical to those in effect for the Series B Capital
Securities as applicable. See "Certain Terms of Series B Capital Securities--
Registration of Series B Capital Securities."
CERTAIN TERMS OF SERIES B GUARANTEE
The Series B Guarantee guarantees to the holders of the Series B Securities
the following payments, to the extent not paid by the Series B Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Series B
Capital Securities, to the extent that the Series B Issuer has funds on hand
available therefor at such time, (ii) the Redemption Price with respect to any
Series B Capital Securities called for redemption, to the extent that the
Series B Issuer has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of the
Series B Issuer (unless the Series B Subordinated Debentures are distributed
to holders of the Series B Capital 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 Series B Issuer
has funds on hand available therefor at such time, and (b) the amount of
assets of the Series B Issuer remaining available for distribution to holders
of the Series B Capital Securities after payment of creditors of the Series B
Issuer as required by applicable law. The Series B Guarantee will be qualified
as an indenture under the Trust Indenture Act. The First National Bank of
Chicago will act as the Guarantee Trustee for the purposes of compliance with
the Trust Indenture Act and will hold the Series B Guarantee for the benefit
of the holders of the Series B Capital Securities. The First National Bank of
Chicago will also act as Debenture Trustee for the Series B Subordinated
Debentures and as Property Trustee.
S-24
The holders of not less than a majority in aggregate Liquidation Amount of
the Series B Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect to the Series B Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Series B Guarantee.
Any holder of the Series B Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series B
Guarantee without first instituting a legal proceeding against the Series B
Issuer, the Guarantee Trustee or any other person or entity. If the
Corporation were to default on its obligation to pay amounts payable under the
Series B Subordinated Debentures, the Series B Issuer would lack funds for the
payment of Distributions or amounts payable on redemption of the Series B
Securities or otherwise, and, in such event, holders of the Series B Capital
Securities would not be able to rely upon the Series B Guarantee for payment
of such amounts. Instead, if any event of default under the Indenture shall
have occurred and be continuing and such event is attributable to the failure
of the Corporation to pay interest on or principal of the Series B
Subordinated Debentures on the applicable payment date, then a holder of
Series B Capital Securities may institute a Direct Action against the
Corporation pursuant to the terms of the Indenture for enforcement of payment
to such holder of the principal of or interest on such Series B Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Series B Capital Securities of such holder. In connection with such
Direct Action, the Corporation will have a right to set-off under the
Indenture to the extent of any payment made by the Corporation to such holder
of Series B Capital Securities in the Direct Action. Except as described
herein, holders of Series B Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Series B
Subordinated Debentures or assert directly any other rights in respect of the
Series B Subordinated Debentures. See "Description of Guarantees" in the
accompanying Prospectus. The Trust Agreement provides that each holder of
Series B Capital Securities by acceptance thereof agrees to the provisions of
the Series B Guarantee, the Expense Agreement and the Indenture.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of Series B Capital
Securities. This summary only addresses the tax consequences to a person that
acquires Series B Capital Securities on their original issue at their original
offering price and that is (i) an individual citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any state thereof or the District of Columbia or (iii) an
estate or trust the income of which is subject to United States federal income
tax regardless of source (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 Series B Capital Securities, nor does it address
the tax consequences to (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
organizations and dealers in securities or currencies, (iii) persons that will
hold Series B Capital Securities as part of a position in a "straddle" or as
part of a "hedging," "conversion" or other integrated investment transaction
for federal income tax purposes, (iv) persons whose functional currency is not
the United States dollar or (v) persons that do not hold Series B Capital
Securities as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Schiff Hardin & Waite, counsel to the Corporation
and the Series B Issuer. 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 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
S-25
adversely affecting a beneficial owner of Series B Capital Securities. In
particular, legislation has been proposed that could adversely affect the
Corporation's ability to deduct interest on the Series B Subordinated
Debentures, which may in turn permit the Corporation to cause a redemption of
the Series B Capital 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 federal income tax
treatment of the purchase, ownership and disposition of Series B Capital
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 FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SERIES B CAPITAL SECURITIES, AS
WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE SERIES B ISSUER
Under current law and assuming compliance with the terms of the Trust
Agreement, the Series B Issuer will not be classified as an association
taxable as a corporation for United States federal income tax purposes.
Moreover, the Series B Issuer should be classified as a grantor trust, and if
not so classified will be classified as a partnership, for United States
federal income tax purposes. As a result, each beneficial owner of Series B
Capital Securities (a "Securityholder") will be required to include in its
gross income its pro rata share of the interest income, including original
issue discount, paid or accrued with respect to the Series B Subordinated
Debentures whether or not cash is actually distributed to the Securityholders.
See "--Interest Income and Original Issue Discount." No amount included in
income with respect to the Series B Capital Securities will be eligible for
the dividends-received deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a contingency that
stated interest will not be timely paid that is "remote" because of the terms
of the relevant debt instrument will be ignored in determining whether such
debt instrument is issued with original issue discount ("OID"). As a result of
terms and conditions of the Series B Subordinated Debentures that prohibit
certain payments with respect to the Corporation's capital stock and
indebtedness if the Corporation elects to extend interest payment periods, the
Corporation believes that the likelihood of its exercising its option to defer
payments is remote. Based on the foregoing, the Corporation believes that the
Series B 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 holder's allocable share of interest on
the Series B Subordinated Debentures.
Under the Regulations, if the Corporation exercises its option to defer any
payment of interest, the Series B Subordinated Debentures would at that time
be treated as issued with OID, and all stated interest on the Series B
Subordinated Debentures would thereafter be treated as OID as long as the
Series B Subordinated Debentures remained outstanding. In such event, all of a
Securityholder's taxable interest income with respect to the Series B
Subordinated Debentures would be accounted for as OID on an economic-accrual
basis regardless of such holder'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 Corporation would not make any actual cash payments during
an Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation herein.
Because income on the Series B Capital 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 Series B
Capital Securities.
S-26
DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES TO HOLDERS OF SERIES B
CAPITAL SECURITIES
Under current law, a distribution by the Series B Issuer of the Series B
Subordinated Debentures as described under the caption "Certain Terms of
Series B Capital Securities--Liquidation of Series B Issuer and Distribution
of Series B Subordinated Debentures to Holders" will be non-taxable and will
result in the Securityholder receiving directly its pro rata share of the
Series B Subordinated Debentures previously held indirectly through the Series
B Issuer, with a holding period and aggregate-tax basis equal to the holding
period and aggregate-tax basis such Securityholder had in its Series B Capital
Securities before such distribution. If, however, the liquidation of the
Series B Issuer were to occur because the Series B Issuer is subject to United
States federal income tax with respect to income accrued or received on the
Series B Subordinated Debentures, the distribution of Series B Subordinated
Debentures to Securityholders by the Series B Issuer would be a taxable event
to the Series B Issuer and each Securityholder, and each Securityholder would
recognize gain or loss as if the Securityholder had exchanged its Series B
Capital Securities for the Series B Subordinated Debentures it received upon
the liquidation of the Series B Issuer. A Securityholder will include interest
in income in respect of Series B Subordinated Debentures received from the
Series B Issuer in the manner described above under "--Interest Income and
Original Issue Discount."
SALE OR REDEMPTION OF SERIES B CAPITAL SECURITIES
A Securityholder that sells (including a redemption for cash) Series B
Capital Securities will recognize gain or loss equal to the difference between
its adjusted-tax basis in the Series B Capital Securities and the amount
realized on the sale of such Series B Capital Securities. Assuming that the
Corporation does not exercise its option to defer payment of interest on the
Series B Subordinated Debentures and the Series B Subordinated Debentures are
not considered issued with OID, a Securityholder's adjusted tax basis in the
Series B Capital Securities generally will be its initial purchase price. If
the Series B Subordinated Debentures are deemed to be issued with OID, as a
result of the Corporation's deferral of interest payments, a Securityholder's
adjusted tax basis in the Series B Capital 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 Series B Capital Securities
since and including the date of the first Extension Period. Such gain or loss
generally will be a capital gain or loss (except to the extent any amount
realized is treated as a payment of accrued interest with respect to such
Securityholder's pro rata share of the Series B Subordinated Debentures
required to be included in income) and generally will be a long-term capital
gain or loss if the Series B Capital Securities have been held for more than
one year.
Should the Corporation exercise its option to defer any payment of interest
on the Series B Subordinated Debentures, the Series B Capital Securities may
trade at a price that does not accurately reflect the value of accrued but
unpaid interest with respect to the underlying Series B Subordinated
Debentures. In the event of such a deferral, a Securityholder who disposes of
its Series B Capital Securities between record dates for payments of
distributions thereon will be required to include in income as ordinary income
accrued but unpaid interest on the Series B Subordinated Debentures to the
date of disposition and to add such amount to its adjusted-tax basis in its
pro rata share of the underlying Series B Subordinated Debentures deemed
disposed of. 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 and OID accrued on the Series B Capital
Securities held of record by United States Persons (other than corporations
and other exempt Securityholders) will be
S-27
reported to the IRS. "Backup" withholding at a rate of 31% will apply to
payments of interest to nonexempt 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 Series B Capital Securities
to or through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
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.
It is anticipated that income on the Series B Capital Securities will be
reported to holders on Form 1099 and mailed to holders of the Series B Capital
Securities by January 31 following each calendar year.
POSSIBLE TAX LAW CHANGES
On February 6, 1997, President Clinton's Fiscal 1998 Budget Proposal was
released. The Budget Proposal contains provisions which, if enacted, would
generally deny interest deductions for interest paid or accrued 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 a 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. For purposes of determining the term of an instrument, any
right to extend the maturity of such instrument would be treated as exercised.
The above-described provisions were proposed to be effective generally for
instruments issued on or after the date of the first Congressional committee
action on the proposed legislation. If these provisions were to apply to the
Series B Subordinated Debentures, the Corporation would not be able to deduct
the interest on the Series B Subordinated Debentures. There can be no
assurance that the proposed legislation or future legislative proposals will
not adversely affect the ability of the Corporation to deduct interest on the
Series B Subordinated Debentures or otherwise affect the tax treatment of the
transactions described herein. Such a change could give rise to a Tax Event,
which would permit the Corporation to cause a redemption of the Series B
Capital Securities before April 15, 2007.
The Corporation has committed to the Federal Reserve that it will not
exercise its right to redeem the Series B Subordinated Debentures prior to the
Stated Maturity without having received the prior approval of the Federal
Reserve to do so, if then required under applicable Federal Reserve capital
guidelines and policies. See "Certain Terms of Series B Subordinated
Debentures--Redemption" in this Prospectus Supplement and "Description of
Preferred Securities--Redemption or Exchange--Mandatory Redemption--Tax Event
or Capital Treatment Event Redemption" in the accompanying Prospectus.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an
investment in the Series B Capital Securities. Accordingly, among other
factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent
with the documents and instruments governing the Plan.
S-28
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("Parties in Interest") with respect to
such Plan. A violation of these "prohibited transaction" rules may result in
an excise tax or other liabilities under ERISA and/or Section 4975 of the Code
for such persons, unless exemptive relief is available under an applicable
statutory or administrative exemption. Employee benefit plans that are
governmental plans (as defined in Section 3(32) of ERISA), certain church
plans (as defined in Section 3(33) of ERISA) and foreign plans (as described
in Section 4(b)(5) of ERISA) are not subject to the requirements of ERISA or
Section 4975 of the Code; governmental plans may be subject to similar
provisions under applicable state laws.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Series B Issuer would be
deemed to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of
the Code if "plan assets" of the Plan were used to acquire an equity interest
in the Series B Issuer and no exception were applicable under the Plan Assets
Regulation. An "equity interest" is defined under the Plan Assets Regulation
as any interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features and specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Series B Issuer would not be deemed to be "plan assets" of investing
Plans if, immediately after the most recent acquisition of any equity interest
in the Series B Issuer, less than 25% of the value of each class of equity
interests in the Series B Issuer were held by Plans, other employee benefit
plans not subject to ERISA or Section 4975 of the Code (such as governmental,
church and foreign plans), and entities holding assets deemed to be "plan
assets" of any Plan (collectively, "Benefit Plan Investors"), or if the Series
B Capital Securities were "publicly-offered securities" for purposes of the
Plan Assets Regulation. No assurance can be given that the Series B Capital
Securities held by Benefit Plan Investors will be less than 25% of the total
value of such Series B Capital Securities at the completion of the initial
offering or thereafter, and no monitoring or other measures will be taken with
respect to the satisfaction of the conditions to this exception. In addition,
no assurance can be given that the Series B Capital Securities would be
considered to be "publicly-offered securities" under the Plan Assets
Regulation. All of the Series B Common Securities will be purchased and
initially held by the Corporation.
Certain transactions involving the Series B Issuer could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Code with respect to a Plan if the Series B Capital Securities
were acquired with "plan assets" of such Plan and the assets of the Series B
Issuer were deemed to be "plan assets" of Plans investing in the Series B
Issuer. For example, if the Corporation were a Party in Interest with respect
to a Plan (either directly or by reason of its ownership of the Bank or other
subsidiaries), extensions of credit between the Corporation and the Series B
Issuer (as represented by the Series B Subordinated Debentures and the Series
B Guarantee) would likely be prohibited by Section 406(a)(1)(B) of ERISA and
Section 4975(c)(1)(B) of the Code, unless exemptive relief were available
under an applicable administrative exemption (see below). In addition, if the
Corporation were considered to be a fiduciary with respect to the Series B
Issuer as a result of certain powers it holds (such as the powers to remove
and replace the Property Trustee and the Administrative Trustees), it is
possible that the optional redemption or acceleration of the Series B
Subordinated Debentures would be considered to be prohibited transactions
under Section 406(b) of ERISA and Section 4975(c)(1)(E) of the Code. In order
to avoid such prohibited transactions, each investing plan, by purchasing
Series B Capital Securities, will be deemed to have directed the Series B
Issuer to invest in the Series B Subordinated Debentures and to have appointed
the Property Trustee.
S-29
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect
prohibited transactions that may arise from the purchase or holding of the
Series B Capital Securities if assets of the Series B Issuer were deemed to be
"plan assets" of Plans investing in the Series B Issuer as described above.
Those class exemptions are PTCE 96-23 (for certain transactions determined by
in-house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain
transactions involving insurance company separate accounts), and PTCE 84-14
(for certain transactions determined by independent qualified asset managers).
Because the Series B Capital Securities may be deemed to be equity interests
in the Series B Issuer for purposes of applying ERISA and Section 4975 of the
Code, the Series B Capital Securities may not be purchased or held by any
Plan, any entity whose underlying assets include "plan assets" by reason of
any Plan's investment in the entity (a "Plan Asset Entity") or any person
investing "plan assets" of any Plan, unless such purchaser or holder is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38,
90-1 or 84-14 or another applicable exemption. Any purchaser or holder of the
Series B Capital Securities or any interest therein will be deemed to have
represented by its purchase and holding thereof that it either (a) is not a
Plan or a Plan Asset Entity and is not purchasing such securities on behalf of
or with "plan assets" of any Plan or (b) is eligible for the exemptive relief
available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption with respect to such purchase or holding. If a purchaser or holder
of the Series B Capital Securities that is a Plan or a Plan Asset Entity
elects to rely on an exemption other than PTCE 96-23, 95-60, 91-38, 90-1 or
84-14, the Corporation and the Series B Issuer may require a satisfactory
opinion of counsel or other evidence with respect to the availability of such
exemption for such purchase and holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the Series B Capital Securities on behalf of or with "plan assets"
of any Plan consult with their counsel regarding the potential consequences if
the assets of the Series B Issuer were deemed to be "plan assets" and the
availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14
or any other applicable exemption.
