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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 2001
REGISTRATION NO. 333-________
REGISTRATION NO. 333-______-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SECOND BANCORP INCORPORATED SECOND BANCORP CAPITAL TRUST I
(EXACT NAME OF CO-REGISTRANT (EXACT NAME OF CO-REGISTRANT AS
AS SPECIFIED IN ITS CHARTER) SPECIFIED IN ITS CHARTER)
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OHIO DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
34-1547453 APPLIED FOR
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
108 MAIN AVENUE, S.W.
WARREN, OH 44481
(330) 841-0123
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF CO-REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
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CHRISTOPHER STANITZ
EXECUTIVE VICE PRESIDENT AND SECRETARY
108 MAIN AVENUE, S.W.
WARREN, OH 44481
(330) 841-0234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
CHARLES S. DEROUSIE, ESQ. THOMAS C. ERB, ESQ.
ELIZABETH TURRELL FARRAR, ESQ. TOM W. ZOOK, ESQ.
VORYS, SATER, SEYMOUR AND PEASE LLP LEWIS, RICE & FINGERSH, L.C.
52 EAST GAY STREET 500 N. BROADWAY, SUITE 2000
P.O. BOX 1008 ST. LOUIS, MISSOURI 63102
COLUMBUS, OH 43216-1008 (314) 444-7600
(614) 464-6400
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
- --------------------------------------- ------------------ ----------------------- ------------------------- -----------------------
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF REGISTRATION
BE REGISTERED REGISTERED (1) OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE FEE (2)
- --------------------------------------- ------------------ ----------------------- ------------------------- -----------------------
% Cumulative Trust Preferred
Securities of Second Bancorp Capital
Trust I 2,990,000 $10 $29,900,000 $7,475
- --------------------------------------- ------------------ ----------------------- ------------------------- -----------------------
% Subordinated Debentures due 2031
of Second Bancorp Incorporated (3)(4) None
- --------------------------------------- ------------------ ----------------------- ------------------------- -----------------------
Guarantee of Preferred Securities
(3)(5) None
- --------------------------------------- ------------------ ----------------------- ------------------------- -----------------------
(1) Includes 390,000 % Cumulative Trust Preferred Securities which may be
sold by Second Bancorp Capital Trust I to cover over-allotments, if any.
(2) The registration fee is calculated in accordance with Rule 457(a), (i) and
(n).
(3) This Registration Statement is deemed to cover the % Subordinated
Debentures due 2031 of Second Bancorp Incorporated, the rights of holders
of the % Subordinated Debentures of Second Bancorp Incorporated under the
Indenture, and the rights of holders of the % Cumulative Trust Preferred
Securities under the Amended and Restated Trust Agreement, the Preferred
Securities Guarantee Agreement and the Agreement as to Expenses and
Liabilities entered into by Second Bancorp Incorporated.
(4) The % Subordinated Debentures due 2031 will be purchased by Second
Bancorp Capital Trust I with the proceeds of the sale of the % Cumulative
Trust Preferred Securities. Such securities may later be distributed for
no additional consideration to the holders of the % Cumulative Trust
Preferred Securities of Second Bancorp Capital Trust I upon its
dissolution and the distribution of its assets.
(5) No separate consideration will be received for the Guarantee.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 2001.
PROSPECTUS
2,600,000 PREFERRED SECURITIES
SECOND BANCORP CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED
ON A SUBORDINATED BASIS, AS DESCRIBED IN THIS PROSPECTUS, BY
[LOGO OF SECOND BANCORP]
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Second Bancorp Capital Trust I is offering 2,600,000 preferred
securities at $10 per security. The preferred securities represent an indirect
interest in our % subordinated debentures. The debentures have the same
payment terms as the preferred securities and will be purchased by Second
Bancorp Capital Trust I using the proceeds from its offering of the preferred
securities.
The preferred securities are expected to be approved for inclusion in
the Nasdaq National Market under the symbol "SECDP." Trading is expected to
commence on or prior to delivery of the preferred securities.
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INVESTING IN THE PREFERRED SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE .
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THE PREFERRED SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE BANK INSURANCE
FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
PER PREFERRED
SECURITY TOTAL
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Public offering price............................. $10.00 $26,000,000
Proceeds to Second Bancorp Capital Trust I........ $10.00 $26,000,000
This is a firm commitment underwriting. We will pay underwriting
commissions of $ per preferred security, or a total of $ , to the underwriters
for arranging the investment in our subordinated debentures. The underwriters
have been granted a 30-day option to purchase up to an additional 390,000
preferred securities to cover over-allotments, if any.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
STIFEL, NICOLAUS & COMPANY SANDLER O'NEILL & PARTNERS, L.P.
INCORPORATED
, 2001
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[Map of northeastern and east-central Ohio and western
Pennsylvania depicting locations of retail banking centers of
The Second National Bank of Warren and locations of retail
banking centers to be added as a result of acquisition of
Commerce Exchange Corporation.]
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SUMMARY
This summary highlights information contained elsewhere in, or
incorporated by reference into, this prospectus. Because this is a summary, it
may not contain all the information that may be important to you. Therefore, you
should also read the more detailed information set forth in this prospectus, our
financial statements and the other information that is incorporated by reference
in this prospectus, before making a decision to invest in the preferred
securities. The words "we," "our" and "us" refer to Second Bancorp Incorporated
and its wholly-owned subsidiary, The Second National Bank of Warren, unless we
indicate otherwise. Unless otherwise indicated, the information in this
prospectus assumes that the underwriters will not exercise their option to
purchase additional preferred securities to cover over-allotments.
SECOND BANCORP INCORPORATED
Second Bancorp Incorporated is a one-bank holding company headquartered
in Warren, Ohio. Our bank, The Second National Bank of Warren, was originally
established in 1880. Operating through 34 retail banking centers, we offer a
wide range of commercial, consumer and mortgage banking and trust services,
primarily to business and individual customers in various communities in a nine
county area in northeastern and east-central Ohio. At June 30, 2001, we had
total assets of $1.6 billion, deposits of $1.1 billion and shareholders' equity
of $123 million.
PRIMARY LINES OF BUSINESS
We currently have four traditional primary lines of business:
COMMERCIAL LENDING. Our commercial lending activities focus primarily
on providing local independent commercial and professional firms with commercial
business loans and loans secured by owner-occupied real estate. Typically, our
customers' financing requirements range from $250,000 to $10 million. We
primarily make secured and unsecured commercial loans for general business
purposes, including working capital, accounts receivable financing, machinery
and equipment acquisition, and commercial real estate financing. These loans
have both fixed and floating interest rates and typically have maturities of
three to seven years. Commercial loans comprised approximately 40% of our total
loan portfolio at June 30, 2001.
CONSUMER LENDING. We offer a full range of consumer loans to
individuals, including the owners and principals of our commercial customers and
a wide range of retail customers in our market area. We offer consumer loans for
a variety of personal financial needs, including home equity, new and used
automobiles, boat loans, credit cards and overdraft protection for checking
account customers. At June 30, 2001, approximately 50% of our consumer loans
consisted of indirect auto loans which are originated through auto dealers in
the local area. Consumer loans comprised approximately 30% of our total loan
portfolio at June 30, 2001.
TRUST. Our trust department is a traditional provider of fiduciary
services with a focus on administration of estates, trusts and qualified
employee benefit plans. During 2000, personal trust accounts and employee
benefit plan accounts produced approximately 75% and 25% of the total revenues
of the department, respectively. The anticipated addition of a daily valuation
service for 401(k) plans is expected to position us well for future growth in
employee benefit plan assets and revenues. Our trust department had
approximately $670 million in assets under management at June 30, 2001.
MORTGAGE BANKING. Our mortgage banking department underwrites and
originates a wide range of retail mortgage loan products and sells a significant
volume of them primarily on a servicing retained basis. Generally, the loans
sold into the secondary mortgage market make funds available for reuse in
mortgage or other lending activities. The sales typically generate a net gain
(including origination fee income and deferred origination costs), limit the
interest rate risk caused by holding long-term, fixed-rate loans, and supplement
our portfolio of serviced loans which generate fee income. We originated
approximately $200 million of loans through the first half of 2001 and serviced
$565 million in mortgage loans for others at June 30, 2001.
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OPERATING STRATEGY
R.L. ("Rick") Blossom, our Chairman, President and Chief Executive
Officer, has been with us since December, 1999 and comes to us with a solid
background in achieving strong financial performance. Since joining our company,
Mr. Blossom has been the primary force responsible for the implementation our
operating strategy. The key elements of our operating strategy are presented
below.
REALLOCATING OUR BUSINESS MIX TO STRENGTHEN AND STABILIZE OUR NET
INTEREST MARGIN. We are focused on restructuring both the asset and liability
side of our balance sheet in order to increase our net interest margin and
reduce net interest margin volatility. We are actively working to improve
profitability by generating more core deposits in order to reduce our cost of
funds. To achieve this goal, we have launched a new product line of personal and
business deposit accounts including many new and innovative products, allocated
more funding to advertising, and introduced employee incentives focused on core
deposit growth. During the first six months of 2001, the number of transaction
accounts (demand deposit and NOW accounts) has increased at an annualized rate
of 5.3%, while deposit balances have grown at an annualized rate of 3.8%. On the
asset side, we intend to return to a more traditional commercial bank mix which
had been impacted by our acquisition of a large thrift in 1998. We are focused
on making our loan portfolio more balanced and our plan is to grow the higher
yielding consumer loans, which were approximately 30% of total loans at June 30,
2001, to at least 35% of total loans within two years. Although we plan to
reduce the size of our real estate loan portfolio to help achieve this balance,
we will continue to aggressively develop the real estate side of our business,
selling a large part of our production while retaining the loan servicing
rights.
IMPROVING FINANCIAL PERFORMANCE BY LEVERAGING OUR FINANCIAL INFORMATION
SYSTEM AND CONTROLS. We intend to improve our financial performance and
efficiency by leveraging our newly installed, state-of-the-art financial
information system which allows us to budget and assess financial performance
across the entire organization. The use of this sophisticated tool throughout
the organization is a vital link in our efforts to rigorously control costs and
react quickly to changes in our markets. This financial information system
supports growth, efficiency and flexibility, by incorporating line-of-business
accountability, comprehensive budgeting, forecasting flexibility and "real-time"
reporting. This comprehensive new budgeting and forecasting system will give us
the ability to forecast on an 18-month time horizon and to continuously update
those forecasts as market conditions change. The value of the financial
information system is that it allows us to better manage our business "by the
numbers," focusing on responsibility, accountability, and the ability to
proactively manage our lines of business. We anticipate that the financial
information system will allow us to keep on budget and remain responsive to
market opportunities.
IMPROVING EFFICIENCY. We are committed to improving our efficiency,
including implementing disciplined cost controls and aligning management
incentives with corporate goals. We are focused on streamlining, reorganizing
and re-examining our policies, processes and procedures. We believe we will be
able to reduce personnel costs through attrition and still maintain our high
level of customer service, due in part to the accountability and responsibility
focus of our new financial information system. Evidence of success in these
efficiency measures are the reduction in our efficiency ratio from 62.5% in the
first half of 2000 to 58.4% in the first half of 2001 and the reduction in our
net operating (non-interest) expenses for the first half of 2001 by
approximately 4% compared to the same period last year.
CREATING A CULTURE FOCUSED ON BUILDING STRONG, PROFITABLE CUSTOMER
RELATIONSHIPS. Our business depends on increased relationship building in our
northeastern and east-central Ohio service area where we do all of our banking
business. We believe one of our key competitive edges is that our size allows us
to offer a full range of competitive products and services typically offered by
regional banks while, at the same time allowing us the ability to establish the
closer customer relationships of a community bank. We also focus on a
decentralized decision making structure which delegates increased authority to
the employees located in our 34 retail banking centers. This approach enables us
to develop long-term customer relationships, maintain high quality service and
respond quickly to customer needs.
INCREASING EMPHASIS ON FEE INCOME. In order to diversify our revenues,
we are committed to movement toward greater fee income through enhancement and
extension of our financial services. Our mortgage banking business and our trust
department should contribute to fee income growth. In addition, we intend to
increase fee
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income through the growth of our private banking business and our investment
center, which provides a wide variety of mutual funds, annuities, stocks, bonds
and insurance products. We believe there will be opportunities to create
synergies among trust, private banking and investment center clients allowing us
to become a more relationship-based financial services provider. Non-interest
income represented 26.4% of total revenues during the first half of 2001
compared to 21.7% for the same period last year.
EXPANSION STRATEGY
We have been committed to controlled expansion since 1988 by focusing
on strengthening market share in our existing communities and expanding into new
markets, many of them in high growth areas with strong demographics. During this
period, we have expanded our coverage area from one county served by 9 retail
banking centers to our current 9 counties covered by 34 retail banking centers.
In the process, we have grown from less than $300 million in assets in 1988 to
$1.6 billion at June 30, 2001, specifically through our 1998 acquisitions of two
financial institutions, The Trumbull Savings and Loan Company also headquartered
in Warren and Enterprise Bank located in the dynamic suburban Cleveland market.
Also, we announced on July 23, 2001, the agreement to acquire Commerce Exchange
Bank in a transaction which will further enhance our presence in the Cuyahoga
County/Cleveland market.
In the future, we intend to explore and consider de novo branching
opportunities and potential acquisitions of community banks, thrifts and other
financial service businesses. We believe there are significant opportunities to
expand our presence in current and new markets through acquisitions and de novo
branching. We will focus on acquiring institutions which are accretive to our
earnings per share. Our de novo branching strategy will focus primarily on high
growth areas with strong market demographics in which we have the potential to
grow market share.
ACQUISITION OF COMMERCE EXCHANGE CORPORATION
We agreed on July 23, 2001 to acquire Commerce Exchange Corporation.
Its subsidiary, Commerce Exchange Bank, operates two branches - one in
Beachwood, Ohio and one in North Olmsted, Ohio. Both will become Second National
Bank of Warren retail banking centers upon completion of the transaction, which
will enhance our presence in the attractive suburban Cleveland market. The
acquisition is expected to be completed in the fourth quarter of 2001 and to be
modestly accretive to our earnings per share in 2002.
Commerce Exchange Corporation, at June 30, 2001, had total assets of
$119 million, total loans of $95 million, total deposits of $104 million and
shareholders' equity of $13 million.
We agreed to pay $26.5 million in cash for Commerce Exchange
Corporation, subject to adjustments tied to, among other things, Commerce's net
retained earnings for 2001, and Commerce's control of costs relating to the
transaction. We expect to use the proceeds of this offering to fund this
acquisition.
MARKET AREA
Our primary market area consists of Trumbull, Ashtabula, Portage,
Jefferson, Mahoning, Summit, Medina, Stark and the southeast portion of Cuyahoga
Counties in the northeastern corner of Ohio, to the east and south of the
Cleveland metropolitan area. The market area's economy is heavily influenced by
the manufacturing sector with an emphasis on steel, auto manufacturing and a
variety of related and smaller industries. The area has benefited from an
extensive transportation system comprised mainly of railroad and trucking
systems. According to available industry data, as of June 30, 2000, total
deposits in Trumbull County, where we are headquartered and enjoy a leading
deposit market share of 25%, were approximately $2.5 billion.
SECOND BANCORP CAPITAL TRUST I
Second Bancorp Capital Trust I is a newly created Delaware business
trust. We created Second Bancorp Capital Trust I to offer the preferred
securities and to purchase the debentures. The trust has a term of 31 years, but
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may be dissolved earlier as provided in the trust agreement. Upon issuance of
the preferred securities offered by this prospectus, the purchasers in this
offering will own all of the issued and outstanding preferred securities of the
trust. In exchange for our capital contribution to the trust, we will own all of
the common securities of the trust.
Our principal executive offices as well as those of the trust are
located at 108 Main Avenue, S.W., Warren, Ohio 44481. The main telephone number
for both Second Bancorp and the trust is (330) 841-0123.
THE OFFERING
The issuer...................... Second Bancorp Capital Trust I
Securities being offered........ 2,600,000 preferred securities,
which represent preferred undivided
interests in the assets of the
trust. Those assets will consist
solely of the debentures and
payments received on the debentures.
The trust will sell the preferred
securities to the public for cash.
The trust will use that cash to buy
the debentures from us.
Offering price.................. $10 per preferred security.
When distributions will be
paid to you..................... If you purchase the preferred
securities, you are entitled to
receive cumulative cash
distributions at a % annual rate.
Distributions will accumulate from
the date the trust issues the
preferred securities and are to be
paid quarterly on March 31, June 30,
September 30 and December 31 of each
year, beginning December 31, 2001.
As long as the preferred securities
are represented by a global
security, the record date for
distributions on the preferred
securities will be the business day
prior to the distribution date. We
may defer the payment of cash
distributions, as described below.
When the preferred securities
must be redeemed................ The debentures will mature and the
preferred securities must be
redeemed on December 31, 2031. We
have the option, however, to shorten
the maturity date to a date not
earlier than December 31, 2006. We
will not shorten the maturity date
unless we have received the prior
approval of the Board of Governors
of the Federal Reserve System, if
required.
Redemption of the preferred
securities before December 31,
2031 is possible................ The trust must redeem the preferred
securities when the debentures are
paid at maturity or upon any earlier
redemption of the debentures. We may
redeem all or part of the debentures
at any time on or after December 31,
2006. In addition, we may redeem, at
any time, all of the debentures if:
- there is a change in
existing laws or
regulations, or new
official administrative
or judicial
interpretation or
application of these laws
and regulations, that
causes the interest we
pay on the debentures to
no longer be deductible
by us for federal tax
purposes; or the trust
becomes subject to
federal income tax; or
the trust becomes or will
become subject to other
taxes or governmental
charges;
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- there is a change in
existing laws or
regulations that requires
the trust to register as
an investment company; or
- there is a change in the
capital adequacy
guidelines of the Federal
Reserve that results in
the preferred securities
not being counted as Tier
1 capital.
We may also redeem debentures at any
time, and from time to time, in an
amount equal to the liquidation
amount of any preferred securities
we purchase, plus a proportionate
amount of common securities, but
only in exchange for a like amount
of the preferred securities and
common securities then owned by us.
Redemption of the debentures prior
to maturity will be subject to the
prior approval of the Federal
Reserve, if approval is then
required by law or regulation. If
your preferred securities are
redeemed by the trust, you will
receive the liquidation amount of
$10 per preferred security, plus any
accrued and unpaid distributions to
the date of redemption.
We have the option to extend
the interest payment period..... The trust will rely solely on
payments made by us under the
debentures to pay distributions on
the preferred securities. As long as
we are not in default under the
indenture relating to the
debentures, we may, at one or more
times, defer interest payments on
the debentures for up to 20
consecutive quarters, but not beyond
December 31, 2031. If we defer
interest payments on the debentures:
- the trust will also defer
distributions on the
preferred securities;
- the distributions you are
entitled to will
accumulate; and
- these accumulated
distributions will earn
interest at an annual
rate of %, compounded
quarterly, until paid.
At the end of any deferral period,
we will pay to the trust all accrued
and unpaid interest under the
debentures. The trust will then pay
all accumulated and unpaid
distributions to you. During an
extension period, we are restricted
from paying dividends or
distributions on our capital stock
or redeeming, purchasing, acquiring
or making liquidation payments with
respect to our capital stock, except
for some exceptions.
You will still be taxed if
distributions on the
preferred securities are
deferred........................ If a deferral of payment occurs,
you will still be required to
recognize the deferred amounts as
income for federal income tax
purposes in advance of receiving
these amounts, even if you are a
cash-basis taxpayer.
Our full and unconditional
guarantee of payment............ Our obligations described in this
prospectus, in the aggregate,
constitute a full, irrevocable and
unconditional guarantee by us on a
subordinated basis, of the
obligations of the trust under the
preferred
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securities. Under the guarantee
agreement, we guarantee the trust
will use its assets to pay the
distributions on the preferred
securities and the liquidation
amount upon liquidation of the
trust. However, the guarantee does
not apply when the trust does not
have sufficient funds to make the
payments. If we do not make payments
on the debentures, the trust will
not have sufficient funds to make
payments on the preferred
securities. In this event, your
remedy is to institute a legal
proceeding directly against us for
enforcement of payments under the
debentures.
We may distribute the
debentures directly to you...... We may, at any time, dissolve the
trust and distribute the debentures
to you, subject to the prior
approval of the Federal Reserve, if
then required by law or regulation.
If we distribute the debentures, we
will use our best efforts to list
them on a national securities
exchange or comparable automated
quotation system.
How the securities will
rank in right of payment........ Our obligations under the preferred
securities, debentures and guarantee
are unsecured and will rank as
follows with regard to right of
payment:
- the preferred securities
will rank equally with
the common securities of
the trust. The trust will
pay distributions on the
preferred securities and
the common securities pro
rata. However, if we
default with respect to
the debentures, then no
distributions on the
common securities of the
trust or our common
shares will be paid until
all accumulated and
unpaid distributions on
the preferred securities
have been paid;
- our obligations under the
debentures and the
guarantee are unsecured
and generally will rank
junior in priority to our
existing and future
senior and subordinated
indebtedness; and
- because we are a holding
company, the debentures
and the guarantee will
effectively be
subordinated to all
depositors' claims, as
well as existing and
future liabilities of our
subsidiaries.
Voting rights of the
preferred securities............ Except in limited circumstances,
holders of the preferred securities
will have no voting rights.
Proposed Nasdaq National
Market symbol................... SECDP
You will not receive
certificates.................... The preferred securities will be
represented by a global security
that will be deposited with and
registered in the name of The
Depository Trust Company, New York,
New York, or its nominee. This means
that you will not receive a
certificate for the preferred
securities, and your beneficial
ownership interests will be recorded
through the DTC book-entry system.
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How the proceeds of this offering
will be used.................... The trust will invest all of the
proceeds from the sale of the
preferred securities in the
debentures. We estimate that the net
proceeds to us from the sale of the
debentures to the trust, after
deducting underwriting expenses and
commissions, will be approximately $
million. We expect to use the net
proceeds from the sale of the
debentures to fund the cash price
for the acquisition of Commerce
Exchange Corporation.
Before purchasing the preferred securities being offered, you should
carefully consider the "Risk Factors" beginning on page ___.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes our selected consolidated financial
information and other financial data. The selected balance sheet and statement
of income data, insofar as they relate to the years in the five-year period
ended December 31, 2000, are derived from our consolidated financial statements,
which have been audited by Ernst & Young LLP. The selected financial data for
the six months ended June 30, 2001 and 2000, are derived from our unaudited
interim consolidated financial statements. Our unaudited interim consolidated
financial statements include all adjustments (consisting only of normal,
recurring accruals) that we consider necessary for a fair presentation of the
financial position and the results of operations as of the dates and for the
periods indicated. This information should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes incorporated by
reference into this prospectus from our Annual Report on Form 10-K for the year
ended December 31, 2000 and our Quarterly Report on Form 10-Q/A for the quarter
ended June 30, 2001. Results for past periods are not necessarily indicative of
results that may be expected for any future period, and results for the
six-month period ended June 30, 2001, are not necessarily indicative of results
that may be expected for the full year ending December 31, 2001.