S-30
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement, the Corporation and the Series B Issuer have agreed
that the Series B Issuer will sell to each of the Underwriters named below,
and each of such Underwriters has severally agreed to purchase from the Series
B Issuer, the respective Liquidation Amount of Series B Capital Securities set
forth opposite its name below.
LIQUIDATION
AMOUNT OF
SERIES B
CAPITAL
UNDERWRITERS SECURITIES
------------ ------------
Salomon Brothers Inc........................................... $ 60,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................... 60,000,000
------------
Total..................................................... $120,000,000
============
Under the terms and conditions of the Underwriting Agreement and the Pricing
Agreement, the Underwriters are committed to take and pay for all of the
Series B Capital Securities, if any are taken.
The Underwriters propose to offer the Series B Capital Securities in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such price less a concession not in excess of $6.00 per Series B
Capital Security. The Underwriters may allow, and such dealers may reallow, a
concession not to exceed $2.50 per Series B Capital Security to certain
brokers and dealers. After the Series B Capital Securities are released for
sale to the public, the initial public offering price and other selling terms
may from time to time be varied by the Underwriters.
In view of the fact that the proceeds from the sale of the Series B Capital
Securities will be used to purchase the Series B Subordinated Debentures
issued by the Corporation, the Underwriting Agreement provides that the
Corporation will pay as Underwriters' Compensation to the Underwriters for
their arranging the investment therein of such proceeds an amount of $10.00
per Series B Capital Security for the accounts of the several Underwriters.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Series B Capital Securities offered hereby as interests
in a direct participation program, the offering is being made in compliance
with Rule 2810 of the NASD's Conduct Rules. Offers and sales of Series B
Capital Securities will be made only to (i) "qualified institutional buyers,"
as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Act"); (ii) institutional "accredited investors," as defined in Rule
501(a)(1)-(3) of Regulation D under the Act or (iii) individual investors for
whom an investment in non-convertible investment grade preferred securities is
appropriate. The Underwriters may not confirm sales to any accounts over which
they exercise discretionary authority without the prior written approval of
the transaction by the customer.
The Corporation and the Series B Issuer have agreed that, during the period
beginning from the date of the Underwriting Agreement and continuing to and
including the later of (i) the termination of trading restrictions on the
Series B Capital Securities, as determined by the Underwriters, and (ii) the
closing date, they will not offer, sell, contract to sell or otherwise dispose
of any Series B Capital Securities, any other beneficial interests in the
assets of the Series B Issuer, or any preferred securities or any other
securities of the Series B Issuer or the Corporation, as the case may be, that
are substantially similar to the Series B Capital Securities (including any
guarantee of such securities) or any securities that are convertible into or
exchangeable for, or that represent the right to receive, securities,
preferred securities or any such substantially similar securities of either
the Series B Issuer or the Corporation without the prior written consent of
the Underwriters, except for the Series B Capital Securities offered in
connection with this offering.
S-31
During and after the offering, the Underwriters may purchase and sell the
Series B Capital Securities in the open market. These transactions may include
overallotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Series B
Capital Securities; and short positions created by the Underwriters involve
the sale by the Underwriters of a greater number of Series B Capital
Securities than they are required to purchase from the Series B Issuer in the
offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to broker-dealers in respect of the Series B Capital
Securities sold in the offering for their account may be reclaimed by the
Underwriters if such securities are repurchased by the Underwriters in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Series B Capital Securities, which
may be higher than the price that might otherwise prevail in the open market.
These transactions may be effected in the over-the-counter market or
otherwise, and these activities, if commenced, may be discontinued at any
time.
The Series B Capital Securities are a new issue of securities with no
established trading market. The Corporation has been advised by the
Underwriters that the Underwriters intend to make a market in the Series B
Capital Securities but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Series B Capital Securities.
The Corporation and the Series B Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
The Underwriters or their affiliates have provided from time to time, and
expect to provide in the future, investment or commercial banking services to
the Corporation and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Series B
Capital Securities, the enforceability of the Trust Agreement and the creation
of the Series B Issuer will be passed upon by Richards, Layton & Finger,
Wilmington, Delaware, special Delaware counsel to the Corporation and the
Series B Issuer. The validity of the Series B Guarantee and the Series B
Subordinated Debentures will be passed upon for the Corporation by Schiff
Hardin & Waite, Chicago, Illinois, and for the Underwriters by Sullivan &
Cromwell, New York, New York. Schiff Hardin & Waite will rely as to all
matters of Delaware law upon the opinion of Richards, Layton & Finger, and
Sullivan and Cromwell will rely as to all matters of Illinois law upon the
opinion of Schiff Hardin & Waite. Certain matters relating to United States
federal income tax consequences will be passed upon for the Corporation by
Schiff Hardin & Waite.
S-32
Northern Trust Corporation
Junior Subordinated Deferrable Interest Debentures
NTC Capital I
NTC Capital II
NTC Capital III
Preferred Securities fully and unconditionally guaranteed, as described
herein, by
Northern Trust Corporation
Northern Trust Corporation, a Delaware corporation (the "Corporation"), may
from time to time offer in one or more series or issuances its junior
subordinated deferrable interest debentures (the "Junior Subordinated
Debentures"). The Junior Subordinated Debentures will be unsecured and
subordinate and junior in right of payment to all Senior Debt (as defined in
"Description of Junior Subordinated Debentures--Subordination") of the
Corporation. If provided in an accompanying Prospectus Supplement, the
Corporation will have the right to defer payments of interest on any series of
Junior Subordinated Debentures by extending the interest payment period
thereon at any time or from time to time for up to such number of consecutive
interest payment periods (which shall not extend beyond the Stated Maturity
(as defined herein) of the Junior Subordinated Debentures) with respect to
each deferral period as may be specified in such Prospectus Supplement (each,
an "Extension Period"). In such circumstances, however, the Corporation would
not be permitted, subject to certain exceptions set forth herein, to declare
or pay any dividends, distributions or other payments with respect to, or
repay, repurchase, redeem or otherwise acquire, the Corporation's capital
stock or debt securities that rank pari passu in all respects with or junior
to such series of Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures--Option to Defer Interest Payments" and "--
Restrictions on Certain Payments."
NTC Capital I, NTC Capital II and NTC Capital III, each a statutory business
trust created under the laws of the State of Delaware (each, an "Issuer," and
collectively, the "Issuers"), may severally offer, from time to time,
preferred securities (the "Preferred Securities") representing preferred
beneficial interests in such Issuer. The Corporation will be the owner of the
common securities representing common ownership interests in such Issuer (the
"Common Securities" and, together with the Preferred Securities, the "Trust
Securities"). Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions ("Distributions") accumulating from
the date of original issuance and payable periodically as provided in an
accompanying
(continued on next page)
----------------
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND
ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
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.
----------------
The date of this Prospectus is January 6, 1997.
(cover page continued)
Prospectus Supplement. Concurrently with the issuance by an Issuer of its
Preferred Securities, such Issuer will invest the proceeds thereof and any
contributions received in respect of the Common Securities in a corresponding
series of the Corporation's Junior Subordinated Debentures (the "Corresponding
Junior Subordinated Debentures") with terms corresponding to the terms of that
Issuer's Preferred Securities (the "Related Preferred Securities"). The
Corresponding Junior Subordinated Debentures will be the sole assets of each
Issuer, and payments under the Corresponding Junior Subordinated Debentures
will be the only revenue of each Issuer. If provided in an accompanying
Prospectus Supplement, the Corporation may, upon receipt of the prior approval
of the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), if then required under applicable Federal Reserve capital
guidelines or policies, redeem the Corresponding Junior Subordinated
Debentures (and cause the redemption of the related Trust Securities) or may
terminate each Issuer and, after satisfaction of the liabilities to creditors
of the Series A Issuer as required by applicable law, cause the Corresponding
Junior Subordinated Debentures to be distributed to the holders of the Related
Preferred Securities in liquidation of their interests in such Issuer. See
"Description of Preferred Securities--Liquidation Distribution Upon
Termination."
If provided in an accompanying Prospectus Supplement, the Corporation will
have the right to defer payments of interest on any series of Corresponding
Junior Subordinated Debentures. If interest payments are so deferred,
Distributions on the Related Preferred Securities will also be deferred and
the Corporation will not be permitted, subject to certain exceptions set forth
herein, to declare or pay any cash distributions with respect to the
Corporation's capital stock or debt securities that rank pari passu with or
junior to the Corresponding Junior Subordinated Debentures. During an
Extension Period, Distributions will continue to accumulate (and the Preferred
Securities will accumulate additional Distributions thereon at the rate per
annum set forth in the related Prospectus Supplement). See "Description of
Preferred Securities--Distributions."
Taken together, the Corporation's obligations under each series of Junior
Subordinated Debentures, the Indenture, the related Trust Agreement, the
related Expense Agreement and the related Guarantee (each, as defined herein),
in the aggregate, provide a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the related series of
Preferred Securities. See "Relationship Among the Preferred Securities, the
Corresponding Junior Subordinated Debentures, the Expense Agreement and the
Guarantees--Full and Unconditional Guarantee." The payment of Distributions
with respect to the Preferred Securities of each Issuer and payments on
liquidation or redemption with respect to such Preferred Securities, in each
case out of funds held by such Issuer, are each irrevocably guaranteed by the
Corporation to the extent described herein (each, a "Guarantee"). See
"Description of Guarantees." The obligations of the Corporation under each
Guarantee will be subordinate and junior in right of payment to all Senior
Debt.
The Junior Subordinated Debentures and Preferred Securities may be offered
in amounts, at prices and on terms to be determined at the time of offering;
provided, however, the aggregate initial public offering price of all Junior
Subordinated Debentures (other than Corresponding Junior Subordinated
Debentures) and Preferred Securities (including the Corresponding Junior
Subordinated Debentures) issued pursuant to the Registration Statement of
which this Prospectus forms a part shall not exceed $250,000,000. Certain
specific terms of the Junior Subordinated Debentures or Preferred Securities
in respect of which this Prospectus is being delivered will be described in an
accompanying Prospectus Supplement, including without limitation and where
applicable and to the extent not set forth herein, (a) in the case of Junior
Subordinated Debentures, the specific designation, aggregate principal amount,
denominations, Stated Maturity (including any provisions for the shortening or
extension thereof), interest payment dates, interest rate (which may be fixed
or variable) or method of calculating interest, if any, applicable Extension
Period or interest deferral terms, if any, place or places where principal,
premium, if any, and interest, if any, will be payable, any terms of
redemption, any sinking fund provisions, terms for any conversion or exchange
into other securities, initial offering or purchase price, methods of
distribution and any other special terms, and (b) in the case of Preferred
Securities, the identity of the Issuer, specific title, aggregate amount,
stated liquidation amount, number of securities, Distribution rate or method
of calculating such rate, Distribution payment dates, applicable Distribution
deferral terms, if any, place or places where Distributions will be payable,
any terms of redemption, exchange, initial offering or purchase price, methods
of distribution and any other special terms.
2
(cover page continued)
The Prospectus Supplement also will contain information, as applicable,
about certain United States federal income tax consequences relating to the
Junior Subordinated Debentures or Preferred Securities.
The Junior Subordinated Debentures and Preferred Securities may be sold to
or through underwriters, through dealers, remarketing firms or agents or
directly to purchasers. See "Plan of Distribution." The names of any
underwriters, dealers, remarketing firms or agents involved in the sale of
Junior Subordinated Debentures or Preferred Securities in respect of which
this Prospectus is being delivered and any applicable fee, commission or
discount arrangements with them will be set forth in a Prospectus Supplement.
The Prospectus Supplement will state whether the Junior Subordinated
Debentures or Preferred Securities will be listed on any national securities
exchange or automated quotation system. If the Junior Subordinated Debentures
or Preferred Securities are not listed on any national securities exchange or
automated quotation system, there can be no assurance that there will be a
secondary market for the Junior Subordinated Debentures or Preferred
Securities.
This Prospectus may not be used to consummate sales of Junior Subordinated
Debentures or Preferred Securities unless accompanied by a Prospectus
Supplement.
3
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (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, Suite 1300, New York, New York 10048 and 500
West Madison Street, Suite 1400, 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 may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Corporation and the Issuers have filed with the Commission a
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Corporation and the securities offered hereby,
reference is made to the Registration Statement and the exhibits and the
financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission at the addresses set forth above or
through the Commission's home page on the Internet. Statements made in this
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete and in each instance are qualified in all respects by
reference to the copy of such document filed as an exhibit to the Registration
Statement.
No separate financial statements of any Issuer have been included herein.
The Corporation and the Issuers do not consider that such financial statements
would be material to holders of the Preferred Securities because each Issuer
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 Corresponding Junior
Subordinated Debentures of the Corporation and issuing the Trust Securities.
Furthermore, taken together, the Corporation's obligations under each series
of Corresponding Junior Subordinated Debentures, the Indenture, the related
Trust Agreement, the related Expense Agreement and the related Guarantee
provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of Distributions and other amounts due on the related Preferred
Securities of an Issuer. See "The Issuers," "Description of Preferred
Securities," "Description of Junior Subordinated Debentures--Corresponding
Junior Subordinated Debentures" and "Description of Guarantees." In addition,
the Corporation does not expect that any of the Issuers will be filing reports
under the Exchange Act with the Commission.
4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the Commission are
incorporated into this Prospectus by reference:
1. the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. the Corporation's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996; and
3. the Corporation's Current Reports on Form 8-K dated January 5, 1996,
January 16, 1996, April 17, 1996, July 16, 1996, October 15, 1996 and
November 19, 1996.
Each document or report filed by the Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part
of this Prospectus from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated
or deemed to be incorporated by reference herein, 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 or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or this
Prospectus.
The Corporation will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein
(other than exhibits not specifically incorporated by reference into the texts
of such documents). Requests for such documents should be directed to Northern
Trust Corporation, Fifty South LaSalle Street, Chicago, Illinois 60675,
Attention: Secretary, telephone number (312) 630-6000.
5
THE CORPORATION
The Corporation is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). The Corporation was
organized in Delaware in 1971 and that year became the owner of all of the
outstanding capital stock (except directors' qualifying shares) of The
Northern Trust Company (the "Bank"), the Corporation's principal banking
subsidiary. At September 30, 1996, the Corporation owned, in addition to the
Bank, one bank in each of Arizona, California, Florida and Texas, trust
companies in Connecticut and New York and various other non-bank subsidiaries,
including a securities brokerage firm, a retirement services company and a
futures commission merchant.
The Corporation's principal executive offices are located at Fifty South
LaSalle Street, Chicago, Illinois 60675, and its telephone number is (312)
630-6000.
CERTAIN REGULATORY CONSIDERATIONS
The Corporation's principal assets and sources of income are its investments
in its bank subsidiaries, and it is a legal entity separate and distinct from
its banks and other subsidiaries. There are various legal limitations on the
extent to which these banks and other subsidiaries can finance or otherwise
supply funds to the Corporation and certain of its affiliates.