AS OF OR FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------------------------------
2001 2000 2000(1) 1999 1998(2) 1997 1996
----------- ------------ -------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS:
Interest income................... $56,883 $ 56,614 $116,298 $ 104,582 $ 106,997 $ 104,990 $ 101,158
Interest expense.................. 32,669 31,551 66,921 55,310 55,888 55,707 54,153
-------- --------- -------- --------- --------- --------- ---------
Net interest income............... 24,214 25,063 49,377 49,272 51,109 49,283 47,005
Provision for loan losses......... 2,103 1,383 7,129 3,195 10,579 4,205 5,072
Other income...................... 9,190 7,249 8,275 14,792 12,754 11,101 10,008
Other expense..................... 19,856 20,728 44,213 39,330 46,248 39,198 39,279
-------- --------- -------- --------- --------- --------- ---------
Income before Federal income taxes 11,445 10,201 6,310 21,539 7,036 16,981 12,662
Federal tax expense............... 2,999 2,552 176 5,361 1,403 3,745 2,993
-------- --------- -------- --------- --------- --------- ---------
Income before accounting change... 8,446 7,649 6,134 16,178 5,633 13,236 9,669
Cumulative effect of accounting
change - net of tax............. (101) - - - - - -
-------- --------- -------- --------- --------- --------- ---------
Net income........................ $ 8,345 $ 7,649 $ 6,134 $ 16,178 $ 5,633 $ 13,236 $ 9,669
======== ========= ======== ========= ========= ========= =========
PER COMMON SHARE DATA (3):
Basic earnings.................... $0.83 $0.74 $0.60 $1.52 $0.53 $1.25 $0.93
Diluted earnings.................. 0.83 0.74 0.60 1.51 0.52 1.25 0.92
Cash dividends.................... 0.34 0.32 0.64 0.56 0.48 0.40 0.34
Book value........................ 12.29 11.31 11.65 11.12 11.53 11.34 10.40
Market value...................... 22.90 15.19 14.50 22.38 22.25 25.38 15.69
Weighted average common shares
outstanding (3)
Basic.......................... 10,013,996 10,635,852 10,247,025 10,635,852 10,665,597 10,555,921 9,876,174
Diluted........................ 10,079,973 10,698,717 10,271,548 10,698,717 10,742,622 10,616,752 10,555,060
Common shares outstanding (3)....... 10,017,510 10,201,150 10,057,110 10,458,450 10,688,450 10,606,749 10,503,660
BALANCE SHEET DATA:
Total assets......................$ 1,578,370 $ 1,632,913 $ 1,546,290 $ 1,537,278 $ 1,430,233 $ 1,438,193 $ 1,397,194
Loans............................. 1,075,039 1,157,123 1,070,089 1,071,662 970,853 867,147 817,631
Securities........................ 380,262 371,194 382,426 367,587 354,415 481,786 489,378
Deposits.......................... 1,059,758 1,105,449 1,036,135 1,097,589 1,102,590 1,115,044 1,076,947
Borrowings (4).................... 262,447 276,009 252,733 204,276 72,782 58,403 n/a
Shareholders' equity.............. 120,368 114,506 114,652 121,369 126,748 112,127 108,725
SELECTED PERFORMANCE RATIOS:
Return on average assets (5)...... 1.08% 0.97% 0.39% 1.08% 0.38% 0.93% 0.70%
Return on average shareholders' 14.03 13.36 5.35 13.33 4.44 11.80 9.32
equity (5)......................
Net interest margin (5)(6)........ 3.45 3.56 3.46 3.68 3.84 3.78 3.73
Efficiency ratio.................. 58.36 62.54 70.67 59.45 70.11 63.04 67.11
Dividend pay-out.................. 40.77 43.01 106.26 36.68 91.53 32.29 35.77
ASSET QUALITY RATIOS:
Non-performing assets to total 0.71% 0.43% 0.57% 0.40% 0.49% 0.48% 0.69%
assets (7)......................
Allowance for loan losses to total 1.45 0.98 1.42 1.04 1.11 1.02 1.13
loans...........................
Net charge-offs to average loans 0.32 0.21 0.28 0.27 0.76 0.79 0.45
(5).............................
Non-performing loans to total 0.96 0.52 0.75 0.55 0.71 0.80 1.17
loans (8).......................
Allowance for loan losses to 154 193 191 188 155 128 96
non-performing
loans (8).......................
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AS OF OR FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------------------------------
2001 2000 2000(1) 1999 1998(2) 1997 1996
----------- ------------ -------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIQUIDITY AND CAPITAL RATIOS:
Total shareholders' equity to 7.80% 7.07% 7.58% 7.57% 8.62% 8.37% 7.62%
total assets....................
Average loans to average deposits. 101.78 99.76 101.51 92.10 86.40 80.51 74.34
Leverage ratio (9)................ 7.6 7.5 7.5 8.2 8.7 7.9 n/a
Tier 1 risk-based capital ratio... 10.7 10.8 10.3 11.8 12.4 12.6 n/a
Total risk-based capital ratio.... 11.9 11.8 11.5 12.8 13.5 13.6 n/a
RATIO OF EARNINGS TO FIXED CHARGES
(10):
Including deposit interest........ 1.33x 1.30x 1.09x 1.36x 1.12x 1.28x 1.22x
Excluding deposit interest........ 1.94 1.89 1.25 2.23 1.43 2.06 1.92
(1) Net income for 2000 was impacted by restructuring and reengineering charges
that totaled $9,022, after tax. Excluding these non-recurring charges, net
income would have been $15,156. Both basic and diluted earnings per share
would have been $1.48. Return on average assets and return on average
shareholders' equity would have been 0.96% and 13.22%, respectively. The
net interest margin would have been 3.51% while the efficiency ratio would
have been 62.17%.
(2) Net income for 1998 was impacted by merger related expenses that totaled
$4,997, after tax. Excluding these non-recurring charges, net income would
have been $10,630. Basic and diluted earnings per share would have been
$1.00 and $0.99, respectively. Return on average assets and return on
average shareholders' equity would have been 0.73% and 8.39%, respectively.
The efficiency ratio would have been 60.95%.
(3) Prior period amounts have been restated for stock splits and
pooling-of-interests transactions.
(4) Borrowings include note payable and FHLB advances.
(5) Ratios for the six months ended June 30, 2001 and 2000 have been annualized
and are not necessarily indicative of the results for the entire year.
Applicable ratios for the six months ended June 30, 2001 are based on
income before accounting change.
(6) On a tax equivalent basis.
(7) Non-performing assets include non-performing loans and other real estate
owned.
(8) Non-performing loans include loans past due over 90 days and still
accruing, restructured and non-accrual loans.
(9) The leverage ratio is Tier 1 capital divided by average quarterly assets,
after deducting intangible assets.
(10) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes plus interest and net occupancy
expense. Fixed charges consist of interest and net occupancy expense.
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RISK FACTORS
Investing in the preferred securities involves a number of risks. Some
of these risks relate to the preferred securities and others relate to us and
the financial services industry, generally. We urge you to read all of the
information contained in this prospectus. In addition, we urge you to consider
carefully the following factors in evaluating an investment in the trust before
you purchase the preferred securities.
Because the trust will rely on the payments it receives on the
debentures to fund all payments on the preferred securities, and because the
trust may distribute the debentures in exchange for the preferred securities,
purchasers of the preferred securities are making an investment decision that
relates to the debentures being issued by Second Bancorp as well as the
preferred securities. Purchasers should carefully review the information in this
prospectus about the preferred securities, the debentures and the guarantee.
RISKS RELATED TO AN INVESTMENT IN SECOND BANCORP
OUR ALLOWANCE FOR LOAN LOSSES MAY PROVE TO BE INSUFFICIENT TO ABSORB POTENTIAL
LOSSES IN OUR LOAN PORTFOLIO.
Lending money is a substantial part of our business. However, every
loan we make carries a certain risk of non-payment. This risk is affected by,
among other things:
- the credit risks of a particular borrower;
- changes in economic and industry conditions;
- the duration of the loan; and
- in the case of a collateralized loan, the changes and
uncertainties as to the future value of the collateral.
We maintain an allowance for loan losses which we believe is adequate
to provide for any potential losses in our loan portfolio. The amount of this
allowance is determined by management through a periodic review and
consideration of several factors, including:
- an ongoing review of the quality, size and diversity of our loan
portfolio;
- evaluation of non-performing loans;
- historical loan loss experience; and
- the amount and quality of collateral, including guarantees,
securing the loans.
Although we believe our loan loss allowance is adequate to absorb
probable losses in our loan portfolio, we cannot predict such losses or that our
allowance will be adequate. Excess loan losses could have a material adverse
effect on our results of operations and financial condition.
In addition, federal and state regulators periodically review our
allowance for loan losses and may require us to increase our provision for loan
losses or recognize further loan charge-offs. Any increase in our allowance for
loan losses or loan charge-offs as required by these regulatory agencies could
have a material adverse effect on our results of operations and financial
condition.
OUR INDIRECT AUTOMOBILE LOANS CONSTITUTE A SIZABLE PORTION OF OUR TOTAL LOAN
PORTFOLIO AND MAY PRESENT A GREATER CREDIT RISK THAN OTHER LOANS IN OUR
PORTFOLIO.
Management believes that our indirect automobile loan portfolio, which
was approximately $153 million, or 14.27%, of our total loan portfolio as of
June 30, 2001, may present a greater risk of loss than our other loan
categories. These types of loans are dependent on the borrower's continuing
financial stability, and are more likely
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to be adversely affected by changes in the borrower's personal situation, such
as job loss, divorce, illness and personal bankruptcy. In addition, the
underlying collateral for our indirect automobile loans may depreciate rapidly
and may not provide an adequate source of repayment if we were required to
repossess the collateral. We cannot be sure whether our levels of charge-offs
for indirect automobile loans in future periods will be consistent with our
historical levels of charge-offs for these types of loans.
SINCE OUR BUSINESS IS CONCENTRATED IN THE NORTHEASTERN AND EAST-CENTRAL OHIO
AREA, A DOWNTURN IN THAT ECONOMY MAY ADVERSELY AFFECT OUR BUSINESS.
Currently, our lending and deposit gathering activities are
concentrated primarily in the northeastern and east-central Ohio area. Our
success depends on the general economic condition of this area. Adverse changes
in the economy could reduce our growth rate, impair our ability to collect
loans, and generally negatively affect our financial condition and results of
operations.
FLUCTUATIONS IN INTEREST RATES COULD REDUCE OUR PROFITABILITY.
We realize income primarily from the difference between interest earned
on loans and investments and the interest paid on deposits and borrowings. We
expect that we will periodically experience "gaps" in the interest rate
sensitivities of our assets and liabilities, meaning that either our
interest-bearing liabilities will be more sensitive to changes in market
interest rates than our interest-earning assets, or vice versa. In either event,
if market interest rates should move contrary to our gap position, this "gap"
will work against us, and our earnings may be negatively affected.
We are unable to predict fluctuations of market interest rates, which
are affected by, among other factors, changes in the following:
- inflation rates;
- levels of business activity;
- unemployment levels;
- money supply; and
- domestic and foreign financial markets.
Our asset-liability management strategy, which is designed to mitigate
our risk from changes in market interest rates, may not be able to prevent
changes in interest rates from having a material adverse effect on our results
of operations and financial condition.
OUR FUTURE SUCCESS IS DEPENDENT ON OUR ABILITY TO COMPETE EFFECTIVELY IN THE
HIGHLY COMPETITIVE BANKING INDUSTRY.
We face significant competition in northeastern and east-central Ohio.
We compete with other providers of financial services such as savings
associations, credit unions, commercial finance companies, brokerage and
securities firms, insurance companies, commercial finance and leasing companies
and the mutual fund industry. Some of our competitors, including certain
regional bank holding companies which have operations in our market area, have
substantially greater resources and, as such, may have higher lending limits and
may offer other services not available from us. We also face significant
competition, particularly with respect to interest rates paid on deposit
accounts, from well-capitalized local thrift institutions. We compete on the
basis of rates of interest charged on loans, the rates of interest paid on
deposits, the availability of services and our responsiveness to the needs of
our customers.
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WE RELY HEAVILY ON OUR MANAGEMENT TEAM, AND THE UNEXPECTED LOSS OF KEY MANAGERS
MAY ADVERSELY AFFECT OUR OPERATIONS.
Our success has been influenced strongly by our ability to attract and
to retain senior management experienced in banking and financial services. Our
ability to retain executive officers and the current management team will
continue to be important to successful implementation of our strategies. The
unexpected loss of services of any key management personnel, or the inability to
recruit and retain qualified personnel in the future, could have an adverse
effect on our business and financial results. We have entered into an employment
contract with Rick Blossom, our Chairman, President and Chief Executive Officer,
and management severance agreements with eight other key executives.
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT MONETARY POLICY.
As a bank holding company, our business is affected by the monetary
policies of the Federal Reserve Board, which regulates the national money supply
in order to mitigate recessionary and inflationary pressures. In setting its
policy, the Federal Reserve Board may utilize techniques such as the following:
- engaging in open market transactions in United States government
securities;
- setting the discount rate on member bank borrowings; and
- determining reserve requirements.
These techniques may have an adverse effect on our deposit levels, net interest
margin, loan demand or our business and operations.
OUR INABILITY TO INTEGRATE THE COMMERCE EXCHANGE CORPORATION ACQUISITION COULD
PREVENT US FROM MAXIMIZING SYNERGIES AND COULD ADVERSELY AFFECT OUR FINANCIAL
RESULTS.
We have made acquisitions through mergers in the past three years and
our proposed acquisition of Commerce Exchange Corporation is pending. The
success of any completed merger depends, and the success of the merger with
Commerce Exchange Corporation will depend, on our ability to integrate
effectively the management and operations of banks which had previously operated
separately. We believe that our previous mergers have provided, and the Commerce
Exchange Corporation merger will provide, us with cost savings and market
expansion opportunities. However, the integration of the management and
operations of Commerce Exchange Corporation following the merger will involve
risks, including the possible loss of key employees and additional demands on
our management resulting from the increase in our consolidated size following
the merger.
WE CONTINUALLY ENCOUNTER TECHNOLOGICAL CHANGE, AND WE MAY HAVE FEWER RESOURCES
THAN MANY OF OUR COMPETITORS TO CONTINUE TO INVEST IN TECHNOLOGICAL
IMPROVEMENTS.
The financial services industry is undergoing rapid technological
changes, with frequent introductions of new technology-driven products and
services. In addition to better serving customers, the effective use of
technology increases efficiency and enables financial institutions to reduce
costs. Our future success will depend, in part, upon our ability to address the
needs of our clients by using technology to provide products and services that
will satisfy client demands for convenience, as well as to create additional
efficiencies in our operations. Many of our competitors have substantially
greater resources than we do to invest in technological improvements. We may not
be able to effectively implement new technology-driven products and services or
be successful in marketing these products and services to our clients.
As a service to our clients, we currently offer Internet banking. Use
of this service involves the transmission of confidential information over
public networks. We cannot be sure that advances in computer capabilities, new
discoveries in the field of cryptography or other developments will not result
in a compromise or breach in the commercially available encryption and
authentication technology that we use to protect our clients'
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transaction data. If we were to experience such a compromise or breach, we could
suffer losses and our operations could be adversely affected.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY THE HIGHLY REGULATED ENVIRONMENT IN
WHICH WE OPERATE.
We are subject to extensive federal and state legislation, regulation,
examination and supervision. Recently enacted, proposed and future legislation
and regulations have had, will continue to have, or may have a material adverse
effect on our business and operations. Our success depends on our continued
ability to maintain compliance with these regulations. Some of these regulations
may increase our costs and thus place other financial institutions in stronger,
more favorable competitive positions. We cannot predict what restrictions may be
imposed upon us with future legislation.
RISKS RELATED TO AN INVESTMENT IN THE PREFERRED SECURITIES
IF WE DO NOT MAKE INTEREST PAYMENTS UNDER THE DEBENTURES, THE TRUST WILL BE
UNABLE TO PAY DISTRIBUTIONS AND LIQUIDATION AMOUNTS. IN THIS CASE, THE GUARANTEE
WILL NOT APPLY BECAUSE THE GUARANTEE COVERS PAYMENTS ONLY IF THE TRUST HAS FUNDS
AVAILABLE.
The trust will depend solely on our payments on the debentures to pay
amounts due to you on the preferred securities. If we default on our obligation
to pay the principal or interest on the debentures, the trust will not have
sufficient funds to pay distributions on or the liquidation amount of the
preferred securities. In that case, you will not be able to rely on the
guarantee for payment of these amounts because the guarantee only applies if the
trust has sufficient funds to make distributions on or to pay the liquidation
amount of the preferred securities. Instead, you or the property trustee will
have to institute a direct action against us to enforce the property trustee's
rights under the indenture relating to the debentures.
OUR ABILITY TO MAKE INTEREST PAYMENTS ON THE DEBENTURES TO THE TRUST MAY BE
RESTRICTED.
We are a holding company and substantially all of our assets are held
by our bank. Our ability to make payments on the debentures when due will depend
primarily on available cash resources at the bank holding company and dividends
from our bank and any other subsidiaries which we may form in the future.
Dividend payments or extensions of credit to us from our bank are subject to
regulatory limitations, generally based on capital levels and current and
retained earnings, imposed by the various regulatory agencies with authority
over our bank. The ability of our bank to pay dividends to us is also subject to
its profitability, financial condition, capital expenditures and other cash flow
requirements. As of June 30, 2001, our bank had retained earnings of
$121,280,000, of which $14,453,000 was available for distribution to us as
dividends without prior regulatory approval. We cannot assure you that our
subsidiaries will be able to pay dividends in the future.
We could also be precluded from making interest payments on the
debentures by our regulators if in the future they were to perceive deficiencies
in liquidity or regulatory capital levels at our holding company. If this were
to occur, we may be required to obtain the consent of our regulators prior to
paying interest on the debentures. If consent became required and our regulators
were to withhold their consent, we would likely exercise our right to defer
interest payments on the debentures, and the trust would not have funds
available to make distributions on the preferred securities during such period.
THE DEBENTURES AND THE GUARANTEE RANK LOWER THAN MOST OF OUR OTHER INDEBTEDNESS
AND OUR HOLDING COMPANY STRUCTURE EFFECTIVELY SUBORDINATES ANY CLAIMS AGAINST US
TO THOSE OF OUR SUBSIDIARIES' CREDITORS.
Our obligations under the debentures and the guarantee are unsecured
and will rank junior in priority of payment to our existing and future senior
and subordinated indebtedness, which totaled $1 million outstanding principal
amount at June 30, 2001. Except in certain circumstances limiting our ability to
issue additional trust preferred securities or similar securities or
indebtedness, our ability to incur additional indebtedness is not limited. See
"Description of the Debentures-Miscellaneous" on page [___].
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Because we are a holding company, the creditors of our subsidiaries,
including depositors, also will have priority over you in any distribution of
our subsidiaries' assets in liquidation, reorganization or otherwise.
Accordingly, the debentures and the guarantee will be effectively subordinated
to all existing and future liabilities of our direct and indirect subsidiaries,
and you should look only to our assets for payments on the preferred securities
and the debentures.
WE HAVE THE OPTION TO DEFER INTEREST PAYMENTS ON THE DEBENTURES FOR SUBSTANTIAL
PERIODS.
We may, at one or more times, defer interest payments on the debentures
for up to 20 consecutive quarters. If we defer interest payments on the
debentures, the trust will defer distributions on the preferred securities
during any deferral period. During a deferral period, you will be required to
recognize as income for federal income tax purposes the amount equal to the
interest that accrues on your proportionate share of the debentures held by the
trust in the tax year in which that interest accrues, even though you will not
receive this amount until a later date.
You will also not receive the cash related to any accrued and unpaid
interest from the trust if you sell the preferred securities before the end of
any deferral period. During a deferral period, accrued but unpaid distributions
will increase your tax basis in the preferred securities. If you sell the
preferred securities during a deferral period, your increased tax basis will
decrease the amount of any capital gain or increase the amount of any capital
loss that you may have otherwise realized on the sale. A capital loss, except in
certain limited circumstances, cannot be applied to offset ordinary income. As a
result, deferral of distributions could result in ordinary income, and a related
tax liability for the holder, and a capital loss that may only be used to offset
a capital gain.
We do not currently intend to exercise our right to defer interest
payments on the debentures. However, if we exercise our right in the future, the
market price of the preferred securities would likely be adversely affected. The
preferred securities may trade at a price that does not fully reflect the value
of accrued but unpaid interest on the debentures. If you sell the preferred
securities during a deferral period, you may not receive the same return on
investment as someone who continues to hold the preferred securities. Due to our
right to defer interest payments, the market price of the preferred securities
may be more volatile than the market prices of other securities without the
deferral feature.
WE HAVE MADE ONLY LIMITED COVENANTS IN THE INDENTURE AND THE TRUST AGREEMENT.
The indenture governing the debentures and the trust agreement
governing the trust do not require us to maintain any financial ratios or
specified levels of net worth, revenues, income, cash flow or liquidity, and
therefore do not protect holders of the debentures or the preferred securities
in the event we experience significant adverse changes in our results of
operations or financial condition. The indenture prevents us and any subsidiary
from incurring, in connection with the issuance of any trust preferred
securities or any similar securities or indebtedness, indebtedness that is
senior in right of payment to the debentures. Additionally, the indenture limits
our ability and the ability of any subsidiary to incur, related to the issuance
of any trust preferred securities or any similar securities or indebtedness,
indebtedness that is equal in right of payment to the debentures. Except as
described above, neither the indenture nor the trust agreement limits our
ability or the ability of any of our subsidiaries to incur other additional
indebtedness that is senior in right of payment to the debentures. Therefore,
you should not consider the provisions of these governing instruments as a
significant factor in evaluating whether we will be able to comply with our
obligations under the debentures or the guarantee.
WE MAY REDEEM THE DEBENTURES BEFORE DECEMBER 31, 2031.
Under the following circumstances, we may redeem the debentures before
their stated maturity:
- We may redeem the debentures, in whole or in part, at any time on
or after December 31, 2006.
- We may redeem the debentures in whole, but not in part, within
180 days after certain occurrences at any time during the life of
the trust. These occurrences may include adverse tax, investment
company or bank regulatory developments.
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You should assume that an early redemption may be attractive to us if
we are able to obtain capital at a lower cost than we must pay on the debentures
or if it is otherwise in our interest to redeem the debentures. If the
debentures are redeemed, the trust must redeem preferred securities having an
aggregate liquidation amount equal to the aggregate principal amount of
debentures redeemed, and you may be required to reinvest your principal at a
time when you may not be able to earn a return that is as high as you were
earning on the preferred securities.