DIVIDENDS AND LOANS OR ADVANCES
Provisions of state and federal banking laws restrict the amount of
dividends that can be paid to the Corporation by its banking subsidiaries.
Under applicable state and federal laws, no dividends may be paid in an amount
greater than the net profits then on hand, reduced by certain loan losses (as
defined in the applicable statute). In addition, prior approval of federal
banking authorities is required if dividends declared by a subsidiary bank in
any calendar year will exceed its net profits (as defined) for that year,
combined with its retained net profits for the preceding two years.
Based on these regulations, the Corporation's banking subsidiaries, without
regulatory approval, could declare dividends during 1996 equal to their 1996
eligible net profits (as defined) plus $181.1 million. The ability of each
banking subsidiary to pay dividends to the Corporation may be further
restricted as a result of regulatory policies and guidelines relating to
dividend payments and capital adequacy.
State and federal laws limit the transfer of funds by a banking subsidiary
to the Corporation and certain of its affiliates in the form of loans or
extensions of credit, investments or purchases of assets. Transfers of this
kind to the Corporation or a nonbanking subsidiary by a banking subsidiary are
each limited to 10% of the banking subsidiary's capital and surplus with
respect to each affiliate and to 20% in the aggregate, and are also subject to
certain collateral requirements. These transactions, as well as other
transactions between a banking subsidiary and the Corporation or its
affiliates, must also be on terms substantially the same as, or at least as
favorable as, those prevailing at the time for comparable transactions with
non-affiliated companies or, in the absence of comparable transactions, on
terms, or under circumstances, including credit standards, that would be
offered to, or would apply to, non-affiliated companies.
Consistent with its policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common stockholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition. In the first nine months of 1996, the Corporation's net
income available to common stockholders was $187.7 million and it declared
common stock dividends totaling $52.5 million.
CAPITAL ADEQUACY
The Federal bank regulators have adopted risk-based capital guidelines for
bank holding companies and banks. The minimum ratio of qualifying total
capital to risk-weighted assets (including certain off-balance sheet items)
("Total Capital Ratio") is 8%. At least half of the Total Capital is to be
comprised of common stock, retained earnings, noncumulative perpetual
preferred stock, minority interests and, for bank holding companies,
6
a limited amount of qualifying cumulative perpetual preferred stock, less
certain intangibles including goodwill ("Tier 1" capital). The balance may
consist of other preferred stock, certain other instruments, and limited
amounts of subordinated debt and the loan and lease loss allowance.
In addition, the Federal Reserve has established minimum Leverage Ratio
(Tier 1 capital to average total assets) guidelines for bank holding companies
and banks. The Federal Reserve's guidelines provide for a minimum Leverage
Ratio of 3% for bank holding companies and banks that meet certain specified
criteria, including having the highest regulatory rating. All other banking
organizations are required to maintain a Leverage Ratio of at least 3% plus an
additional cushion of 100 to 200 basis points. The guidelines also provide
that banking organizations experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve will continue to
consider a "Tangible Tier 1 Leverage Ratio" in evaluating proposals for
expansion or new activities. The Tangible Tier 1 Leverage Ratio is the ratio
of Tier 1 capital, less intangibles not deducted from Tier 1 capital, to
average total assets. As of September 30, 1996, the Federal Reserve had not
advised the Corporation of any specific minimum Leverage Ratio applicable to
it.
Federal bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations. The Federal Reserve has
recently added interest rate and market risk components to risk-based capital
requirements.
FDICIA
In addition to the effects of the provisions described above, the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") substantially
revised the depository institution regulatory and funding provisions of the
Federal Deposit Insurance Act ("FDIA") and made revisions to several other
federal banking statutes.
Among other things, FDICIA requires the federal banking regulators to take
prompt corrective action in respect of FDIC-insured depository institutions
that do not meet minimum capital requirements. FDICIA establishes five capital
tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." A
depository institution's capital tier will depend upon how its capital levels
compare to various relevant capital measures and certain other factors, as
established by regulation. Under applicable regulations, an FDIC-insured bank
is defined to be well capitalized if it maintains a Leverage Ratio of at least
5%, a Tier 1 capital ratio of at least 6% and a Total Capital Ratio of at
least 10% and is not otherwise in a "troubled condition" as specified by its
appropriate federal regulatory agency. A bank is generally considered to be
adequately capitalized if it is not defined to be well capitalized but meets
all of its minimum capital requirements, i.e., if it has a Total Capital Ratio
of 8% or greater, a Tier 1 capital ratio of 4% or greater and a Leverage Ratio
of 4% or greater (or a Leverage Ratio of 3% or greater if the institution is
rated composite 1 in its most recent report of examination, subject to
appropriate federal banking agency guidelines). A bank will be considered
undercapitalized if it fails to meet any minimum required measure,
significantly undercapitalized if it is significantly below such measure and
critically undercapitalized if it maintains a level of tangible equity capital
equal to or less than 2% of total assets. A bank may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository institution's
capital. In addition, for an undercapitalized depository institution's capital
restoration plan to be acceptable, its holding company must guarantee the
capital plan up to
7
an amount equal to the lesser of 5% of the depository institution's assets at
the time it became undercapitalized or the amount of the capital deficiency
when the institution fails to comply with the plan. In the event of the parent
holding company's bankruptcy, such guarantee would take priority over the
parent's general unsecured creditors. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
At September 30, 1996, the Bank and each of the Corporation's other
subsidiary banks met or exceeded the minimum regulatory ratios that are one of
the conditions for them to be considered to be well capitalized. At September
30, 1996, the Bank had leverage, risk-based total capital and risk-based Tier
1 capital ratios of 6.15%, 11.34% and 8.19%, respectively.
FDIA
Under the FDIA, a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver, and "in danger of default" is defined generally as
the existence of certain conditions indicating that a "default" is likely to
occur in the absence of regulatory assistance.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("IBBEA") permits bank holding companies, with Federal Reserve approval, to
acquire banks located in states other than the bank holding company's home
state without regard to whether the transaction is prohibited under state law.
In addition, commencing June 1, 1997, national banks and state banks with
different home states will be permitted to merge across state lines, with the
approval of the appropriate federal banking agency, unless the home state of a
participating bank passes legislation between the date of enactment of IBBEA
and May 31, 1997 expressly prohibiting interstate mergers. IBBEA further
provides that states may enact laws permitting interstate bank merger
transactions prior to June 1, 1997. A bank may establish and operate a de novo
branch in a state in which the bank does not maintain a branch if that state
expressly permits de novo branching. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where any bank
involved in the interstate merger transaction could have established or
acquired branches under applicable federal or state law. A bank that has
established a branch in a state through de novo branching may establish and
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the state which
has opted out, whether through an acquisition or de novo.
PROPOSED LEGISLATION
Various bills have been introduced into the United States Congress that
would repeal, in some respects, the provisions of the Glass-Steagall Act which
prohibit certain banking organizations from engaging in certain securities
activities and the provisions of the BHC Act, which prohibit affiliations
between banking organizations and nonbanking organizations. The Corporation
cannot determine the ultimate effect that potential legislation, if enacted,
or implementing regulations, would have upon its financial condition or
results of operations.
Other proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such changes and the impact such changes might have on the Corporation and its
subsidiaries, however, cannot be determined at this time.
8
THE ISSUERS
Each Issuer is a statutory business trust created under Delaware law
pursuant to (i) a trust agreement executed by the Corporation, as Depositor,
the Delaware Trustee (as defined herein) and the Administrative Trustee named
therein and (ii) a certificate of trust filed with the Delaware Secretary of
State. Each trust agreement will be amended and restated in its entirety
(each, as so amended and restated, a "Trust Agreement") substantially in the
form filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each Trust Agreement will be qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Each Issuer exists for the exclusive purposes of (i) issuing
and selling its Trust Securities, (ii) using the proceeds from the sale of
such Trust Securities to acquire a series of Corresponding Junior Subordinated
Debentures issued by the Corporation, and (iii) engaging in only those other
activities necessary or incidental thereto (such as registering the transfer
of the Trust Securities). Accordingly, the Corresponding Junior Subordinated
Debentures and the right to reimbursement of expenses under the related
Expense Agreement will be the sole assets of each Issuer, and payments under
the Corresponding Junior Subordinated Debentures and the related Expense
Agreement will be the sole revenue of each Issuer.
All of the Common Securities of each Issuer will be owned by the
Corporation. The Common Securities of an Issuer will rank pari passu, and
payments will be made thereon pro rata, with the Preferred Securities of such
Issuer, except that upon the occurrence and continuance of an event of default
under a Trust Agreement resulting from an event of default under the
Indenture, the rights of the Corporation, as holder of the Common Securities,
to payment in respect of Distributions and payments upon liquidation or
redemption will be subordinated to the rights of the holders of the Preferred
Securities of such Issuer. See "Description of Preferred Securities--
Subordination of Common Securities." The Corporation will acquire Common
Securities in an aggregate Liquidation Amount equal to not less than 3% of the
total capital of each Issuer.
Unless otherwise specified in the applicable Prospectus Supplement, each
Issuer has a term of approximately 55 years, but may terminate earlier as
provided in the applicable Trust Agreement. Each Issuer's business and affairs
are conducted by its trustees, each appointed by the Corporation as holder of
the Common Securities. The trustees for each Issuer will be The First National
Bank of Chicago, as the Property Trustee (the "Property Trustee"), First
Chicago Delaware Inc., as the Delaware Trustee (the "Delaware Trustee"), and
two individual trustees (the "Administrative Trustees") who are employees or
officers of or affiliated with the Corporation (collectively, the "Issuer
Trustees"). The First National Bank of Chicago, as Property Trustee, will act
as sole indenture trustee under each Trust Agreement for purposes of
compliance with the Trust Indenture Act. The First National Bank of Chicago
will also act as trustee under the Guarantees and the Indenture (each as
defined herein). See "Description of Guarantees" and "Description of Junior
Subordinated Debentures." The holder of the Common Securities of an Issuer, or
the holders of a majority in Liquidation Amount of the Related Preferred
Securities if an event of default under the Trust Agreement for such Issuer
has occurred and is continuing, will be entitled to appoint, remove or replace
the Property Trustee and/or the Delaware Trustee for such Issuer. In no event
will the holders of the Preferred Securities have the right to vote to
appoint, remove or replace the Administrative Trustees; such voting rights are
vested exclusively in the holder of the Common Securities. The duties and
obligations of each Issuer Trustee are governed by the applicable Trust
Agreement. The Corporation will pay all fees and expenses related to each
Issuer and the offering of the Preferred Securities and will pay, directly or
indirectly, all ongoing costs, expenses and liabilities of each Issuer.
The principal executive office of each issuer is Fifty South LaSalle Street,
Chicago, Illinois 60675, and its telephone number is (312) 630-6000.
9
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, the
Corporation intends to use the proceeds from the sale of its Junior
Subordinated Debentures (including Corresponding Junior Subordinated
Debentures issued to the Issuers in connection with the investment by the
Issuers of all of the proceeds from the sale of Preferred Securities) for
general corporate purposes.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued in one or more series
under a Junior Subordinated Indenture, as supplemented from time to time (as
so supplemented, the "Indenture"), between the Corporation and The First
National Bank of Chicago, as trustee (the "Debenture Trustee"). This summary
of certain terms and provisions of the Junior Subordinated Debentures,
Corresponding Junior Subordinated Debentures and the Indenture, which
summarizes the material provisions thereof, does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, and to the Trust Indenture
Act, to each of which reference is hereby made. The Indenture is qualified
under the Trust Indenture Act. Whenever particular defined terms of the
Indenture (as supplemented or amended from time to time) are referred to
herein or in a Prospectus Supplement, such defined terms are incorporated
herein or therein by reference.
GENERAL
Each series of Junior Subordinated Debentures will rank pari passu with all
other series of Junior Subordinated Debentures and will be unsecured and
subordinate and junior in right of payment to the extent and in the manner set
forth in the Indenture to all Senior Debt (as defined below) of the
Corporation. See "--Subordination." The Corporation is a non-operating holding
company and almost all of the operating assets of the Corporation and its
consolidated subsidiaries are owned by such subsidiaries. The Corporation
relies primarily on dividends from such subsidiaries to meet its obligations.
See "Certain Regulatory Considerations--Dividends and Loans or Advances."
Because the Corporation is a holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of the subsidiary, except to the extent the
Corporation may itself be recognized as a creditor of that subsidiary.
Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries, and holders of Junior Subordinated Debentures should look only
to the assets of the Corporation for payments on the Junior Subordinated
Debentures. Except as otherwise provided in the applicable Prospectus
Supplement, the Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Corporation, including Senior Debt, whether
under the Indenture, any other existing indenture or any other indenture that
the Corporation may enter into in the future or otherwise. See "--
Subordination" and the Prospectus Supplement relating to any offering of
Preferred Securities or Junior Subordinated Debentures.
The Junior Subordinated Debentures will be issuable in one or more series
pursuant to an indenture supplemental to the Indenture or a resolution of the
Corporation's Board of Directors or a committee thereof.
The applicable Prospectus Supplement or Prospectus Supplements will describe
the following terms of the Junior Subordinated Debentures: (1) the title of
the Junior Subordinated Debentures; (2) any limit upon the aggregate principal
amount of the Junior Subordinated Debentures; (3) the date or dates on which
the principal of the Junior Subordinated Debentures is payable (the "Stated
Maturity") or the method of determination thereof; (4) the rate or rates, if
any, at which the Junior Subordinated Debentures shall bear interest, the
dates on
10
which any such interest shall be payable (the "Interest Payment Dates"), the
right, if any, of the Corporation to defer or extend an Interest Payment Date,
and the record dates for any interest payable on any Interest Payment Date or
the method by which any of the foregoing shall be determined; (5) the place or
places where, subject to the terms of the Indenture as described below under
"--Payment and Paying Agents," the principal of and premium, if any, and
interest on the Junior Subordinated Debentures will be payable and where,
subject to the terms of the Indenture as described below under "--
Denominations, Registration and Transfer," the Junior Subordinated Debentures
may be presented for registration of transfer or exchange and the place or
places where notices and demands to or upon the Corporation in respect of the
Junior Subordinated Debentures and the Indentures may be made ("Place of
Payment"); (6) any period or periods within which or date or dates on which,
the price or prices at which and the terms and conditions upon which Junior
Subordinated Debentures may be redeemed, in whole or in part, at the option of
the Corporation or a holder thereof; (7) the obligation or the right, if any,
of the Corporation or a holder thereof to redeem, purchase or repay the Junior
Subordinated Debentures and the period or periods within which, the price or
prices at which, the currency or currencies (including currency unit or units)
in which and the other terms and conditions upon which the Junior Subordinated
Debentures shall be redeemed, repaid or purchased, in whole or in part,
pursuant to such obligation; (8) the denominations in which any Junior
Subordinated Debentures shall be issuable if other than denominations of $25
and any integral multiple thereof; (9) if other than in U.S. Dollars, the
currency or currencies (including currency unit or units) in which the
principal of (and premium, if any) and interest and Additional Interest, if
any, on the Junior Subordinated Debentures shall be payable, or in which the
Junior Subordinated Debentures shall be denominated; (10) any additions,
modifications or deletions in the events of default under the Indenture or
covenants of the Corporation specified in the Indenture with respect to the
Junior Subordinated Debentures; (11) if other than the principal amount
thereof, the portion of the principal amount of Junior Subordinated Debentures
that shall be payable upon declaration of acceleration of the maturity
thereof; (12) any additions or changes to the Indenture with respect to a
series of Junior Subordinated Debentures as shall be necessary to permit or
facilitate the issuance of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons; (13) any
index or indices used to determine the amount of payments of principal of and
premium, if any, on the Junior Subordinated Debentures and the manner in which
such amounts will be determined; (14) the terms and conditions relating to the
issuance of a temporary Global Security representing all of the Junior
Subordinated Debentures of such series and the exchange of such temporary
Global Security for definitive Junior Subordinated Debentures of such series;
(15) subject to the terms described herein under "--Global Junior Subordinated
Debentures," whether the Junior Subordinated Debentures of the series shall be
issued in whole or in part in the form of one or more Global Securities and,
in such case, the Depositary for such Global Securities, which Depositary
shall be a clearing agency registered under the Exchange Act; (16) the
appointment of any paying agent or agents; (17) the terms and conditions of
any obligation or right of the Corporation or a holder to convert or exchange
the Junior Subordinated Debentures into Preferred Securities; (18) the form of
Trust Agreement, Guarantee Agreement and Expense Agreement, if applicable;
(19) the relative degree, if any, to which such Junior Subordinated Debentures
of the series shall be senior to or be subordinated to other series of such
Junior Subordinated Debentures or other indebtedness of the Corporation in
right of payment, whether such other series of Junior Subordinated Debentures
or other indebtedness are outstanding or not; and (20) any other terms of the
Junior Subordinated Debentures not inconsistent with the provisions of the
Indenture.
Junior Subordinated Debentures may be sold at a substantial discount below
their stated principal amount, bearing no interest or interest at a rate which
at the time of issuance is below market rates. Certain United States federal
income tax consequences and special considerations applicable to any such
Junior Subordinated Debentures will be described in the applicable Prospectus
Supplement.
If the purchase price of any of the Junior Subordinated Debentures is
payable in one or more foreign currencies or currency units or if any Junior
Subordinated Debentures are denominated in one or more foreign currencies or
currency units or if the principal of, premium, if any, or interest, if any,
on any Junior Subordinated Debentures is payable in one or more foreign
currencies or currency units, the restrictions, elections, certain United
States federal income tax consequences, specific terms and other information
with respect to such series
11
of Junior Subordinated Debentures and such foreign currency or currency units
will be set forth in the applicable Prospectus Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of Junior Subordinated Debentures,
special United States federal income tax, accounting and other considerations
applicable thereto will be described in the applicable Prospectus Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Junior Subordinated Debentures will be issuable only in registered form
without coupons in denominations of $25 and any integral multiple thereof.
Junior Subordinated Debentures of any series will be exchangeable for other
Junior Subordinated Debentures of the same issue and series, of any authorized
denominations, of a like aggregate principal amount, of the same original
issue date and stated maturity and bearing the same interest rate.
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 appropriate securities registrar or at
the office of any transfer agent designated by the Corporation for such
purpose with respect to any series of Junior Subordinated Debentures and
referred to in the applicable Prospectus Supplement, without service charge
and upon payment of any taxes and other governmental charges as described in
the Indenture. The Corporation will appoint the Trustee as securities
registrar under the Indenture. If the applicable Prospectus Supplement refers
to any transfer agents (in addition to the securities registrar) initially
designated by the Corporation with respect to any series of Junior
Subordinated Debentures, the Corporation may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, provided that the Corporation
maintains a transfer agent in each place of payment for such series. The
Corporation may at any time designate additional transfer agents with respect
to any series of Junior Subordinated Debentures.
In the event of any redemption, neither the Corporation nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures of any series during the period beginning at
the opening of business 15 days before the day of selection for redemption of
Junior Subordinated Debentures of that series 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.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures of a series may be issued in whole or in
part in the form of one or more Global Junior Subordinated Debentures that
will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global Junior
Subordinated Debentures may be issued only in fully registered form and in
either temporary or permanent form. Unless and until it is exchanged in whole
or in part for the individual Junior Subordinated Debentures represented
thereby, a Global Junior Subordinated Debenture may not be transferred except
as a whole by the Depositary for such Global Junior Subordinated Debenture to
a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by the Depositary or any
nominee to a successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Junior Subordinated Debentures will be described in the Prospectus Supplement
relating to such series. The Corporation anticipates that the following
provisions will generally apply to depositary arrangements. See also "Book-
Entry Issuance."
Upon the issuance of a Global Junior Subordinated Debenture, and the deposit
of such Global Junior Subordinated Debenture with or on behalf of the
Depositary, the Depositary for such Global Junior Subordinated
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Debenture or its nominee will credit, on its book-entry registration and
transfer system, the respective principal amounts of the individual Junior
Subordinated Debentures represented by such Global Junior Subordinated
Debenture to the accounts of persons that have accounts with such Depositary
("Participants"). Such accounts shall be designated by the dealers,
underwriters or agents with respect to such Junior Subordinated Debentures or
by the Corporation if such Junior Subordinated Debentures are offered and sold
directly by the Corporation. Ownership of beneficial interests in a Global
Junior Subordinated Debenture will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
such Global Junior Subordinated Debenture will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
applicable Depositary or its nominee (with respect to interests of
Participants) and the records of Participants (with respect to interests of
persons who hold through Participants). The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Junior Subordinated Debenture.
So long as the Depositary for a Global Junior Subordinated Debenture, or its
nominee, is the registered owner of such Global Junior Subordinated Debenture,
such Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the Junior Subordinated Debentures represented by such
Global Junior Subordinated Debenture for all purposes under the Indenture
governing such Junior Subordinated Debentures. Except as provided below,
owners of beneficial interests in a Global Junior Subordinated Debenture will
not be entitled to have any of the individual Junior Subordinated Debentures
of the series represented by such Global Junior Subordinated Debenture
registered in their names, will not receive or be entitled to receive physical
delivery of any such Junior Subordinated Debentures of such series in
definitive form and will not be considered the owners or holders thereof under
the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Junior Subordinated Debentures represented by a Global Junior Subordinated
Debenture registered in the name of a Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the registered owner
of the Global Junior Subordinated Debenture representing such Junior
Subordinated Debentures. None of the Corporation, the Debenture Trustee, any
Paying Agent, or the Securities Registrar for such Junior Subordinated
Debentures will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Junior Subordinated Debenture representing such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Corporation expects that the Depositary for a series of Junior
Subordinated Debentures or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of a permanent Global
Junior Subordinated Debenture representing any of such Junior Subordinated
Debentures, immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the principal
amount of such Global Junior Subordinated Debenture for such Junior
Subordinated Debentures as shown on the records of such Depositary or its
nominee. The Corporation also expects that payments by Participants to owners
of beneficial interests in such Global Junior Subordinated Debenture held
through such Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name." Such payments will
be the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Junior Subordinated Debentures is at any time
unwilling, unable or ineligible to continue as depositary and the Corporation
is unable to locate a qualified successor, the Corporation will issue
individual Junior Subordinated Debentures of such series in exchange for the
Global Junior Subordinated Debenture representing such series of Junior
Subordinated Debentures. In addition, the Corporation may at any time and in
its sole discretion, subject to any limitations described in the Prospectus
Supplement relating to such Junior Subordinated Debentures, determine not to
have any Junior Subordinated Debentures of such series represented by one or
more Global Junior Subordinated Debentures and, in such event, will issue
certificated Junior Subordinated Debentures of
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such series in exchange for the Global Junior Subordinated Debenture or
Securities representing such series of Junior Subordinated Debentures.
Further, if the Corporation so specifies with respect to the Junior
Subordinated Debentures of a series, an owner of a beneficial interest in a
Global Junior Subordinated Debenture representing Junior Subordinated
Debentures of such series may, on terms acceptable to the Corporation, the
Debenture Trustee and the Depositary for such Global Junior Subordinated
Debenture, receive certificated Junior Subordinated Debentures of such series
in exchange for such beneficial interests, subject to any limitations
described in the Prospectus Supplement relating to such Junior Subordinated
Debentures. In any such instance, an owner of a beneficial interest in a
Global Junior Subordinated Debenture will be entitled to physical delivery of
certificated Junior Subordinated Debentures of the series represented by such
Global Junior Subordinated Debenture equal in principal amount to such
beneficial interest and to have such Junior Subordinated Debentures registered
in its name. Individual Junior Subordinated Debentures of such series so
issued will be issued in denominations, unless otherwise specified by the
Corporation, of $25 and integral multiples thereof.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Junior Subordinated
Debentures will be made at the office of the Debenture Trustee in the City of
Chicago, Illinois or at the office of such paying agent or paying agents as
the Corporation may designate from time to time, except that at the option of
the Corporation payment of any interest may be made (i) except in the case of
Global Junior Subordinated Debentures, by check mailed to the address of the
Person entitled thereto as such address shall appear in the securities
register or (ii) by transfer to an account maintained by the person entitled
thereto as specified in the securities register, provided that proper transfer
instructions have been received by the Regular Record Date. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of any interest on
Junior Subordinated Debentures will be made to the person in whose name such
Junior Subordinated Debenture is registered at the close of business on the
Regular Record Date for such interest, except in the case of Defaulted
Interest. The Corporation may at any time designate additional Paying Agents
or rescind the designation of any paying agent; however the Corporation will
at all times be required to maintain a paying agent in each place of payment
for each series of Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent, or then
held by the Corporation 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
Corporation, be repaid to the Corporation and the holder of such Junior
Subordinated Debenture shall thereafter look, as a general unsecured creditor,
only to the Corporation for payment thereof.
OPTION TO DEFER INTEREST PAYMENTS
If provided in the applicable Prospectus Supplement, the Corporation will
have the right at any time and from time to time during the term of any series
of Junior Subordinated Debentures to defer payment of interest for up to such
number of consecutive interest payment periods as may be specified in the
applicable Prospectus Supplement (each, an "Extension Period"), subject to the
terms, conditions and covenants, if any, specified in such Prospectus
Supplement, provided that such Extension Period may not extend beyond the
Stated Maturity of such series of Junior Subordinated Debentures. Certain
United States federal income tax consequences and special considerations
applicable to any such Junior Subordinated Debentures will be described in the
applicable Prospectus Supplement.
REDEMPTION
Unless otherwise indicated in the applicable Prospectus Supplement, Junior
Subordinated Debentures will not be subject to any sinking fund.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporation may, at its option and subject to receipt of the prior approval of
the Federal Reserve, if then required under applicable Federal Reserve
14
capital guidelines or policies, redeem the Junior Subordinated Debentures of
any series in whole at any time or in part from time to time. If the Junior
Subordinated Debentures of any series are so redeemable only on or after a
specified date or upon the satisfaction of additional conditions, the
applicable Prospectus Supplement will specify such date or describe such
conditions. Junior Subordinated Debentures in denominations larger than $25
may be redeemed in part but only in integral multiples of $25. Except as
otherwise specified in the applicable Prospectus Supplement, the redemption
price for any Junior Subordinated Debenture so redeemed shall equal any
accrued and unpaid interest (including Additional Interest) thereon to the
redemption date, plus 100% of the principal amount thereof.
Except as otherwise specified in the applicable Prospectus Supplement, if a
Tax Event (as defined below) in respect of a series of Junior Subordinated
Debentures or a Capital Treatment Event (as defined below) shall occur and be
continuing, the Corporation may, at its option and subject to receipt of the
prior approval of the Federal Reserve, if then required under applicable
Federal Reserve capital guidelines or policies, redeem such series of Junior
Subordinated Debentures in whole (but not in part) at any time within 90 days
following the occurrence of such Tax Event or Capital Treatment Event, at a
redemption price equal to 100% of the principal amount of such Junior
Subordinated Debentures then outstanding plus accrued and unpaid interest to
the date fixed for redemption, except as otherwise specified in the applicable
Prospectus Supplement.
"Tax Event" means the receipt by an Issuer of a series of Preferred
Securities of an opinion of counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or which pronouncement or decision is announced on or after the
date of issuance of such Preferred Securities under the Trust Agreement, there
is more than an insubstantial risk that (i) such Issuer is, or will be within
90 days of the date of such opinion, subject to United States federal income
tax with respect to income received or accrued
on the corresponding series of Corresponding Junior Subordinated Debentures,
(ii) interest payable by the Corporation on such series of Corresponding
Junior Subordinated Debentures is not, or within 90 days of the date of such
opinion, will not be, deductible by the Corporation, in whole or in part, for
United States federal income tax purposes, or (iii) such Issuer is, or will be
within 90 days of the date of such opinion, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
A "Capital Treatment Event" means the reasonable determination by the
Corporation 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, rules or regulations, which amendment or change is effective or which
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 Corporation will not be entitled to treat an amount equal to the
aggregate Liquidation Amount of the Preferred Securities as "Tier 1" capital
(or the then equivalent thereof) for purposes of the capital adequacy
guidelines of the Federal Reserve, as then in effect and applicable to the
Corporation.
Notice of any redemption will be mailed at least 45 days but not more than
75 days before the redemption date to each Holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Corporation
defaults in payment of the redemption price, on and after the redemption date
interest shall cease to accrue on such Junior Subordinated Debentures or
portions thereof called for redemption.
RESTRICTIONS ON CERTAIN PAYMENTS
The Corporation will also covenant, as to each series of Junior Subordinated
Debentures, that it will not, and will not permit any subsidiary of the
Corporation to, (i) declare or pay any dividends or distributions on, or
redeem, purchase or acquire, or make a liquidation payment with respect to,
any of the Corporation's capital stock or (ii) make any payment of principal
of or interest or premium, if any, on or repay or repurchase or redeem any
15
debt securities of the Corporation (including other Junior Subordinated
Debentures) 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 Corporation in connection
with any employment contract, benefit plan or other similar arrangement with
or for the benefit of one or more employees, officers, directors or
consultants, in connection with a dividend reinvestment or stockholder stock
purchase plan or in connection with the issuance of capital stock of the
Corporation (or securities convertible into or exercisable for such capital
stock) as consideration in an acquisition transaction entered into prior to
the applicable Extension Period, (b) as a result of any exchange or conversion
of any class or series of the Corporation's capital stock (or any capital
stock of a subsidiary of the Corporation) for any class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation's capital stock, (c)
the purchase of fractional interests in shares of the Corporation'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 rights plan, or the issuance of
rights, stock or other property under any stockholder 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 shall have
occurred any event of which the Corporation has actual knowledge that (a) with
the giving of notice or the lapse of time, or both, would constitute an "Event
of Default" under the Indenture with respect to the Junior Subordinated
Debentures of such series and (b) in respect of which the Corporation shall
not have taken reasonable steps to cure, (ii) if such Junior Subordinated
Debentures are held by an Issuer of a series of Related Preferred Securities,
the Corporation shall be in default with respect to its payment of any
obligations under the Guarantee relating to such Related Preferred Securities
or (iii) the Corporation shall have given notice of its selection of an
Extension Period as provided in the Indenture with respect to the Junior
Subordinated Debentures of such series and shall not have rescinded such
notice, or such Extension Period, or any extension thereof, shall be
continuing.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may, without the
consent of the holders of any series of Junior Subordinated Debentures, amend,
waive or supplement the Indenture for specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies (provided that
any such action does not materially adversely affect the interest of the
holders of any series of Junior Subordinated Debentures or, in the case of
Corresponding Junior Subordinated Debentures, the holders of the Related
Preferred Securities so long as they remain outstanding) and qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act.