WE CAN DISTRIBUTE THE DEBENTURES TO YOU, WHICH MAY HAVE ADVERSE TAX CONSEQUENCES
FOR YOU AND WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF THE PREFERRED
SECURITIES.
The trust may be dissolved at any time before maturity of the
debentures on December 31, 2031. As a result, and subject to the terms of the
trust agreement, the trustees may distribute the debentures to you.
We cannot predict the market prices for the debentures that may be
distributed in exchange for preferred securities upon liquidation of the trust.
The preferred securities, or the debentures that you may receive if the trust is
liquidated, may trade at a discount to the price that you paid to purchase the
preferred securities. Because you may receive debentures, your investment
decision with regard to the preferred securities will also be an investment
decision with regard to the debentures. You should carefully review all of the
information contained in this prospectus regarding the debentures.
Under current interpretations of United States federal income tax laws
supporting classification of the trust as a grantor trust for tax purposes, a
distribution of the debentures to you upon the dissolution of the trust would
not be a taxable event to you. Nevertheless, if the trust is classified for
United States federal income tax purposes as an association taxable as a
corporation at the time it is dissolved, the distribution of the debentures
would be a taxable event to you. In addition, if there is a change in law, a
distribution of debentures upon the dissolution of the trust could be a taxable
event to you.
THERE IS NO CURRENT PUBLIC MARKET FOR THE PREFERRED SECURITIES AND THEIR MARKET
PRICE MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
There is currently no public market for the preferred securities. The
preferred securities are expected to be approved for inclusion in the Nasdaq
National Market, and trading is expected to commence on or prior to delivery of
the preferred securities. However, there is no guarantee that an active or
liquid trading market will develop for the preferred securities or that the
quotation of the preferred securities will continue on the Nasdaq National
Market. If an active trading market does not develop, the market price and
liquidity of the preferred securities will be adversely affected. Even if an
active public market does develop, there is no guarantee that the market price
for the preferred securities will equal or exceed the price you pay for the
preferred securities.
Future trading prices of the preferred securities may be subject to
significant fluctuations in response to prevailing interest rates, our future
operating results and financial condition, the market for similar securities and
general economic and market conditions. The initial public offering price of the
preferred securities has been set at the liquidation amount of the preferred
securities and may be greater than the market price following the offering.
The market price for the preferred securities, or the debentures that
you may receive in a distribution, is also likely to decline during any period
that we are deferring interest payments on the debentures.
YOU MUST RELY ON THE PROPERTY TRUSTEE TO ENFORCE YOUR RIGHTS IF THERE IS AN
EVENT OF DEFAULT UNDER THE INDENTURE.
You may not be able to directly enforce your rights against us if an
event of default under the indenture occurs. If an event of default under the
indenture occurs and is continuing, this event will also be an event of default
under the trust agreement. In that case, you must rely on the enforcement by the
property trustee of its rights as holder of the debentures against us. The
holders of a majority in liquidation amount of the preferred securities will
have the right to direct the property trustee to enforce its rights. If the
property trustee does not enforce its rights following an event of default and a
request by the record holders to do so, any record holder may, to the extent
permitted by applicable law, take action directly against us to enforce the
property trustee's rights. If an event of
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default occurs under the trust agreement that is attributable to our failure to
pay interest or principal on the debentures, or if we default under the
guarantee, you may proceed directly against us. You will not be able to exercise
directly any other remedies available to the holders of the debentures unless
the property trustee fails to do so.
AS A HOLDER OF PREFERRED SECURITIES YOU HAVE LIMITED VOTING RIGHTS.
Holders of preferred securities have limited voting rights. Your voting
rights pertain primarily to amendments to the trust agreement. In general, only
we can replace or remove any of the trustees. However, if an event of default
under the trust agreement occurs and is continuing, the holders of at least a
majority in aggregate liquidation amount of the preferred securities may replace
the property trustee and the Delaware trustee.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make certain forward-looking statements in this prospectus that are
based upon our current expectations and projections about current events. We
intend these forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and we are including this statement for purposes
of these safe harbor provisions. You can identify these statements from our use
of the words "estimate," "project," "believe," "intend," "anticipate," "expect"
and similar expressions. These forward-looking statements include:
- statements of our goals, intentions and expectations;
- statements regarding our business plans and growth strategies;
- statements regarding the asset quality of our loan and investment
portfolios; and
- estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors which could affect the actual outcome of future events:
- fluctuations in market rates of interest and loan and deposit
pricing, which could negatively affect our net interest margin,
asset valuations and expense expectations;
- adverse changes in the economy of the northeastern and
east-central Ohio area, which might affect our business prospects
and could cause credit-related losses and expenses;
- adverse developments in our loan and investment portfolios;
- competitive factors in the banking industry, such as the trend
towards consolidation in our market; and
- changes in banking legislation or the regulatory requirements of
federal and state agencies applicable to bank holding companies
and banks like ours.
Because of these and other uncertainties, our actual future results may
be materially different from the results indicated by these forward-looking
statements. In addition, our past results of operations do not necessarily
indicate our future results. We discuss these uncertainties and others in the
section of this prospectus named "Risk Factors," beginning on page [__].
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USE OF PROCEEDS
The trust will invest all of the proceeds from the sale of the
preferred securities in the debentures. We anticipate that the net proceeds from
the sale of the debentures will be approximately $ million after deduction of
offering expenses, estimated to be $290,000, and underwriting commissions.
We expect to use the net proceeds to fund the cash price for the
acquisition of Commerce Exchange Corporation. The acquisition price is
$26,500,000, subject to adjustments. Among other adjustments, the purchase price
will be increased by the net retained earnings of Commerce Exchange Corporation
in 2001 until the closing and adjusted based upon Commerce's control of costs
relating to the transaction. If the over-allotment option is exercised, the
remaining net proceeds, if any, will be used to pay down existing debt or for
general corporate purposes. If the over-allotment option is not exercised, we
have other available sources of cash to pay the remaining amount of the cash
price, including cash and cash equivalents on hand and approximately $19 million
remaining available under our unsecured lines of credit with two correspondent
banks as of June 30, 2001.
CAPITALIZATION
The following table sets forth our indebtedness and capitalization at
June 30, 2001:
- on a historical basis;
- on a pro forma basis as adjusted for the offering (assuming no
exercise of the underwriters' over-allotment option) and the
application of the estimated net proceeds from the corresponding
sale of the debentures as if such sale has been consummated on
June 30, 2001; and
- on a pro forma basis as if the acquisition of Commerce Exchange
had taken place as of June 30, 2001 and adjusted to give effect
to the consummation of the offering (assuming no exercise of the
underwriters' over-allotment option).
These data should be read in conjunction with our consolidated financial
statements and notes thereto incorporated by reference into this prospectus from
our Annual Report on Form 10-K for the year ended December 31, 2000 and our
Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2001.
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JUNE 30, 2001
-------------------------------------------------------
PRO FORMA
AS ADJUSTED FOR
PRO FORMA THE COMMERCE
AS ADJUSTED EXCHANGE
FOR THE ACQUISITION AND
ACTUAL OFFERING THE OFFERING
--------- ----------- ---------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
BORROWINGS:
Short-term borrowings (including securities sold under
agreements to repurchase and federal funds purchased)........ $ 122,256 $ 122,256 $ 122,256
Federal Home Loan Bank Advances.................................. 261,447 261,447 261,447
Line of credit with unaffiliated bank............................ 1,000 1,000 3,669
--------- ---------- ----------
Total borrowings............................................. $ 384,703 $ 384,703 $ 387,372
========= ========== ==========
LONG-TERM INDEBTEDNESS:
Corporation - obligated mandatorily redeemable capital
securities of subsidiary trust (1)............................ - 26,000 26,000
--------- ---------- ----------
Total long-term indebtedness................................. $ - $ 26,000 $ 26,000
========= ========== ==========
SHAREHOLDERS' EQUITY:
Common shares, no par value; 30,000,000 shares authorized;
10,802,510 shares issued and outstanding..................... $ 37,166 $ 37,166 $ 37,166
Retained earnings................................................ 98,871 98,871 98,871
Accumulated other comprehensive income........................... 1,810 1,810 1,810
Treasury stock: 785,000 shares.................................. (14,740) (14,740) (14,740)
--------- ---------- ----------
Total shareholders' equity................................... $ 123,107 $ 123,107 $ 123,107
========= ========== ==========
Total capitalization (2)..................................... $ 123,107 $ 149,107 $ 149,107
========= ========== ==========
CAPITAL RATIOS (3):
Leverage ratio (4) (5)........................................... 7.64% 9.08% 7.64%
Tier 1 risk-based capital ratio (5).............................. 10.68 12.89 10.63
Total risk-based capital ratio (5)............................... 11.93 14.14 11.88
Total shareholders' equity to total assets....................... 7.80 7.67 7.20
(1) Reflects the preferred securities at their issue price. As described
herein, the only assets of the trust, which is our subsidiary, will be
approximately $26.8 million in aggregate principal amount of subordinated
debentures, including the amount attributable to the issuance of the common
securities of the trust, which will mature on December 31, 2031. We will
own all of the common securities issued by the trust.
(2) Includes shareholders' equity and long-term indebtedness.
(3) The capital ratios, as presented in the pro forma columns, are computed
including the estimated proceeds from the sale of the preferred securities,
in a manner consistent with Federal Reserve regulations.
(4) The leverage ratio is Tier 1 capital divided by average quarterly assets,
after deducting intangible assets.
(5) The preferred securities have been structured to qualify as Tier 1 capital.
However, in calculating the amount of Tier 1 qualifying capital, the
preferred securities can only be included up to the amount constituting 25%
of total Tier 1 core capital elements (including preferred securities). As
adjusted for this offering and the anticipated acquisition of Commerce
Exchange, our Tier 1 capital as of June 30, 2001, would have been
approximately $130.0 million, of which $26.0 million would have been
attributable to the preferred securities offered by this prospectus.
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ACCOUNTING AND REGULATORY TREATMENT
The trust will be treated, for financial reporting purposes, as our
subsidiary and, accordingly, the accounts of the trust will be included in our
consolidated financial statements. The preferred securities will be presented as
a separate line item in the liability section of our consolidated balance sheet
under the caption "Corporation--obligated mandatorily redeemable capital
securities of subsidiary trust," or other similar caption. In addition,
appropriate disclosures about the preferred securities, the guarantee and the
debentures will be included in the notes to our consolidated financial
statements. For financial reporting purposes, we will record distributions
payable on the preferred securities in our consolidated statements of income.
Our future reports filed under the Securities Exchange Act of 1934 will
include a footnote to the audited consolidated financial statements stating
that:
- the trust is wholly owned;
- the sole assets of the trust are the debentures, specifying the
debentures' outstanding principal amount, interest rate and
maturity date; and
- our obligations described in this prospectus, in the aggregate,
constitute a full, irrevocable and unconditional guarantee on a
subordinated basis by us of the obligations of the trust under
the preferred securities.
Under the disclosure rules of the SEC, we are not required to include
separate financial statements of the trust in this prospectus because we will
own all of the trust's voting securities, the trust has no independent
operations and we guarantee the payments on the preferred securities to the
extent described in this prospectus.
MANAGEMENT
Our directors and executive officers and their principal position(s)
with us are shown in the table below.
Name Position(s)
- ---- -----------
Dr. David A. Allen, Jr............................. Director of Second Bancorp; Dean, Kent State University -
Trumbull Campus.