The Indenture contains provisions permitting the Corporation and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of each outstanding series of Junior Subordinated Debentures
affected, to modify the Indenture in a manner affecting adversely the rights
of the holders of such series of the Junior Subordinated Debentures in any
material respect; provided, 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 any series of Junior Subordinated Debentures
(except as otherwise specified in the applicable Prospectus Supplement), or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon or (ii) reduce the percentage of principal amount
of Junior Subordinated Debentures of any series, the holders of which are
required to consent to any such modification of the Indenture, provided that,
in the case of Corresponding Junior Subordinated Debentures, so long as any of
the Related Preferred Securities remain outstanding, (a) no such modification
may be made that adversely affects the holders of such Preferred Securities in
any material respect, and no termination of the Indenture may occur, and no
waiver of any event of default or compliance with any covenant under the
Indenture may be effective, without the prior consent of the holders of at
least a majority of the aggregate Liquidation Amount of all outstanding
Related Preferred Securities affected unless and until the principal of the
Corresponding Junior Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full and certain other conditions have been
satisfied and (b) where a consent under the Indenture would require the
consent of each holder of Corresponding Junior Subordinated Debentures, no
such consent will be given by the Property Trustee without the prior consent
of each holder of Related Preferred Securities.
16
In addition, the Corporation and the Debenture Trustee may execute, without
the consent of any holder of Junior Subordinated Debentures, any supplemental
Indenture for the purpose of creating any new series of Junior Subordinated
Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to a series of Junior Subordinated Debentures that has
occurred and is continuing constitutes a "Debenture Event of Default" with
respect to such series of Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on such series of Junior
Subordinated Debentures, including any Additional Interest in respect
thereof, when due (subject to the deferral of any interest payment in the
case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on such series of
Junior Subordinated Debentures when due whether at maturity or upon
redemption; or
(iii) failure to observe or perform any other covenants contained in the
indenture for 90 days after written notice to the Corporation from the
Debenture Trustee or the holders of at least 25% in aggregate outstanding
principal amount of such affected series of outstanding Junior Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures of each series affected have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee. The Debenture Trustee or the holders of
not less than 25% in aggregate outstanding principal amount of Junior
Subordinated Debentures of each series affected may declare the principal (or,
if the Junior Subordinated Debentures of such series are Discount Securities,
such portion of the principal amount as may be specified in a Prospectus
Supplement) due and payable immediately upon a Debenture Event of Default,
and, in the case of Corresponding Junior Subordinated Debentures, should the
Debenture Trustee or such holders of such Corresponding Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate Liquidation Amount of the Related Preferred Securities shall have
such right. The holders of a majority in aggregate outstanding principal
amount of Junior Subordinated Debentures of each series affected may annul
such declaration. In the case of Corresponding Junior Subordinated Debentures,
should the holders of such Corresponding Junior Subordinated Debentures fail
to annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the Related Preferred Securities shall have
such right.
The holders of a majority in aggregate outstanding principal amount of each
series of Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures of such series, waive
any default, except a default in the payment of principal or interest
(including any Additional Interest) (unless such default has been cured and a
sum sufficient to pay all matured installments of interest (including any
Additional 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 Indenture cannot be modified or amended without the
consent of the holder of each outstanding Junior Subordinated Debenture of
such series. In the case of Corresponding Junior Subordinated Debentures,
should the holders of such Corresponding Junior Subordinated Debentures fail
to waive such default, the holders of a majority in aggregate Liquidation
Amount of the Related Preferred Securities shall have such right. The
Corporation is required to file annually with the Debenture Trustee a
certificate as to whether or not the Corporation is in compliance with all the
conditions and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing as to a
series of Corresponding Junior Subordinated Debentures, the Property Trustee
will have the right to declare the principal (or specified portion thereof) of
and the interest on such Corresponding Junior Subordinated Debentures, and any
other amounts payable under the Indenture, to be forthwith due and payable and
to enforce its other rights as a creditor with respect to such Corresponding
Junior Subordinated Debentures.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default with respect to a series of Corresponding
Junior Subordinated Debentures has occurred and is continuing and such event
is attributable to the failure of the Corporation to pay interest or principal
on such Corresponding Junior Subordinated Debentures on the date such interest
or principal is due and payable, a holder of Preferred Securities may
institute a legal proceeding directly against the Corporation for enforcement
of payment to such holder of the principal of or interest (including any
Additional Interest) on such Corresponding Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Related Preferred Securities of such holder (a "Direct Action"). The
Corporation may not amend the Indenture to remove the foregoing right to bring
a Direct Action without the prior written consent of the holders of all of the
Preferred Securities outstanding. If the right to bring a Direct Action is
removed, the applicable Issuer may become subject to the reporting obligations
under the Exchange Act. The Corporation shall have the right under the
Indenture to set-off any payment made to such holder of Preferred Securities
by the Corporation in connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an event of default under the Trust Agreement. See
"Description of Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Corporation shall not consolidate with or
merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any entity, and no entity shall
consolidate with or merge into the Corporation or convey, transfer or lease
its properties and assets substantially as an entirety to the Corporation,
unless (i) in case the Corporation consolidates with or merges into another
entity or conveys or transfers its properties and assets substantially as an
entirety to any Person, the successor entity is organized under the laws of
the United States or any state or the District of Columbia, and such successor
entity expressly assumes the Corporation's obligations on the Junior
Subordinated Debentures issued under the Indenture; (ii) immediately after
giving effect thereto, no Debenture Event of Default, and no event which,
after notice or lapse of time or both, would become a Debenture Event of
Default, shall have occurred and be continuing, and (iii) certain other
conditions as prescribed by the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The 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 or (ii) will become due and
payable at their Stated Maturity within one year, and the Corporation deposits
or causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable 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 (including any Additional Interest) to the date of the
deposit or to the Stated Maturity, as the case may be, then the Indenture will
cease to be of further effect (except as to the Corporation's obligations to
pay all other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Corporation
will be deemed to have satisfied and discharged the Indenture.
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CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable Prospectus Supplement, the
Junior Subordinated Debentures of any series may be convertible or
exchangeable into Junior Subordinated Debentures of another series or into
Preferred Securities of another series. The specific terms on which Junior
Subordinated Debentures of any series may be so converted or exchanged will be
set forth in the applicable Prospectus Supplement. Such terms may include
provisions for conversion or exchange, either mandatory, at the option of the
holder, or at the option of the Corporation, in which case the number of
shares of Preferred Securities or other securities to be received by the
holders of Junior Subordinated Debentures would be calculated as of a time and
in the manner stated in the applicable Prospectus Supplement.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate in right of payment,
to the extent set forth in the Indenture, to all Senior Debt (as defined
below) of the Corporation. If the Corporation defaults in the payment of any
principal, premium, if any, or interest, if any, or any other amount payable
on any Senior Debt 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 Debt has been paid, no direct or indirect
payment (in cash, property, securities, by set-off 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 Debt" means any obligation of the Corporation to its
creditors, whether now outstanding or subsequently incurred, other than any
obligation as to which, in the instrument creating or evidencing the
obligation or pursuant to which the obligation is outstanding, it is provided
that such obligation is not Senior Debt, but does not include trade accounts
payable and accrued liabilities arising in the ordinary course of business.
Senior Debt includes the Corporation's outstanding subordinated debt
securities and any subordinated debt securities issued in the future with
substantially similar subordination terms, but does not include the Junior
Subordinated Debentures of any series or any junior subordinated debt
securities issued in the future with subordination terms substantially similar
to those of the Junior Subordinated Debentures. Substantially all of the
existing indebtedness of the Corporation constitutes Senior Debt.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv)
any other marshalling of the assets of the Corporation, all Senior Debt
(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
be paid or delivered directly to the holders of Senior Debt in accordance with
the priorities then existing among such holders until all Senior Debt
(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 Debt, the holders of Junior Subordinated Debentures,
together with the holders of any obligations of the Corporation ranking on a
parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Corporation 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 Corporation
ranking junior to the Junior Subordinated Debentures. If any payment or
distribution on account of the Junior Subordinated Debentures of any character
or
19
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 Debt 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 Debt at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior Debt
remaining unpaid to the extent necessary to pay all such Senior Debt in full.
By reason of such subordination, in the event of the insolvency of the
Corporation, holders of Senior Debt may receive more, ratably, and holders of
the Junior Subordinated Debentures may receive less, ratably, than the other
creditors of the Corporation. Such subordination will not prevent the
occurrence of any Event of Default under the Indenture.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by the Corporation. The Corporation expects from time to
time to incur additional indebtedness constituting Senior Debt.
TRUST EXPENSES
Pursuant to the Expense Agreement for each series of Corresponding Junior
Subordinated Debentures, the Corporation will irrevocably and unconditionally
agree with each Issuer that holds Junior Subordinated Debentures that the
Corporation will pay to such Issuer, and reimburse such Issuer for, the full
amounts of any costs, expenses or liabilities of the Issuer, other than
obligations of the Issuer to pay to the holders of any Preferred Securities or
other similar interests in the Issuer the amounts due such holders pursuant to
the terms of the Preferred Securities or such other similar interests, as the
case may be. Such payment obligation will include any such costs, expenses or
liabilities of the Issuer that are required by applicable law to be satisfied
in connection with a termination of such Issuer.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Illinois.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
The Corresponding Junior Subordinated Debentures may be issued in one or
more series of Junior Subordinated Debentures under the Indenture with terms
corresponding to the terms of a series of Related Preferred Securities. In
that event, concurrently with the issuance of each Issuer's Preferred
Securities, such Issuer will invest the proceeds thereof and the consideration
paid by the Corporation for the Common Securities of such Issuer in such
series of Corresponding Junior Subordinated Debentures issued by the
Corporation to such Issuer. Each series of Corresponding Junior Subordinated
Debentures will be in the principal amount equal to the aggregate stated
Liquidation Amount of the Related Preferred Securities and the Common
Securities of such Issuer and will rank pari passu with all other series of
Junior Subordinated Debentures. Holders of the Related Preferred Securities
for a series of Corresponding Junior Subordinated Debentures will have the
rights in connection with modifications to the Indenture or upon occurrence of
a Debenture Event of Default, as described under "--Modification of Indenture"
and "--Debenture Events of Default," unless provided otherwise in the
Prospectus Supplement for such Related Preferred Securities.
20
Unless otherwise specified in the applicable Prospectus Supplement, if a Tax
Event in respect of an Issuer shall occur and be continuing, the Corporation
may, at its option and subject to receipt of the prior approval of the Federal
Reserve, if then required under applicable Federal Reserve capital guidelines
or policies, redeem the Corresponding Junior Subordinated Debentures at any
time within 90 days of the occurrence of such Tax Event, in whole but not in
part, subject to the provisions of the Indenture and whether or not such
Corresponding Junior Subordinated Debentures are then otherwise redeemable at
the option of the Corporation. Unless otherwise provided in the applicable
Prospectus Supplement, the redemption price for any Corresponding Junior
Subordinated Debentures shall be equal to 100% of the principal amount of such
Corresponding Junior Subordinated Debentures then outstanding plus accrued and
unpaid interest to the date fixed for redemption. For so long as the
applicable Issuer is the holder of all the outstanding Corresponding Junior
Subordinated Debentures of such Issuer, the proceeds of any such redemption
will be used by the Issuer to redeem the corresponding Trust Securities in
accordance with their terms. The Corporation may not redeem a series of
Corresponding Junior Subordinated Debentures in part unless all accrued and
unpaid interest has been paid in full on all outstanding Corresponding Junior
Subordinated Debentures of such series for all interest periods terminating on
or prior to the Redemption Date.
The Corporation will covenant in the Indenture, as to each series of
Corresponding Junior Subordinated Debentures, that if and so long as (i) the
Issuer of the related series of Trust Securities is the holder of all such
Corresponding Junior Subordinated Debentures, (ii) a Tax Event in respect of
such Issuer has occurred and is continuing and (iii) the Corporation has
elected, and has not revoked such election, to pay Additional Sums (as defined
under "Description of Preferred Securities--Redemption or Exchange") in
respect of such Trust Securities, the Corporation will pay to such Issuer such
Additional Sums. The Corporation will also covenant, as to each series of
Corresponding Junior Subordinated Debentures, (i) to maintain directly or
indirectly 100% ownership of the Common Securities of the Issuer to which such
Corresponding Junior Subordinated Debentures have been issued, provided that
certain successors which are permitted pursuant to the Indenture may succeed
to the Corporation's ownership of the Common Securities, (ii) not to
voluntarily terminate, wind-up or liquidate any Issuer, except (a) in
connection with a distribution of Corresponding Junior Subordinated Debentures
to the holders of the Preferred Securities in exchange therefor upon
liquidation of such Issuer or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the related Trust Agreement, in
either such case, if so specified in the applicable Prospectus Supplement,
subject to receipt of the prior approval of the Federal Reserve, if then
required under applicable Federal Reserve capital guidelines or policies, and
(iii) to use its reasonable efforts, consistent with the terms and provisions
of the related Trust Agreement, to cause such Issuer to remain classified for
United States federal income tax purposes as a grantor trust or as other than
an association taxable as a corporation.
21
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for each Issuer, the Issuer
Trustees on behalf of such Issuer will issue the Preferred Securities and the
Common Securities. The Preferred Securities of a particular Issuer will
represent preferred beneficial interests in the Issuer 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 of such Issuer, as well as other benefits as described in the
corresponding Trust Agreement. This summary of certain provisions of the
Preferred Securities and each Trust Agreement, which summarizes the material
terms thereof, does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of each Trust
Agreement, including the definitions therein of certain terms, and the Trust
Indenture Act, to which reference is hereby made. Wherever particular defined
terms of a Trust Agreement (as amended or supplemented from time to time) are
referred to herein or in a Prospectus Supplement, such defined terms are
incorporated herein or therein by reference. The form of the Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each of the Issuers is a legally separate entity and
the assets of one are not available to satisfy the obligations of any of the
others.
GENERAL
The Preferred Securities of an Issuer will rank pari passu, and payments
will be made thereon pro rata, with the Common Securities of that Issuer
except as described under "--Subordination of Common Securities." Legal title
to the Corresponding Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the related
Preferred Securities and Common Securities. Each Guarantee Agreement executed
by the Corporation for the benefit of the holders of an Issuer's Trust
Securities (the "Guarantee" for such Preferred Securities) will be a guarantee
on a subordinated basis with respect to the related Trust Securities but will
not guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when the related Issuer does not have
funds on hand available to make such payments. See "Description of
Guarantees."
DISTRIBUTIONS
Distributions on the Preferred Securities will be cumulative, will
accumulate from the date of original issuance and will be payable on such
dates as specified in the applicable Prospectus Supplement. In the event that
any date on which Distributions are payable on the Preferred Securities is not
a Business Day (as defined below), payment of the Distribution payable on such
date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect to any such delay) except
that, if such Business Day is in the next succeeding calendar year, payment of
such Distribution shall be made on the immediately preceding Business Day, in
either case with the same force and effect as if made on such date (each date
on which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). A "Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in The City of
New York or the City of Chicago, Illinois, are authorized or required by law
or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Debenture Trustee is closed for
business.
Each Issuer's Preferred Securities represent preferred beneficial interests
in the applicable Issuer, and the Distributions on each Preferred Security
will be payable at a rate specified in the applicable Prospectus Supplement
for such Preferred Securities. The amount of Distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months
unless otherwise specified in the applicable Prospectus Supplement.
Distributions to which holders of Preferred Securities are entitled will
accumulate additional Distributions at the rate per annum if and as specified
in the applicable Prospectus Supplement. The term "Distributions" as used
herein includes any such additional Distributions unless otherwise stated.
If provided in the applicable Prospectus Supplement, the Corporation has the
right under the Indenture, pursuant to which it will issue the Corresponding
Junior Subordinated Debentures, to defer the payment of interest at any time
or from time to time on any series of the Corresponding Junior Subordinated
Debentures for
22
up to such number of consecutive interest payment periods which will be
specified in such Prospectus Supplement relating to such series (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Corresponding Junior Subordinated Debentures. As a
consequence of any such deferral, Distributions on the Related Preferred
Securities would be deferred (but would continue to accumulate additional
Distributions thereon at the rate per annum set forth in the Prospectus
Supplement for such Preferred Securities) by the Issuer of such Preferred
Securities during any such Extension Period. During any such Extension Period,
the Corporation may not (i) declare or pay any dividends or distributions on,
or redeem, purchase or acquire, or make a liquidation payment with respect to,
any of the Corporation'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 Corporation that rank pari passu in all respects with or
junior in interest to the Corresponding Junior Subordinated Debentures (other
than (a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Corporation in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Corporation (or securities convertible into
or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of any exchange or conversion of any class or series of the
Corporation's capital stock (or any capital stock of a subsidiary of the
Corporation) for any class or series of the Corporation's capital stock or of
any class or series of the Corporation's indebtedness for any class or series
of the Corporation's capital stock, (c) the purchase of fractional interests
in shares of the Corporation'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 rights plan, or the issuance of rights, stock or other property
under any stockholder 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).
The revenue of each Issuer available for distribution to holders of its
Preferred Securities will be limited to payments under the Corresponding
Junior Subordinated Debentures in which the Issuer will invest the proceeds
from the issuance and sale of its Trust Securities. See "Description of Junior
Subordinated Debentures--Corresponding Junior Subordinated Debentures." If the
Corporation does not make interest payments on such Corresponding Junior
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Related Preferred Securities. The payment of
Distributions (if and to the extent the Issuer has funds legally available for
the payment of such Distributions and cash sufficient to make such payments)
is guaranteed by the Corporation on a limited basis as set forth herein under
"Description of Guarantees."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register of such Issuer on the relevant record
dates, which, as long as the Preferred Securities remain in book-entry form,
will be one Business Day prior to the relevant Distribution Date. Subject to
any applicable laws and regulations and the provisions of the applicable Trust
Agreement, each such payment will be made as described under "Book-Entry
Issuance." In the event any Preferred Securities are not in book-entry form,
the relevant record date for such Preferred Securities shall be the date at
least 15 days prior to the relevant Distribution Date, as specified in the
applicable Prospectus Supplement.
REDEMPTION OR EXCHANGE
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in part,
of any Corresponding Junior Subordinated Debentures, whether at maturity or
upon earlier redemption as provided in the 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 Trust Securities, upon not less than 30
nor more than 60 days notice, at a redemption price (the "Redemption Price")
equal to the aggregate Liquidation Amount of such Trust Securities plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Corporation upon the concurrent redemption of such
23
Corresponding Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures--Redemption." If less than all of any series of
Corresponding 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 Related Preferred Securities and
the Common Securities. The amount of premium, if any, paid by the Corporation
upon the redemption of all or any part of any series of any Corresponding
Junior Subordinated Debentures to be repaid or redeemed on a Redemption Date
shall be allocated to the redemption pro rata of the Related Preferred
Securities and the Common Securities.
The Corporation will have the right to redeem any series of Corresponding
Junior Subordinated Debentures (i) on or after such date as may be specified
in the applicable Prospectus Supplement, in whole at any time or in part from
time to time, (ii) at any time, in whole (but not in part), upon the
occurrence of a Tax Event or Capital Treatment Event or (iii) as may be
otherwise specified in the applicable Prospectus Supplement, in each case
subject to receipt of the prior approval by the Federal Reserve, if then
required under applicable Federal Reserve capital guidelines or policies.
Tax Event or Capital Treatment Event Redemption. If a Tax Event or Capital
Treatment Event in respect of a series of Preferred Securities and Common
Securities shall occur and be continuing, the Corporation shall have the right
to redeem the Corresponding Junior Subordinated Debentures in whole (but not
in part) and thereby cause a mandatory redemption of such Preferred Securities
and Common Securities in whole (but not in part) at the Redemption Price
within 90 days following the occurrence of such Tax Event or Capital Treatment
Event. In the event a Tax Event or Capital Treatment Event in respect of a
series of Preferred Securities and Common Securities has occurred and is
continuing and the Corporation does not elect to redeem the Corresponding
Junior Subordinated Debentures and thereby cause a mandatory redemption of
such Preferred Securities or to liquidate the related Issuer and cause the
Corresponding Junior Subordinated Debentures to be distributed to holders of
such Preferred Securities and Common Securities in exchange therefor upon
liquidation of the Issuer as described above, such Preferred Securities will
remain outstanding and Additional Sums (as defined below) may be payable on
the Corresponding 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 an Issuer on the
outstanding Preferred Securities and Common Securities of the Issuer shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which such Issuer has become subject as a result of a Tax Event.
"Capital Treatment Event" means the reasonable determination by the
Corporation 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, rules 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 of an Issuer, there is more than an
insubstantial risk that the Corporation will not be entitled to treat an
amount equal to the aggregate Liquidation Amount of such Preferred Securities
as Tier 1 capital (or the then equivalent thereof) for purposes of the capital
adequacy guidelines of the Federal Reserve, as then in effect and applicable
to the Corporation.
"Like Amount" means (i) with respect to a redemption of any series of Trust
Securities, Trust Securities of such series having a Liquidation Amount (as
defined below) equal to the principal amount of Corresponding Junior
Subordinated Debentures to be contemporaneously redeemed in accordance with
the Indenture, the proceeds of which will be used to pay the Redemption Price
of such Trust Securities, and (ii) with respect to a distribution of
Corresponding Junior Subordinated Debentures to holders of any series of Trust
Securities in connection with a dissolution or liquidation of the related
Issuer, Corresponding Junior Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Trust Securities in respect of which
such distribution is made.
"Liquidation Amount" means the stated amount per Trust Security of $25 (or
such other stated amount as is set forth in the applicable Prospectus
Supplement).
24
"Tax Event" with respect to an Issuer means the receipt by the Issuer of a
series of Preferred Securities of an opinion of counsel experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which pronouncement or
decision is announced on or after the date of issuance of such Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
that (i) such Issuer is, or will be within 90 days of the date of such
opinion, subject to United States federal income tax with respect to income
received or accrued on the corresponding series of Corresponding Junior
Subordinated Debentures, (ii) interest payable by the Corporation on such
series of Corresponding Junior Subordinated Debentures is not, or within 90
days of the date of such opinion, will not be, deductible by the Corporation,
in whole or in part, for United States federal income tax purposes, or (iii)
such Issuer is, or will be within 90 days of the date of such opinion, subject
to more than a de minimis amount of other taxes, duties or other governmental
charges.
Possible Tax Law Changes. On March 19, 1996, the Revenue Reconciliation
Bill, the revenue portion of President Clinton's budget proposal, was
introduced in the 104th Congress. If enacted, the Revenue Reconciliation Bill
would have generally denied interest deductions for interest on an instrument
issued by a corporation that has a maximum term of more than 20 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. For
purposes of determining the weighted average maturity or the term of an
instrument, any right to extend would be treated as exercised. The above-
described provisions of the Revenue Reconciliation Bill were proposed to be
effective generally for instruments issued on or after December 7, 1995. If
the proposed provision had applied to the Preferred Securities of any Series,
the Corporation would have been unable to deduct interest on the Preferred
Securities of such Series. However, on March 29, 1996, the Chairmen of the
Senate Finance and House Ways and Means Committees issued a joint statement to
the effect that it was their intention that the effective date of the
President's legislative proposals, if adopted, will be no earlier than the
date of appropriate Congressional action. The 104th Congress adjourned without
enacting the above-described provisions of the Revenue Reconciliation Bill,
and under current law, the Corporation will be able to deduct interest on the
Preferred Securities.
Although the above-described provisions of the Revenue Reconciliation Bill
were not enacted in 1996, there can be no assurance that current or future
legislative proposals or final legislation will not affect the ability of the
Corporation to deduct interest on the Preferred Securities. Such a change
could give rise to a Tax Event, which may permit the Corporation to cause a
redemption of the Preferred Securities, as described more fully herein.
Distribution of Corresponding Junior Subordinated Debentures. Subject to the
Corporation having received the prior approval of the Federal Reserve to do
so, if such approval is then required under applicable Federal Reserve capital
guidelines or policies, the Corporation has the right at any time to terminate
any Issuer and, after satisfaction of the liabilities to creditors of such
Issuer as provided by applicable law, cause the Corresponding Junior
Subordinated Debentures in respect of the Preferred Securities and Common
Securities issued by such Issuer to be distributed to the holders of such
Preferred Securities and Common Securities in liquidation of the Issuer.
After the liquidation date fixed for any distribution of Corresponding
Junior Subordinated Debentures for any series of Preferred Securities (i) such
series of Preferred Securities will no longer be deemed to be outstanding,
(ii) the Depositary or its nominee, as the record holder of such series of
Preferred Securities, will receive a registered global certificate or
certificates representing the Corresponding Junior Subordinated Debentures to
be delivered upon such distribution and (iii) any certificates representing
such series of Preferred Securities not held by DTC or its nominee will be
deemed to represent the Corresponding Junior Subordinated Debentures having a
principal amount equal to the stated Liquidation Amount of such series of
Preferred Securities, and bearing accrued and unpaid interest in an amount
equal to the accrued and unpaid Distributions
25
on such series of Preferred Securities until such certificates are presented
to the Administrative Trustees or their agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Corresponding Junior Subordinated Debentures that may be
distributed in exchange for Preferred Securities if a dissolution and
liquidation of an Issuer were to occur. Accordingly, the Preferred Securities
that an investor may purchase, or the Corresponding Junior Subordinated
Debentures that the investor may receive on dissolution and liquidation of an
Issuer, may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Corresponding 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 related Issuer has
funds on hand available for the payment of such Redemption Price. See also "--
Subordination of Common Securities."
If the Property Trustee 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, 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 such Preferred Securities. See "Book-Entry
Issuance." If such Preferred Securities are no longer in book-entry form, the
Property Trustee, to the extent funds are available, will irrevocably deposit
with the paying agent for such 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 such 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 such 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, including any Distribution payable
in respect of the Preferred Securities on or prior to the Redemption Date, but
without interest on such Redemption Price, and such Preferred Securities will
cease to be outstanding. In the event that any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the Redemption
Price payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day, in each
case, with the same force and effect as if made on such date. In the event
that payment of the Redemption Price in respect of Preferred Securities called
for redemption is improperly withheld or refused and not paid either by the
Issuer or by the Corporation pursuant to the Guarantee as described under
"Description of Guarantees," Distributions on such Preferred Securities will
continue to accrue at the then applicable rate from the Redemption Date
originally established by the Issuer 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 law), the Corporation or its subsidiaries may at any time
and from time to time purchase outstanding Preferred Securities by tender, in
the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Corresponding Junior Subordinated Debentures to holders of
Preferred Securities shall be made to the applicable recordholders thereof as
they appear on the register for such Preferred Securities on the relevant
record date, which shall be one Business Day prior to the relevant Redemption
Date or liquidation date, as applicable; provided, however, that in
26
the event that any Preferred Securities are not in book-entry form, the
relevant record date for such Preferred Securities shall be a date at least 15
days prior to the Redemption Date or liquidation date, as applicable, as
specified in the applicable Prospectus Supplement.
If less than all of the Preferred Securities and Common Securities issued by
an Issuer 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, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof, unless a
different amount is specified in the applicable Prospectus Supplement) of the
Liquidation Amount of Preferred Securities of a denomination larger than $25
(or such other denomination as is specified in the applicable Prospectus
Supplement). The Property Trustee shall promptly notify the Securities
Registrar in writing of the Preferred Securities selected for redemption and,
in the case of any Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of each 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 holder of Trust Securities to be
redeemed at its registered address. Unless the Corporation defaults in payment
of the Redemption Price on the Corresponding Junior Subordinated Debentures,
on and after the Redemption Date interest will cease to accrue on such Junior
Subordinated Debentures or portions thereof (and Distributions will cease to
accrue on the Related Preferred Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Issuer's
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amount of such Preferred Securities and Common
Securities; provided, however, that if on any Distribution Date, Redemption
Date or Liquidation Date a Debenture Event of Default shall have occurred and
be continuing, no payment of any Distribution on, or Redemption Price of, or
Liquidation Distribution in respect of, any of the Issuer's 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 of the Issuer's
outstanding Preferred Securities for all Distribution periods terminating on
or prior thereto, or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all of the Issuer's outstanding Preferred
Securities then called for redemption, or in the case of payment of the
Liquidation Distribution the full amount of such Liquidation Distribution on
all Outstanding Preferred Securities, 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
Issuer's Preferred Securities then due and payable.