Thomas W. Allen.................................... Executive Officer of Second Bancorp and Senior Vice President
of Second National.
John A. Anderson................................... Director of Second Bancorp and of Second National; Chairman
and Chief Executive Officer, The Taylor-Winfield Corporation,
Ravenna Manufacturing Company and Hubbparts, Inc.
Diane C. Bastic.................................... Executive Officer of Second Bancorp and Senior Vice President
of Second National.
R.L. (Rick) Blossom................................ Director, Chairman, President and Chief Executive Officer of
Second Bancorp and of Second National.
Alan G. Brant...................................... Director of Second Bancorp; retired Chairman and President of
Second Bancorp.
John L. Falatok.................................... Executive Officer of Second Bancorp and Senior Vice President
and Chief Lending Officer of Second National.
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Name Position(s)
- ---- -----------
Mike Filarski...................................... Executive Officer of Second Bancorp and Senior Vice President
of Second National.
John C. Gibson..................................... Director of Second Bancorp; Chairman of the Board, Jack Gibson
Construction Company.
Norman C. Harbert.................................. Director of Second Bancorp and of Second National; Co-Chairman
and Co-Chief Executive Officer of The HAWK Corporation, owner
of several manufacturing firms.
James R. Izant..................................... Director of Second Bancorp; Private Investor.
Phyllis J. Izant................................... Director of Second Bancorp; Private Investor.
David L. Kellerman................................. Treasurer of Second Bancorp and Executive Vice President,
Chief Financial Officer and a Director of Second National.
Darryl E. Mast..................................... Executive Officer of Second Bancorp and Senior Vice President
of Second National.
Terry L. Myers..................................... Executive Officer of Second Bancorp and Senior Vice President
of Second National.
John L. Pogue...................................... Director of Second Bancorp; Member, Harrington, Hoppe &
Mitchell, Ltd. (attorneys).
Christopher Stanitz................................ Executive Vice President and Secretary of Second Bancorp and
Senior Vice President of Second National.
Raymond John Wean, III............................. Director of Second Bancorp and of Second National; Business
Consultant.
Dr. David A. Allen, Jr., age 60, is a Director of Second Bancorp and
Dean of Kent State University - Trumbull Campus. He was a Director of Trumbull
Financial Corporation and The Trumbull Savings and Loan Company from 1993 to
1998.
Thomas W. Allen, age 56, has been an Executive Officer of Second
Bancorp and Senior Vice President of Second National since 2000. Prior to that,
he served as Senior Vice President and Senior Fiduciary Officer for Northern
Indiana for Key Trust Company of Indiana from 1997 to 2000 and as Chairman and
Chief Executive Officer of Midwest Trust Company, NA of Joliet, Illinois from
1995 to 1997.
John A. Anderson, age 63, is a Director of Second Bancorp and of Second
National. He is the Chairman and Chief Executive Officer of The Taylor-Winfield
Corporation, Ravenna Manufacturing Company and Hubbparts, Inc.
Diane C. Bastic, age 57, is Executive Officer of Second Bancorp and
Senior Vice President of Second National. She has been employed by us since
1985.
R. L. (Rick) Blossom, age 53, is Second Bancorp's President, Chief
Executive Officer and Chairman, having been elected to those positions in
December 1999, May 2000 and May 2001, respectively, succeeding former President
and Chairman Alan G. Brant. He has also served as Chairman, President and Chief
Executive Officer of Second National since December 1999. Prior to that, he
served as Chief Executive Officer and a Director of First
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National Bank of Southwestern Ohio and Senior Vice President and Chief Lending
Officer of First Financial Bancorp.
Alan G. Brant, age 69, is a Director of Second Bancorp. He was
President and Chairman of Second Bancorp from 1987 to December 1999 and May 2001
respectively. He also served as Chief Executive Officer and President of Second
National from 1985 to 1999 and was a Director of Second National from 1985 to
2001.
John L. Falatok, age 43, an employee of ours since 1994, was elected
Executive Officer of Second Bancorp and Senior Vice President and Chief Lending
Officer of Second National in December 2000. Prior to that, he served in
increasingly responsible positions in our Commercial Loan Department from
commercial lender to commercial loan administration manager.
Mike Filarski, age 52, our employee since 1999, is Executive Officer of
Second Bancorp and Senior Vice President of Second National. Prior to that, he
was President of Signal Mortgage from 1998 to 1999, and President of National
Auto Credit from 1996 to 1997.
John C. Gibson, age 73, is a Director of Second Bancorp. He also served
as a Second National Director until May 2001. He is the Chairman of the Board of
Jack Gibson Construction Company and a Director of Sovereign Circuits, Inc.
Norman C. Harbert, age 67, is a Director of Second Bancorp and of
Second National. He is Co-Chairman and Co-Chief Executive Officer of The HAWK
Corporation, owner of several manufacturing firms.
James R. Izant, age 42, is a Director of Second Bancorp and a private
investor. He was Executive Vice President, Secretary and Director of Trumbull
Financial Corporation and The Trumbull Savings and Loan Company until 1998.
Phyllis J. Izant, age 38, is a Director of Second Bancorp and a private
investor. She is a retired Development Associate for Leadership Gifts of Purdue
University. She was a Director of Trumbull Financial Corporation and The
Trumbull Savings and Loan Company from 1996 to 1998.
David L. Kellerman, age 43, an employee of ours since 1981, is
Treasurer of Second Bancorp and Executive Vice President, Chief Financial
Officer and Director of Second National.
Darryl E. Mast, age 50, an employee of ours since 1986, is Executive
Officer of Second Bancorp and Senior Vice President of Second National.
Terry L. Myers, age 51, has been our employee since 1974 and is
Executive Officer of Second Bancorp and Senior Vice President of Second
National.
John L. Pogue, age 56, is a Director of Second Bancorp and Member of
Harrington, Hoppe & Mitchell, Ltd. (attorneys).
Christopher Stanitz, age 52, an employee of ours since 1992, is
Executive Vice President and Secretary of Second Bancorp and Senior Vice
President of Second National.
Raymond John Wean, III, age 52, is a Director of Second Bancorp and of
Second National and is a Business Consultant. He was President and Chief
Executive Officer of Barto Technical Services, Inc. from 1995 to 1998.
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DESCRIPTION OF THE TRUST
Second Bancorp Capital Trust I is a statutory business trust formed
pursuant to the Delaware Business Trust Act under a trust agreement executed by
us, as sponsor for the trust, and the trustees, and a certificate of trust has
been filed with the Delaware Secretary of State. The trust agreement will be
amended and restated in its entirety in the form filed as an exhibit to the
registration statement of which this prospectus is a part, as of the date the
preferred securities are initially issued. The trust agreement will be qualified
under the Trust Indenture Act of 1939.
The following discussion contains a description of the material terms
of the trust agreement for the trust and is subject to, and is qualified in its
entirety by reference to, the amended and restated trust agreement.
The holders of the preferred securities issued pursuant to the offering
described in this prospectus will own all of the issued and outstanding
preferred securities of the trust which have certain prior rights over the other
securities of the trust. We will not initially own any of the preferred
securities. We will acquire common securities in an amount equal to at least 3%
of the total capital of the trust and will initially own, directly or
indirectly, all of the issued and outstanding common securities. The common
securities, together with the preferred securities, are called the trust
securities.
The trust exists exclusively for the purposes of:
- issuing and selling the preferred securities to the public for
cash;
- issuing and selling its common securities to us in exchange
for our capital contribution to the trust;
- investing the proceeds from the sale of the trust securities
in an equivalent amount of debentures; and
- engaging in other activities that are incidental to those
listed above, such as receiving payments on the debentures and
making distributions to holders of the trust securities,
furnishing notices and other administrative tasks.
The trust will not have any independent business operations or any
assets, revenues or cash flows other than those related to the issuance and
administration of the trust securities.
The rights of the holders of the trust securities are as set forth in
the trust agreement, the Delaware Business Trust Act and the Trust Indenture
Act. The trust agreement does not permit the trust to borrow money or make any
investment other than in the debentures. Other than with respect to payment of
distributions on and the liquidation amount of the trust securities, Second
Bancorp has agreed to pay for all debts and obligations and all costs and
expenses of the trust, including the fees and expenses of the trustees and any
income taxes, duties and other governmental charges, and all costs and expenses
related to these charges, to which the trust may become subject, except for
United States withholding taxes that are properly withheld.
The number of trustees of the trust will initially be five. Three of
the trustees will be persons who are employees or officers of, or who are
affiliated with, Second Bancorp. They are the administrative trustees. The
fourth trustee will be an entity that maintains its principal place of business
in the State of Delaware. It is the Delaware trustee. Initially, Wilmington
Trust Company, a Delaware banking corporation, will act as Delaware trustee. The
fifth trustee, called the property trustee, will also initially be Wilmington
Trust Company. The property trustee is the institutional trustee under the trust
agreement and acts as the indenture trustee called for under the applicable
provisions of the Trust Indenture Act. Also for purposes of compliance with the
Trust Indenture Act, Wilmington Trust Company will act as guarantee trustee and
indenture trustee under the guarantee agreement and the indenture. We, as holder
of all of the common securities, will have the right to appoint or remove any
trustee unless an event of default under the indenture has occurred and is
continuing, in which case only the holders of the preferred securities may
remove the Delaware trustee or the property trustee. The trust has a term of
approximately 31 years but may terminate earlier as provided in the trust
agreement.
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The property trustee will hold the debentures for the benefit of the
holders of the trust securities and will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the debentures. In
addition, the property trustee will maintain exclusive control of a segregated
noninterest-bearing "payment account" established with Wilmington Trust Company
to hold all payments made on the debentures for the benefit of the holders of
the trust securities. The property trustee will make payments of distributions
and payments on liquidation, redemption and otherwise to the holders of the
trust securities out of funds from the payment account. The guarantee trustee
will hold the guarantee for the benefit of the holders of the preferred
securities. We will pay all fees and expenses related to the trust and the
offering of the preferred securities, including the fees and expenses of the
trustees.
DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities will be issued pursuant to the trust
agreement. For more information about the trust agreement, see "Description of
the Trust" beginning on page __. Wilmington Trust Company will act as property
trustee for the preferred securities under the trust agreement for purposes of
complying with the provisions of the Trust Indenture Act. The terms of the
preferred securities will include those stated in the trust agreement and those
made part of the trust agreement by the Trust Indenture Act.
The following discussion contains a description of the material
provisions of the preferred securities and is subject to, and is qualified in
its entirety by reference to, the trust agreement and the Trust Indenture Act.
We urge you to read the form of amended and restated agreement, which is filed
as an exhibit to the registration statement of which this prospectus forms a
part.
GENERAL
The trust agreement authorizes the administrative trustees, on behalf
of the trust, to issue the trust securities, which are comprised of the
preferred securities to be sold to the public and the common securities. We will
own all of the common securities issued by the trust. The trust is not permitted
to issue any securities other than the trust securities or incur any other
indebtedness.
The preferred securities will represent preferred undivided beneficial
interests in the assets of the trust, and the holders of the preferred
securities will be entitled to a preference over the common securities upon an
event of default with respect to distributions and amounts payable on redemption
or liquidation. The preferred securities will rank equally, and payments on the
preferred securities will be made proportionally, with the common securities,
except as described under "-Subordination of Common Securities" on page __.
The property trustee will hold legal title to the debentures in trust
for the benefit of the holders of the trust securities. We will guarantee the
payment of distributions out of money held by the trust, and payments upon
redemption of the preferred securities or liquidation of the trust, to the
extent described under "Description of the Guarantee" on page __. The guarantee
does not cover the payment of any distribution or the liquidation amount when
the trust does not have sufficient funds available to make these payments.
DISTRIBUTIONS
Source of Distributions. The funds of the trust available for
distribution to holders of the preferred securities will be limited to payments
made under the debentures, which the trust will purchase with the proceeds from
the sale of the trust securities. Distributions will be paid through the
property trustee, which will hold the amounts received from our interest
payments on the debentures in the payment account for the benefit of the holders
of the trust securities. If we do not make interest payments on the debentures,
the property trustee will not have funds available to pay distributions on the
preferred securities.
Payment of Distributions. Distributions on the preferred securities
will be payable at the annual rate of % of the $10 stated liquidation amount,
payable quarterly on March 31, June 30, September 30 and December 31 of each
year, to the holders of the preferred securities on the relevant record dates.
So long as the preferred securities are represented by a global security, as
described below, the record date will be the business day immediately
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preceding the relevant distribution date. The first distribution date for the
preferred securities will be December 31, 2001.
Distributions will accumulate from the date of issuance, will be
cumulative and will be computed on the basis of a 360-day year of twelve 30-day
months. If the distribution date is not a business day, then payment of the
distributions will be made on the next day that is a business day, without any
additional interest or other payment for the delay. However, if the next
business day is in the next calendar year, payment of the distribution will be
made on the business day immediately preceding the scheduled distribution date.
When we use the term "business day," we mean any day other than a Saturday, a
Sunday, a day on which banking institutions in New York, New York, Wilmington,
Delaware or Warren, Ohio are authorized or required by law, regulation or
executive order to remain closed or a day on which the corporate trust office of
the property trustee or the indenture trustee is closed for business.
Extension Period. As long as no event of default under the indenture
has occurred and is continuing, we have the right to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. We refer to this period of deferral as an "extension period." No
extension period may extend beyond December 31, 2031 or end on a date other than
an interest payment date, which dates are the same as the distribution dates. If
we defer the payment of interest, quarterly distributions on the preferred
securities will also be deferred during any such extension period. Any deferred
distributions under the preferred securities will accumulate additional amounts
at the annual rate of %, compounded quarterly from the relevant distribution
date. The term "distributions" as used in this prospectus includes those
accumulated amounts.
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect
to, any of our capital stock (other than stock dividends,
non-cash dividends in connection with the implementation of a
shareholder rights plan, the issuance of stock under any such
plan or the redemption or repurchase of any such rights
pursuant thereto, purchases of common shares in connection
with benefit plans for our directors, officers or employees or
a dividend reinvestment plan, in connection with the
reclassification of any class of our capital stock into
another class of capital stock or the exchange or conversion
of one class or series of our capital stock for another class
or series of our capital stock pursuant to the conversion or
exchange provisions of that capital stock or the security
being converted or exchanged or purchases of fractional
interests in shares of our capital stock pursuant to the
conversion or exchange provisions of that capital stock or the
security being converted or exchanged, purchases of fractional
interests in shares of our capital stock issued or issuable to
the stockholders of an unaffiliated third party and payments
made in respect of not more than ten percent (10%) of the
outstanding shares of our capital stock held by our
shareholders who exercise dissenters' rights required to be
afforded to them by applicable law, in each case pursuant to a
merger, consolidation or other business combination with an
unaffiliated third party in an arm's-length transaction
entered into in good faith) or allow any of our subsidiaries
to do the same with respect to their capital stock (other than
the payment of dividends or distributions to us);
- make any payment of principal, interest or premium on or
repay, repurchase or redeem any debt securities that rank
equally with, or junior in interest to, the debentures or
allow any of our subsidiaries to do the same;
- make any guarantee payments with respect to any other
guarantee by us of any other debt securities of any of our
subsidiaries if the guarantee ranks equally with or junior to
the debentures (other than payments under the guarantee); or
- redeem, purchase or acquire less than all of the debentures or
any of the preferred securities.
After the termination of any extension period and the payment of all
amounts due, we may elect to begin a new extension period, subject to the above
requirements.
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We do not currently intend to exercise our right to defer distributions
on the preferred securities by deferring the payment of interest on the
debentures.
REDEMPTION OR EXCHANGE
General. Subject to the prior approval of the Federal Reserve, if
required by law or regulation, we will have the right to redeem the debentures:
- in whole at any time, or in part from time to time, on or
after December 31, 2006;
- at any time, in whole, within 180 days following the
occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event, which terms we define below; or
- at any time, and from time to time, to the extent of any
preferred securities we purchase, plus a proportionate amount
of the common securities we hold.
Mandatory Redemption. Upon our repayment or redemption, in whole or in
part, of any debentures, whether on December 31, 2031 or earlier, the property
trustee will apply the proceeds to redeem the same amount of the trust
securities, upon not less than 30 days' nor more than 60 days' notice, at the
redemption price. The redemption price will equal 100% of the aggregate
liquidation amount of the trust securities plus accumulated but unpaid
distributions to the date of redemption. If less than all of the debentures are
to be repaid or redeemed on a date of redemption, then the proceeds from such
repayment or redemption will be allocated to redemption of preferred securities
and common securities proportionately.
Distribution of Debentures in Exchange for Preferred Securities. Upon
prior approval of the Federal Reserve, if required by law or regulation, we will
have the right at any time to dissolve, wind-up or terminate the trust and,
after satisfaction of the liabilities of creditors of the trust as provided by
applicable law, including, without limitation, amounts due and owing the
trustees of the trust, cause the debentures to be distributed directly to the
holders of trust securities in liquidation of the trust. See "-Liquidation
Distribution Upon Termination" on page __.
After the liquidation date fixed for any distribution of debentures in
exchange for preferred securities:
- those trust securities will no longer be deemed to be
outstanding;
- certificates representing debentures in a principal amount
equal to the liquidation amount of those preferred securities
will be issued in exchange for the preferred securities
certificates;
- we will use our best efforts to list the debentures on the
Nasdaq National Market or a national securities exchange;
- any certificates representing trust securities that are not
surrendered for exchange will be deemed to represent
debentures with a principal amount equal to the liquidation
amount of those preferred securities, accruing interest at the
rate provided for in the debentures from the last distribution
date on the preferred securities; and
- all rights of the trust security holders other than the right
to receive debentures upon surrender of a certificate
representing trust securities will terminate.
We cannot assure you that the market prices for the preferred
securities or the debentures that may be distributed if a dissolution and
liquidation of the trust were to occur would be favorable. The preferred
securities that an investor may purchase, or the debentures that an investor may
receive on dissolution and liquidation of the trust, may trade at a discount to
the price that the investor paid to purchase the preferred securities.
Redemption upon a Tax Event, Investment Company Event or Capital
Treatment Event. If a Tax Event, an Investment Company Event or a Capital
Treatment Event occurs, we will have the right to redeem the debentures in
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whole, but not in part, and thereby cause a mandatory redemption of all of the
trust securities at the redemption price. If one of these events occurs and we
do not elect to redeem the debentures, or to dissolve the trust and cause the
debentures to be distributed to holders of the trust securities, then the
preferred securities will remain outstanding and additional interest may be
payable on the debentures.
"Tax Event" means the receipt by the trust and us of an opinion of
counsel experienced in such matters stating that, as a result of any change or
prospective change in the laws or regulations of the United States or any
political subdivision or taxing authority of the United States, or as a result
of any official administrative pronouncement or judicial decision interpreting
or applying the tax laws or regulations, there is more than an insubstantial
risk that:
- interest payable by us on the debentures is not, or within 90
days of the date of the opinion will not be, deductible by us,
in whole or in part, for federal income tax purposes;
- the trust is, or will be within 90 days after the date of the
opinion, subject to federal income tax with respect to income
received or accrued on the debentures; or
- the trust is, or will be within 90 days after the date of the
opinion, subject to more than an immaterial amount of other
taxes, duties, assessments or other governmental charges.
"Investment Company Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that the trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, as a result of a change in law or regulation
or a change in interpretation or application of law or regulation.
"Capital Treatment Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that there is more
than an insubstantial risk of impairment of our ability to treat the preferred
securities as Tier 1 capital for purposes of the current capital adequacy
guidelines of the Federal Reserve, as a result of any amendment to any laws or
any regulations.
For all of the events described above, we or the trust must request and
receive an opinion with regard to the event within a reasonable period of time
after we become aware of the possible occurrence of an event of this kind.
Redemption of Debentures in Exchange for Preferred Securities We
Purchase. Upon prior approval of the Federal Reserve, if required by law or
regulation, we will also have the right at any time, and from time to time, to
redeem debentures in exchange for any preferred securities we may have purchased
in the market. If we elect to surrender any preferred securities beneficially
owned by us in exchange for a like amount of debentures, we will also surrender
a proportionate amount of common securities in exchange for debentures.
Preferred securities owned by other holders will not be called for redemption at
any time when we elect to exchange trust securities we own for debentures.
The common securities we surrender will be in the same proportion to
the preferred securities we surrender as is the ratio of common securities
purchased by us to the preferred securities issued by the trust. In exchange for
the trust securities surrendered by us, the property trustee will cause to be
released to us for cancellation debentures with a principal amount equal to the
liquidation amount of the trust securities, plus any accumulated but unpaid
distributions, if any, then held by the property trustee allocable to those
trust securities. After the date of redemption involving an exchange by us, the
trust securities we surrender will no longer be deemed outstanding and the
debentures redeemed in exchange will be cancelled.
REDEMPTION PROCEDURES
Preferred securities will be redeemed at the redemption price with the
applicable proceeds from our contemporaneous redemption of the debentures.
Redemptions of the preferred securities will be made, and the redemption price
will be payable, on each redemption date only to the extent that the trust has
funds available for the payment of the redemption price.
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Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the date of redemption to each holder of trust securities to
be redeemed at its registered address. Unless we default in payment of the
redemption price on the debentures, interest will cease to accumulate on the
debentures called for redemption on and after the date of redemption.
If the trust gives notice of redemption of the trust securities, then
the property trustee, to the extent funds are available, will irrevocably
deposit with the depositary for the trust securities funds sufficient to pay the
aggregate redemption price and will give the depositary for the trust securities
irrevocable instructions and authority to pay the redemption price to the
holders of the trust securities. If the preferred securities are no longer in
book-entry only form, the property trustee, to the extent funds are available,
will deposit with the designated paying agent for such preferred securities
funds sufficient to pay the aggregate redemption price and will give the paying
agent irrevocable instructions and authority to pay the redemption price to the
holders upon surrender of their certificates evidencing the preferred
securities. Notwithstanding the foregoing, distributions payable on or prior to
the date of redemption for any trust securities called for redemption will be
payable to the holders of the trust securities on the relevant record dates for
the related distribution dates.
If notice of redemption has been given and we have deposited funds as
required, then on the date of the deposit all rights of the holders of the trust
securities called for redemption will cease, except the right to receive the
redemption price, but without interest on such redemption price after the date
of redemption. The trust securities will also cease to be outstanding on the
date of the deposit. If any date fixed for redemption of trust securities is not
a business day, then payment of the redemption price payable on that date will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next succeeding calendar year, payment will be made on the immediately
preceding business day.
If payment of the redemption price in respect of trust securities
called for redemption is improperly withheld or refused and not paid by the
trust, or by us pursuant to the guarantee, distributions on the trust securities
will continue to accumulate at the applicable rate from the date of redemption
originally established by the trust for the trust securities to the date the
redemption price is actually paid. In this case, the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
redemption price.