In the case of any Event of Default under the applicable Trust Agreement
resulting from a Debenture Event of Default, the Corporation as holder of such
Issuer's Common Securities will be deemed to have waived any right to act with
respect to any such Event of Default under the applicable Trust Agreement
until the effect of all such Events of Default with respect to such Preferred
Securities have been cured, waived or otherwise eliminated. See "--Events of
Default; Notice." Until any such Events of Default under the applicable Trust
Agreement with respect to the Preferred Securities have been so cured, waived
or otherwise eliminated, the Property Trustee shall act solely on behalf of
the holders of such Preferred Securities and not on behalf of the Corporation
as holder of the Issuer's Common Securities, and only the holders of such
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
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LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to each Trust Agreement, each Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the written direction to the Property Trustee from the Corporation at any
time to terminate an Issuer and to distribute a Like Amount of the
Corresponding Junior Subordinated Debentures in exchange for its Trust
Securities (subject to the Corporation having received the prior approval of
the Federal Reserve, if then required under applicable Federal Reserve capital
guidelines or policies); (iii) redemption of all of the Issuer's Preferred
Securities as described under "--Redemption or Exchange--Mandatory
Redemption"; and (iv) the entry of an order for the dissolution of the Issuer
by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer shall be liquidated by the Issuer Trustees as expeditiously
as the Issuer Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of such Issuer as provided by
applicable law, to the holders of such Trust Securities in exchange therefor a
Like Amount of the Corresponding Junior Subordinated Debentures, unless such
distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer available for distribution to holders, after satisfaction of
liabilities to creditors of such Issuer as provided by applicable law, an
amount equal to, in the case of holders of Preferred Securities, the aggregate
of the Liquidation Amount plus accrued and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because such Issuer has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by such Issuer on its
Preferred Securities shall be paid on a pro rata basis. The holder(s) of such
Issuer's Common Securities will be entitled to receive distributions upon any
such liquidation pro rata with the holders of its Preferred Securities, except
that if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a priority over the Common Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under each
Trust Agreement with respect to the Preferred Securities issued thereunder
(whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Junior Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by the Issuer 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 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 such 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 defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Preferred Securities of the applicable Issuer, 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 such
Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Corporation to
appoint a successor Property Trustee 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 shall transmit
notice of such Event of Default to the holders of such Issuer's Preferred
Securities, the Administrative Trustees and the Corporation, as Depositor,
unless such Event of Default
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shall have been cured or waived. The Corporation, as Depositor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under each Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities as
described above. See "--Liquidation Distribution Upon Termination." The
existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Corporation as the holder of the
Common Securities. 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
applicable Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or from time to time, for the purpose of meeting the legal requirements
of the Trust Indenture Act or of any jurisdiction in which any part of the
Trust Property may at the time be located, the Corporation, as the holder of
the Common Securities, and the Administrative Trustees shall have power to
appoint one or more persons either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to act as
separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of the applicable Trust Agreement. In
case a Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under each Trust
Agreement, provided such entity shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUERS
An Issuer may not merge, consolidate or amalgamate with or into, 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 provided in such Issuer's Trust Agreement. An Issuer may, at the
request of the Corporation, with the consent of the Administrative Trustees
and without the consent of the holders of the Preferred Securities, merge,
consolidate or amalgamate with or into, or be replaced by or convey, transfer
or lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of such
Issuer with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as
the Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities in priority with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
the Corporation expressly appoints a trustee of such successor entity
possessing the same powers and duties as
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the Property Trustee as the holder of the Corresponding Junior Subordinated
Debentures, (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange, automated quotation system or other organization on which
the Preferred Securities are then listed, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not cause the Preferred Securities to be downgraded by any nationally
recognized statistical rating organization which assigns ratings to the
Preferred Securities, (v) 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, (vi) such
successor entity has a purpose substantially identical to that of the Issuer,
(vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Corporation has received an opinion from
independent counsel to the Issuer 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 nor such successor entity will be required to register as
an investment company under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), and (viii) the Corporation or any permitted
successor or assignee owns all of the common securities of such successor
entity and guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, an Issuer shall not, except with the consent of
holders of 100% in Liquidation Amount of the Preferred Securities, merge,
consolidate or amalgamate 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 merge, consolidate or amalgamate with or
into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer or the successor entity
to be classified as an association taxable as a corporation or as other than a
grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
Except as provided below and under "Description of Guarantees--Amendments
and Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Preferred Securities will have no voting rights.
Each Trust Agreement may be amended from time to time by the holders of the
Common Securities, the Property Trustee and the Administrative Trustees,
without the consent of the holders of the Preferred Securities (i) to cure any
ambiguity, correct or supplement any provisions in such Trust Agreement that
may be inconsistent with any other provision, or to make any other provisions
with respect to matters or questions arising under such Trust Agreement, which
shall not be inconsistent with the other provisions of such Trust Agreement,
or (ii) to modify, eliminate or add to any provisions of such Trust Agreement
to such extent as shall be necessary to ensure that the Issuer will not be
taxable as a corporation or classified as other than a grantor trust for
United States federal income tax purposes at all times that any Trust
Securities are outstanding or to ensure that the Issuer will not be required
to register as an "investment company" under the Investment Company Act;
provided, however, that in the case of either clause (i) or clause (ii), such
action shall not adversely affect in any material respect the interests of any
holder of Preferred Securities, and any amendments of such Trust Agreement
shall become effective when notice thereof is given to the holders of Trust
Securities. Each Trust Agreement may be amended by the Issuer Trustees and the
holders of the Common Securities with (i) the consent of holders representing
not less than a majority (based upon Liquidation Amounts) of the outstanding
Trust 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 cause the
Issuer to be taxable as a corporation or affect the Issuer's status as a
grantor trust for United States federal income tax purposes or the Issuer's
exemption from status as an "investment company" under the Investment Company
Act, provided that without the consent of each holder of Trust Securities,
such 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.
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So long as any Corresponding Junior Subordinated Debentures are held by the
Property Trustee, the Issuer Trustees shall not (i) direct the time, method
and place of conducting any proceeding for any remedy available to the
Debenture Trustee, or executing any trust or power conferred on the Property
Trustee with respect to such Corresponding Junior Subordinated Debentures,
(ii) waive any past default that is waivable under the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Junior Subordinated Debentures shall be due and payable or (iv) consent to
any amendment, modification or termination of the Indenture or such
Corresponding Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders
of a majority in aggregate Liquidation Amount of all outstanding Preferred
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Corresponding Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the Related Preferred
Securities. The Issuer Trustees shall 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 shall notify each holder of Preferred Securities of any
notice of default with respect to the Corresponding Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals of the holders of
the Preferred Securities, prior to taking any of the foregoing actions, the
Issuer Trustees shall obtain an opinion of counsel experienced in such matters
to the effect that the Issuer will not be classified as an association taxable
as a corporation for United States federal income tax purposes on account of
such action and such action would not cause the Issuer to be classified as
other than a grantor trust for United States federal income tax purposes.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be
taken, to be given to each holder of record of Preferred Securities in the
manner set forth in each Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for an Issuer to redeem and cancel its Preferred Securities in accordance with
the applicable 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 Corporation, the Issuer Trustees or any
affiliate of the Corporation or any Issuer Trustees, shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The Preferred Securities of a series may be issued in whole or in part in
the form of one or more Global Preferred Securities that will be deposited
with, or on behalf of, the Depositary identified in the Prospectus Supplement
relating to such series. Unless otherwise indicated in the applicable
Prospectus Supplement for such series, the Depositary will be DTC. Global
Preferred Securities may be issued only in fully registered form and in either
temporary or permanent form. Unless and until it is exchanged in whole or in
part for the individual Preferred Securities represented thereby, a Global
Preferred Security may not be transferred except as a whole by the Depositary
for such Global Preferred Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by the Depositary or any nominee to a successor Depositary or
any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Preferred Securities will be described in the Prospectus Supplement relating
to such series. The Corporation anticipates that the following provisions will
generally apply to depositary arrangements. See "Book-Entry Issuance."
Upon the issuance of a Global Preferred Security, and the deposit of such
Global Preferred Security with or on behalf of the Depositary, the Depositary
for such Global Preferred Security or its nominee will credit, on its book-
entry registration and transfer system, the respective aggregate Liquidation
Amounts of the individual
31
Preferred Securities represented by such Global Preferred Securities to the
accounts of Participants. Such accounts shall be designated by the dealers,
underwriters or agents with respect to such Preferred Securities or by the
Corporation if such Preferred Securities are offered and sold directly by the
Corporation. Ownership of beneficial interests in a Global Preferred Security
will be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Preferred
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the applicable Depositary or its nominee
(with respect to interests of Participants) and the records of Participants
(with respect to interests of persons who hold through Participants). The laws
of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Preferred
Security.
So long as the Depositary for a Global Preferred Security, or its nominee,
is the registered owner of such Global Preferred Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Preferred Securities represented by such Global Preferred Security for
all purposes under the Indenture governing such Preferred Securities. Except
as provided below, owners of beneficial interests in a Global Preferred
Security will not be entitled to have any of the individual Preferred
Securities of the series represented by such Global Preferred Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Preferred Securities of such series in definitive form
and will not be considered the owners or holders thereof under the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Preferred Securities represented by a Global Preferred Security registered in
the name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Preferred
Security representing such Preferred Securities. None of the Corporation, the
Property Trustee, any Paying Agent, or the Securities Registrar for such
Preferred Securities will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Global Preferred Security representing such Preferred
Securities or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Corporation expects that the Depositary for a series of Preferred
Securities or its nominee, upon receipt of any payment of Liquidation Amount,
premium or Distributions, including any payment of Redemption Price, in
respect of a permanent Global Preferred Security representing any of such
Preferred Securities immediately will credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interest in
the aggregate Liquidation Amount of such Global Preferred Security for such
Preferred Securities as shown on the records of such Depositary or its
nominee. The Corporation also expects that payments by Participants to owners
of beneficial interests in such Global Preferred Security held through such
Participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Preferred Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is
not appointed by the Issuer within 90 days, or if there shall have occurred
and be continuing an event of default under the Indenture with respect to the
Subordinated Debentures of such series, the Issuer will issue individual
Preferred Securities of such series in exchange for the Global Preferred
Security representing such series of Preferred Securities. In addition, the
Issuer may at any time and in its sole discretion, subject to any limitations
described in the Prospectus Supplement relating to such Preferred Securities,
determine not to have any Preferred Securities of such series represented by
one or more Global Preferred Securities and, in such event, will issue
individual Preferred Securities of such series in exchange for the Global
Preferred Security or Securities representing such series of Preferred
Securities. Further, if the Issuer so specifies with respect to the Preferred
Securities of a series, an owner of a beneficial interest in a Global
Preferred Security representing Preferred
32
Securities of such series may, on terms acceptable to the Issuer, the Property
Trustee and the Depositary for such Global Preferred Security, receive
individual Preferred Securities of such series in exchange for such beneficial
interests, subject to any limitations described in the Prospectus Supplement
relating to such Preferred Securities. In any such instance, an owner of a
beneficial interest in a Global Preferred Security will be entitled to
physical delivery of individual Preferred Securities of the series represented
by such Global Preferred Security equal in principal amount to such beneficial
interest and to have such Preferred Securities registered in its name.
Individual Preferred Securities of such series so issued will be issued in
denominations, unless otherwise specified by the Issuer, and integral
multiples thereof that are the same as the denominations and multiples in
which the Preferred Securities are issued.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any Issuer's Preferred Securities are not
held by the Depositary, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Securities Register. Unless otherwise specified in the applicable Prospectus
Supplement, the paying agent (the "Paying Agent") shall initially be the
Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees and the Corporation. The Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Corporation. In the event that the
Property Trustee shall no longer be the Paying Agent, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company
acceptable to the Administrative Trustees and the Corporation) to act as
Paying Agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable Prospectus Supplement, 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 each Issuer, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuers will not be required to register or cause to be
registered the transfer of their Preferred Securities after such 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 each 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 applicable Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the applicable Trust Agreement or is unsure of the application of any
provision of the applicable Trust Agreement, and the matter is not one on
which holders of Preferred Securities are entitled under such Trust Agreement
to vote, then the Property Trustee shall take such action as is directed by
the Corporation and if not so directed, shall take such action as it deems
advisable and in the best interests of the holders of the Trust Securities and
will have no liability except for its own bad faith, negligence or willful
misconduct.
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MISCELLANEOUS
The Issuer Trustees are authorized and directed to conduct the affairs of
and to operate the Issuers in such a way that no Issuer will be deemed to be
an "investment company" required to be registered under the Investment Company
Act or classified for United States federal income tax purposes as an
association taxable as a corporation or as other than a grantor trust and so
that the Corresponding Junior Subordinated Debentures will be treated as
indebtedness of the Corporation for United States federal income tax purposes.
In this connection, each Administrative Trustee, the Property Trustee and the
holders of at least a majority in Liquidation Amount of the Common Securities
are authorized to take any action, not inconsistent with applicable law, the
certificate of trust of each Issuer or each Trust Agreement, that such
Administrative Trustee, the Property Trustee or holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes,
as long as such action does not adversely affect in any material respect the
interests of the holders of the Related Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
No Issuer may borrow money or issue debt or mortgage or pledge any of its
assets.
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary for all of the Preferred Securities
and the Junior Subordinated Debentures, unless otherwise referred to in the
Prospectus Supplement relating to an offering of Preferred Securities or
Junior Subordinated Debentures. The Preferred Securities and the Junior
Subordinated Debentures will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more fully-
registered global certificates will be issued for the Preferred Securities of
each Issuer and the Junior Subordinated Debentures, representing in the
aggregate the total number of such Issuer's Preferred Securities or aggregate
principal balance of Junior Subordinated Debentures, respectively, and will be
deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. "Direct Participants" include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain custodial
relationships with Direct Participants, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of Preferred Securities or Junior Subordinated Debentures within
the DTC system must be made by or through Direct Participants, which will
receive a credit for the Preferred Securities or Junior Subordinated
Debentures on DTC's records. The ownership interest of each actual purchaser
of each Preferred Security and each Junior Subordinated Debenture ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Preferred Securities or Junior
Subordinated Debentures. Transfers of ownership interests in the Preferred
Securities or Junior Subordinated Debentures are to be accomplished by entries
made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Preferred Securities or Junior Subordinated Debentures, except in
the event that use of the book-entry system for the Preferred Securities of
such Issuer or Junior Subordinated Debentures is discontinued.
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DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities or Junior Subordinated Debentures; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Preferred
Securities or Junior Subordinated Debentures are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Preferred Securities or Junior Subordinated Debentures. If less than all
of an Issuer's Preferred Securities or the Junior Subordinated Debentures are
being redeemed, DTC's current practice is to determine by lot the amount of
the interest of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Preferred
Securities or Junior Subordinated Debentures, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Preferred Securities or Junior Subordinated Debentures. Under its
usual procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to the
relevant Trustee as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts such Preferred Securities or Junior Subordinated Debentures
are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Distribution payments on the Preferred Securities or the Junior Subordinated
Debentures will be made by the relevant Trustee to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, the relevant Trustee, the Issuer thereof or the
Corporation, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of Distributions to DTC is the
responsibility of the relevant Trustee, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursements of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depositary with
respect to any of the Preferred Securities or the Junior Subordinated
Debentures at any time by giving reasonable notice to the relevant Trustee and
the Corporation. In the event that a successor securities depositary is not
obtained, definitive Preferred Security or Junior Subordinated Debenture
certificates representing such Preferred Securities or Junior Subordinated
Debentures are required to be printed and delivered. The Corporation, at its
option, may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depositary). After a Debenture Event of Default,
the holders of a majority in liquidation preference of Preferred Securities or
aggregate principal amount of Junior Subordinated Debentures may determine to
discontinue the system of book-entry transfers through DTC. In any such event,
definitive certificates for such Preferred Securities or Junior Subordinated
Debentures will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuers and the Corporation believe to
be accurate, but the Issuers and the Corporation assume no responsibility for
the accuracy thereof. Neither the Issuers nor the Corporation has any
responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
35
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by the Corporation concurrently
with the issuance by each Issuer of its Preferred Securities for the benefit
of the holders from time to time of such Preferred Securities. The First
National Bank of Chicago will act as indenture trustee ("Guarantee Trustee")
under each Guarantee for the purposes of compliance with the Trust Indenture
Act and each Guarantee will be qualified as an indenture under the Trust
Indenture Act. This summary of certain provisions of the Guarantees, which
summarizes the material terms thereof, does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of each Guarantee, including the definitions therein of certain
terms, and the Trust Indenture Act, to each of which reference is hereby made.
The form of the Guarantee has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Reference in this summary to
Preferred Securities means that Issuer's Preferred Securities to which a
Guarantee relates. The Guarantee Trustee will hold each Guarantee for the
benefit of the holders of the related Issuer's Preferred Securities.
GENERAL
The Corporation will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth 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 such Issuer 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
related Issuer (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 such Issuer 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 such Issuer has
funds on hand available therefor at such time, or (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of such Issuer (unless the
Corresponding Junior Subordinated Debentures are distributed to holders of
such Preferred Securities in exchange therefor), the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of such Issuer remaining
available for distribution to holders of Preferred Securities after
satisfaction of liabilities to creditors of such Issuer as required by
applicable law. The Corporation's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the Corporation to
the holders of the applicable Preferred Securities or by causing the Issuer to
pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee on a subordinated basis of
the related Issuer's obligations under the Preferred Securities, but will
apply only to the extent that such related Issuer has funds sufficient to make
such payments, and is not a guarantee of collection.
If the Corporation does not make interest payments on the Corresponding
Junior Subordinated Debentures held by the Issuer, the Issuer will not be able
to pay Distributions on the Preferred Securities and will not have funds
legally available therefor. Each Guarantee will rank subordinate and junior in
right of payment to all Senior Debt of the Corporation. See "--Status of the
Guarantees." Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary
upon such subsidiary's liquidation or reorganization or otherwise, is subject
to the prior claims of creditors of that subsidiary, except to the extent the
Corporation may itself be recognized as a creditor of that subsidiary.
Accordingly, the Corporation's obligations under the Guarantees will be
effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries, and claimants should look only to the assets of
the Corporation for payments thereunder. See "The Corporation." Except as
otherwise provided in the applicable Prospectus Supplement, the Guarantees do
not limit the incurrence or issuance of other secured or unsecured debt of the
Corporation, including Senior Debt, whether under the Indenture, any other
existing indenture or any other indenture that the Corporation may enter into
in the future or otherwise. See the applicable Prospectus Supplement relating
to any offering of Preferred Securities.
The Corporation has, through the applicable Guarantee, the applicable Trust
Agreement, the applicable series of Corresponding Junior Subordinated
Debentures, the Indenture and the applicable Expense Agreement,
36
taken together, fully, irrevocably and unconditionally guaranteed all of the
Issuer's obligations under the Preferred Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the Preferred
Securities. See "Relationship Among the Preferred Securities, the
Corresponding Junior Subordinated Debentures, the Expense Agreement and the
Guarantees."
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Corporation
and will rank subordinate and junior in right of payment to all Senior Debt of
the Corporation in the same manner as Junior Subordinated Debentures.
Each Guarantee will rank pari passu with all other Guarantees issued by the
Corporation. Each Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Corporation to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). Each Guarantee will be held for the benefit of the holders of the
related Preferred Securities. No Guarantee will be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
or upon distribution to the holders of the Preferred Securities of the
Corresponding Junior Subordinated Debentures. None of the Guarantees places a
limitation on the amount of additional Senior Debt that may be incurred by the
Corporation. The Corporation expects from time to time to incur additional
indebtedness constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the related Preferred Securities (in which case no
vote will be required), no Guarantee may be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of such outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of Preferred Securities--
Voting Rights; Amendment of Each Trust Agreement." All guarantees and
agreements contained in each Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Corporation and shall inure to
the benefit of the holders of the related Preferred Securities then
outstanding.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure of the
Corporation to perform any of its payment obligations thereunder or to perform
any non-payment obligations if such non-payment default remains unremedied for
30 days. The holders of not less than a majority in aggregate Liquidation
Amount of the related 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 such Guarantee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under such Guarantee.
Any holder of the Preferred Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under such Guarantee
without first instituting a legal proceeding against the Issuer, the Guarantee
Trustee or any other person or entity.
The Corporation, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Corporation in performance of any Guarantee, undertakes to
perform only such duties as are specifically set forth in each Guarantee and,
after default with respect to any Guarantee, must exercise the same degree of
care and skill as a
37
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 any Guarantee at the request of any
holder of any Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the related Preferred Securities, upon
full payment of the amounts payable upon liquidation of the related Issuer or
upon distribution of Corresponding Junior Subordinated Debentures to the
holders of the related Preferred Securities in exchange therefor. Each
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the related Preferred Securities must restore
payment of any sums paid under such Preferred Securities or such Guarantee.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the laws
of the State of Illinois.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Corporation under each
Trust Agreement (the "Expense Agreement"), the Corporation will irrevocably
and unconditionally guarantee to each Person or entity to whom the Issuer
becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Issuer, other than obligations of the Issuer to pay to the
holders of any Preferred Securities or other similar interests in the Issuer
of the amounts due such holders pursuant to the terms of the Preferred
Securities or such other similar interests, as the case may be. The Expense
Agreement will be enforceable by third parties.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE CORRESPONDING JUNIOR
SUBORDINATED DEBENTURES, THE EXPENSE AGREEMENT AND THE GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Corporation as and to the
extent set forth under "Description of Guarantees." Taken together, the
Corporation's obligations under each series of Corresponding Junior
Subordinated Debentures, the Indenture, the related Trust Agreement, the
related Expense Agreement, and the related Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Related Preferred Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Issuer's obligations under the
Related Preferred Securities. If and to the extent that the Corporation does
not make payments on any series of Corresponding Junior Subordinated
Debentures, such Issuer will not pay Distributions or other amounts due on its
Related Preferred Securities. The Guarantees do not cover payment of
Distributions when the related Issuer does not have sufficient funds to pay
such Distributions. In such event, the remedy of a holder of a series of
Preferred Securities is to institute a legal proceeding directly against the
Corporation pursuant to the terms of the Indenture for enforcement of payment
of amounts of such Distributions to such holder. The obligations of the
Corporation under each Guarantee are subordinate and junior in right of
payment to all Senior Debt of the Corporation.
38
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on each
series of Corresponding Junior Subordinated Debentures, such payments will be
sufficient to cover Distributions and other payments due on the Related
Preferred Securities, primarily because (i) the aggregate principal amount of
each series of Corresponding Junior Subordinated Debentures will be equal to
the sum of the aggregate stated Liquidation Amount of the Related Preferred
Securities and related Common Securities; (ii) the interest rate and interest
and other payment dates on each series of Corresponding Junior Subordinated
Debentures will match the Distribution rate and Distribution and other payment
dates for the Related Preferred Securities; (iii) the Corporation shall pay
for all and any costs, expenses and liabilities of such Issuer except the
Issuer's obligations to holders of its Preferred Securities under such
Preferred Securities; and (iv) each Trust Agreement provides that the Issuer
will not engage in any activity that is not consistent with the limited
purposes of such Issuer.
Notwithstanding anything to the contrary in the Indenture, the Corporation
has the right to set-off any payment it is otherwise required to make
thereunder with and to the extent the Corporation has theretofore made, or is
concurrently on the date of such payment making, a payment under the related
Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any related Preferred Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the related
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, the related Issuer or any other person or entity.
A default or event of default under any Senior Debt of the Corporation would
not constitute a default or Event of Default under the Indenture. However, in
the event of payment defaults under, or acceleration of, Senior Debt of the
Corporation, the subordination provisions of the Indenture provide that no
payments may be made in respect of the Corresponding Junior Subordinated
Debentures until such Senior Debt has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on any
series of Corresponding Junior Subordinated Debentures would constitute a
Debenture Event of Default.
LIMITED PURPOSE OF ISSUERS
Each Issuer's Preferred Securities evidence a beneficial interest in such
Issuer, and each Issuer exists for the sole purpose of issuing its Preferred
Securities and Common Securities and investing the proceeds thereof in
Corresponding Junior Subordinated Debentures. A principal difference between
the rights of a holder of a Preferred Security and a holder of a Corresponding
Junior Subordinated Debenture is that a holder of a Corresponding Junior
Subordinated Debenture is entitled to receive from the Corporation the
principal amount of and interest accrued on Corresponding Junior Subordinated
Debentures held, while a holder of Preferred Securities is entitled to receive
Distributions from such Issuer (or from the Corporation under the applicable
Guarantee) if and to the extent such Issuer has funds available for the
payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
any Issuer involving the liquidation of the Corresponding Junior Subordinated
Debentures, after satisfaction of the liabilities to creditors of such Issuer
as required by applicable law, the holders of the related Preferred Securities
will be entitled to receive, out of the assets held by such Issuer, the
Liquidation Distribution in cash. See "Description of Preferred Securities--
Liquidation Distribution Upon Termination." Upon any voluntary or involuntary
liquidation or bankruptcy of the Corporation, the Property Trustee, as holder
of the Corresponding Junior Subordinated Debentures, would be a subordinated
creditor of the Corporation, subordinated in right of payment to all Senior
Debt as set forth in the Indenture, but entitled to receive payment in full of
principal and interest, before any stockholders of the Corporation receive
payments or distributions. Since the Corporation is the guarantor under each
Guarantee and has agreed to pay for all costs, expenses and liabilities of
each Issuer (other than the Issuer's obligations to the holders of its
Preferred Securities), the positions of a holder of such Preferred Securities
and a holder of such Corresponding Junior Subordinated Debentures relative to
other creditors and to stockholders of the Corporation in the event of
liquidation or bankruptcy of the Corporation are expected to be substantially
the same.
39
PLAN OF DISTRIBUTION
The Junior Subordinated Debentures or the Preferred Securities may be sold
in a public offering to or through underwriters or dealers designated from
time to time. The Corporation and each Issuer may sell its Junior Subordinated
Debentures or Preferred Securities as soon as practicable after effectiveness
of the Registration Statement of which this Prospectus forms a part. The names
of any underwriters or dealers involved in the sale of the Junior Subordinated
Debentures or Preferred Securities in respect of which this Prospectus is
delivered, the amount or number of Junior Subordinated Debentures and
Preferred Securities to be purchased by any such underwriters and any
applicable commissions or discounts will be set forth in the applicable
Prospectus Supplement.
Underwriters may offer and sell Junior Subordinated Debentures or Preferred
Securities at a fixed price or prices, which may be changed, or from time to
time at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. In connection with the
sale of Preferred Securities, underwriters may be deemed to have received
compensation from the Corporation and/or the applicable Issuer in the form of
underwriting discounts or commissions and may also receive commissions.
Underwriters may sell Junior Subordinated Debentures or Preferred Securities
to or through dealers, and such dealers may receive compensation in the form
of discounts, concessions or commissions from the underwriters.
Any underwriting compensation paid by the Corporation and/or the applicable
Issuer to underwriters in connection with the offering of Junior Subordinated
Debentures or Preferred Securities, and any discounts, concessions or
commissions allowed by such underwriters to participating dealers, will be
described in an accompanying Prospectus Supplement. Underwriters and dealers
participating in the distribution of Junior Subordinated Debentures or
Preferred Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of such
Junior Subordinated Debentures or Preferred Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act. Underwriters
and dealers may be entitled, under agreement with the Corporation and the
applicable Issuer, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act, and to
reimbursement by the Corporation for certain expenses.
In connection with the offering of the Preferred Securities of any Issuer,
such Issuer may grant to the underwriters an option to purchase additional
Preferred Securities to cover over-allotments, if any, at the initial public
offering price (with an additional underwriting commission), as may be set
forth in the accompanying Prospectus Supplement. If such Issuer grants any
over-allotment option, the terms of such over-allotment option will be set
forth in the Prospectus Supplement for such Preferred Securities.
Underwriters and dealers may engage in transactions with, or perform
services for, the Corporation and/or the applicable Issuer and/or any of their
affiliates in the ordinary course of business.
The Junior Subordinated Debentures and the Preferred Securities will be new
issues of securities and will have no established trading market. Any
underwriters to whom Junior Subordinated Debentures or Preferred Securities
are sold for public offering and sale may make a market in such Junior
Subordinated Debentures and Preferred Securities, but such underwriters will
not be obligated to do so and may discontinue any market making at any time
without notice. Such Junior Subordinated Debentures or Preferred Securities
may or may not be listed on a national securities exchange or automated
quotation system (including the Nasdaq Stock Market). No assurance can be
given as to the liquidity of or the existence of trading markets for any
Junior Subordinated Debentures or Preferred Securities.
40
VALIDITY OF SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, certain
matters of Delaware law relating to the validity of the Preferred Securities,
the enforceability of the Trust Agreements and the creation of the Issuers
will be passed upon by Richards, Layton & Finger, Wilmington, Delaware,
special Delaware counsel to the Corporation and the Issuers. Unless otherwise
indicated in the applicable Prospectus Supplement, the validity of the
Guarantees and the Junior Subordinated Debentures will be passed upon for the
Corporation by Schiff Hardin & Waite, Chicago, Illinois, and for the
underwriters by Sullivan & Cromwell, New York, New York. Schiff Hardin & Waite
will rely as to all matters of Delaware law upon the opinion of Richards,
Layton & Finger, and Sullivan & Cromwell will rely as to all matters of
Illinois law upon the opinion of Schiff Hardin & Waite. Certain matters
relating to United States federal income tax considerations will be passed
upon for the Corporation by Schiff Hardin & Waite, as tax counsel for the
Corporation.
EXPERTS
The consolidated financial statements and schedules of the Corporation and
subsidiaries incorporated in this Prospectus by reference from the
Corporation's Annual Report on Form 10-K have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein by reference in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
41
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNEC-
TION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION, THE ISSUERS OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION OR THE ISSUERS SINCE THE
DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Risk Factors.............................................................. S-5
NTC Capital II............................................................ S-10
The Corporation........................................................... S-11
Consolidated Ratios of Earnings to Fixed Charges.......................... S-13
Use of Proceeds........................................................... S-13
Capitalization............................................................ S-14
Summary of Selected Consolidated Financial Data........................... S-15
Accounting Treatment...................................................... S-15
Certain Terms of Series B Capital Securities.............................. S-16
Certain Terms of Series B Subordinated Debentures......................... S-21
Certain Terms of Series B Guarantee....................................... S-24
Certain Federal Income Tax Consequences................................... S-25
Certain ERISA Considerations.............................................. S-28
Underwriting.............................................................. S-31
Validity of Securities.................................................... S-32
PROSPECTUS
Available Information..................................................... 4
Incorporation of Certain Documents by Reference........................... 5
The Corporation........................................................... 6
Certain Regulatory Considerations......................................... 6
The Issuers............................................................... 9
Use of Proceeds........................................................... 10
Description of Junior Subordinated Debentures............................. 10
Description of Preferred Securities....................................... 22
Book-Entry Issuance....................................................... 34
Description of Guarantees................................................. 36
Relationship Among the Preferred Securities, the Corresponding Junior
Subordinated Debentures, the Expense Agreement and the Guarantees........ 38
Plan of Distribution...................................................... 40
Validity of Securities.................................................... 41
Experts................................................................... 41
$120,000,000
NTC CAPITAL II
FLOATING RATE CAPITAL TRUST
PASS-THROUGH SECURITIESSM
(TRUPSSM), SERIES B
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS
DESCRIBED HEREIN, BY
NORTHERN TRUST
CORPORATION
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
PROSPECTUS SUPPLEMENT
DATED APRIL 22, 1997