Payment of the redemption price on the preferred securities and any
distribution of debentures to holders of preferred securities will be made to
the applicable recordholders as they appear on the register for the preferred
securities on the relevant record date. As long as the preferred securities are
represented by a global security, the record date will be the business day
immediately preceding the date of redemption or liquidation date, as applicable.
If less than all of the trust securities are to be redeemed, then the
aggregate liquidation amount of the trust securities to be redeemed will be
allocated proportionately to those trust securities based upon the relative
liquidation amounts. The particular preferred securities to be redeemed will be
selected by the property trustee from the outstanding preferred securities not
previously called for redemption by a method the property trustee deems fair and
appropriate. This method may provide for the redemption of portions equal to $10
or an integral multiple of $10 of the liquidation amount of the preferred
securities. The property trustee will promptly notify the registrar for the
preferred securities in writing of the preferred securities selected for
redemption and, in the case of any preferred securities selected for partial
redemption, the liquidation amount to be redeemed. If the redemption relates
only to preferred securities purchased by us and being exchanged for a like
amount of debentures, then our preferred securities will be the ones selected
for redemption.
Subject to applicable law, and if we are not exercising our right to
defer interest payments on the debentures, we may, at any time, purchase
outstanding preferred securities.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the preferred
securities and common securities will be made based on the liquidation amount of
these securities. However, if an event of default under the indenture has
occurred and is continuing, no distributions on or redemption of the common
securities may be made unless payment in full in cash of all accumulated and
unpaid distributions on all of the outstanding preferred securities for all
distribution periods terminating on or before that time, or in the case of
payment of the redemption
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price, payment of the full amount of the redemption price on all of the
outstanding preferred securities then called for redemption, has been made or
provided for. All funds available to the property trustee will first be applied
to the payment in full in cash of all distributions on, or the redemption price
of, the preferred securities then due and payable.
In the case of the occurrence and continuance of any event of default
under the trust agreement resulting from an event of default under the
indenture, we, as holder of the common securities, will be deemed to have waived
any right to act with respect to that event of default under the trust agreement
until the effect of the event of default has been cured, waived or otherwise
eliminated. Until the event of default under the trust agreement has been so
cured, waived or otherwise eliminated, the property trustee will act solely on
behalf of the holders of the preferred securities and not on our behalf, and
only the holders of the preferred securities will have the right to direct the
property trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
We will have the right at any time to dissolve, wind-up or terminate
the trust and cause the debentures to be distributed to the holders of the
preferred securities. This right is subject, however, to us receiving approval
of the Federal Reserve, if required by law or regulation.
In addition, the trust will automatically terminate upon expiration of
its term and will terminate earlier on the first to occur of:
- our bankruptcy, dissolution or liquidation;
- the distribution of a like amount of the debentures to the
holders of trust securities, if we have given written
direction to the property trustee to terminate the trust;
- redemption of all of the preferred securities as described on
page __ under "-Redemption or Exchange-Mandatory Redemption";
or
- the entry of a court order for the dissolution of the trust.
With the exception of a redemption as described on page __ under
"-Redemption or Exchange-Mandatory Redemption," if an early termination of the
trust occurs, the trust will be liquidated by the administrative trustees as
expeditiously as they determine to be possible. After satisfaction of
liabilities to creditors of the trust as provided by applicable law, the
trustees will distribute to the holders of trust securities, debentures:
- in an aggregate stated principal amount equal to the aggregate
stated liquidation amount of the trust securities;
- with an interest rate identical to the distribution rate on
the trust securities; and
- with accrued and unpaid interest equal to accumulated and
unpaid distributions on the trust securities.
However, if the property trustee determines that the distribution is
not practical, then the holders of trust securities will be entitled to receive,
instead of debentures, a proportionate amount of the liquidation distribution.
The liquidation distribution will be the amount equal to the aggregate of the
liquidation amount plus accumulated and unpaid distributions to the date of
payment. If the liquidation distribution can be paid only in part because the
trust has insufficient assets available to pay in full the aggregate liquidation
distribution, then the amounts payable directly by the trust on the trust
securities will be paid on a proportional basis, based on liquidation amounts,
to us, as the holder of the common securities, and to the holders of the
preferred securities. However, if an event of default under the indenture has
occurred and is continuing, the preferred securities will have a priority over
the common securities. See "-Subordination of Common Securities" on page __.
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Under current federal income tax law and interpretations and assuming
that the trust is treated as a grantor trust, as is expected, a distribution of
the debentures should not be a taxable event to holders of the preferred
securities. Should there be a change in law, a change in legal interpretation, a
Tax Event or another circumstance, however, the distribution could be a taxable
event to holders of the preferred securities. See "Certain Federal Income Tax
Consequences-Receipt of Debentures or Cash Upon Liquidation of the Trust" on
page __ for more information regarding a taxable distribution.
If we do not elect to redeem the debentures prior to maturity or to
liquidate the trust and distribute the debentures to holders of the preferred
securities, the preferred securities will remain outstanding until the repayment
of the debentures. If we elect to dissolve the trust and thus cause the
debentures to be distributed to holders of the preferred securities in
liquidation of the trust, we will continue to have the right to shorten the
maturity of the debentures.
LIQUIDATION VALUE
The amount of the liquidation distribution payable on the preferred
securities in the event of any liquidation of the trust is $10 per preferred
security plus accumulated and unpaid distributions to the date of payment, which
may be in the form of a distribution of debentures having a liquidation value
and accrued interest of an equal amount.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under
the trust agreement with respect to the preferred securities:
- the occurrence of an event of default under the indenture;
- a default by the trust in the payment of any distribution when
it becomes due and payable, and continuation of the default
for a period of 30 days;
- a default by the trust in the payment of the redemption price
of any of the trust securities when it becomes due and
payable;
- a default in the performance, or breach, in any material
respect, of any covenant or warranty of the trustees in the
trust agreement, other than those defaults covered in the
previous two points, and continuation of the default or breach
for a period of 60 days after there has been given, by
registered or certified mail, to the trustee(s) by the holders
of at least 25% in aggregate liquidation amount of the
outstanding preferred securities, a written notice specifying
the default or breach and requiring it to be remedied and
stating that the notice is a "Notice of Default" under the
trust agreement; or
- the occurrence of events of bankruptcy or insolvency with
respect to the property trustee and our failure to appoint a
successor property trustee within 60 days.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to the holders of the preferred securities, the
administrative trustees and to us, unless the event of default has been cured or
waived. Second Bancorp and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under the
trust agreement.
If an event of default under the indenture has occurred and is
continuing, the preferred securities will have preference over the common
securities upon termination of the trust. The existence of an event of default
under the trust agreement does not entitle the holders of preferred securities
to accelerate the maturity thereof, unless the event of default is caused by the
occurrence of an event of default under the indenture and both the indenture
trustee and holders of at least 25% in principal amount of the debentures fail
to accelerate the maturity thereof.
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REMOVAL OF THE TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, we may remove any trustee at any time. If an event of default under
the indenture has occurred and is continuing, only the holders of a majority in
liquidation amount of the outstanding preferred securities may remove the
property trustee or the Delaware trustee. The holders of the preferred
securities have no right to vote to appoint, remove or replace the
administrative trustees. These rights are vested exclusively with us as the
holder of the common securities. No resignation or removal of a trustee and no
appointment of a successor trustee will be effective until the successor trustee
accepts the appointment in accordance with the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default under the indenture has occurred and is
continuing, 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, we will have the power to appoint at any time or times,
and upon written request of the property trustee will appoint, one or more
persons or entities either (1) to act as a co-trustee, jointly with the property
trustee, of all or any part of the trust property, or (2) to act as separate
trustee of any trust property. In either case these trustees will have the
powers that may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case an event of
default under the indenture has occurred and is continuing, the property trustee
alone will have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees may be a
successor trustee to any of the trustees, including a successor resulting from a
merger or consolidation. However, any successor trustee must meet all of the
qualifications and eligibility standards to act as a trustee.
MERGERS, CONSOLIDATIONS, CONVERSIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may not merge with or into, convert into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any corporation or other person, except
as described below. For these purposes, if we consolidate or merge with another
entity, or transfer or sell substantially all of our assets to another entity,
in some cases that transaction may be considered to involve a replacement of the
trust, and the conditions set forth below would apply to such transaction. The
trust may, at our request, with the consent of the administrative trustees and
without the consent of the holders of the preferred securities, the property
trustee or the Delaware trustee, undertake a transaction listed above if the
following conditions are met:
- the successor entity either (a) expressly assumes all of the
obligations of the trust with respect to the preferred
securities, or (b) substitutes for the preferred securities
other securities having substantially the same terms as the
preferred securities (referred to as "successor securities")
so long as the successor securities rank the same in priority
as the preferred securities with respect to distributions and
payments upon liquidation, redemption and otherwise;
- we appoint a trustee of the successor entity possessing
substantially the same powers and duties as the property
trustee in its capacity as the holder of the debentures;
- the successor securities are listed or traded or will be
listed or traded on any national securities exchange or other
organization on which the preferred securities are then listed
or quoted, if any;
- the merger, conversion, 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;
- the successor entity has a purpose substantially identical to
that of the trust;
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- prior to the merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, we have received
an opinion from independent counsel that (a) any transaction
of this kind 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 the transaction, neither the trust nor the
successor entity will be required to register as an
"investment company" under the Investment Company Act; and
- we own all of the common securities of the successor entity
and guarantee the obligations of the successor entity under
the successor securities at least to the extent provided by
the guarantee, the debentures, the trust agreement and the
expense agreement.
Notwithstanding the foregoing, the trust may not, except with the
consent of every holder of the preferred securities, enter into any transaction
of this kind if the transaction would cause the trust or the successor entity
not to be classified as a grantor trust for federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as described below and under "Description of the
Guarantee-Amendments" on page __ and as otherwise required by the Trust
Indenture Act and the trust agreement, the holders of the preferred securities
will have no voting rights.
The trust agreement may be amended from time to time by us and the
trustees, without the consent of the holders of the preferred securities, in the
following circumstances:
- with respect to acceptance of appointment by a successor
trustee;
- to cure any ambiguity, correct or supplement any provisions in
the trust agreement that may be inconsistent with any other
provision, or make any other provisions with respect to
matters or questions arising under the trust agreement, as
long as the amendment is not inconsistent with the other
provisions of the trust agreement and does not have a material
adverse effect on the interests of any holder of trust
securities; or
- to modify, eliminate or add to any provisions of the trust
agreement if necessary to ensure that the trust will be
classified for federal income tax purposes as a grantor trust
at all times that any trust securities are outstanding or to
ensure that the trust will not be required to register as an
"investment company" under the Investment Company Act.
With the consent of the holders of a majority of the aggregate
liquidation amount of the outstanding trust securities, we and the trustees may
amend the trust agreement if the trustees receive an opinion of counsel to the
effect that the amendment or the exercise of any power granted to the trustees
in accordance with the amendment will not affect the trust's status as a grantor
trust for federal income tax purposes or the trust's exemption from status as an
"investment company" under the Investment Company Act. However, without the
consent of each holder of trust securities, the trust agreement may not be
amended to (a) change the amount or timing of any distribution on the trust
securities or otherwise adversely affect the amount of any distribution required
to be made in respect of the trust securities as of a specified date, or (b)
restrict the right of a holder of trust securities to institute suit for the
enforcement of the payment on or after that date.
As long as the property trustee holds any debentures, the trustees will
not, without obtaining the prior approval of the holders of a majority in
aggregate liquidation amount of all outstanding preferred securities:
- direct the time, method and place of conducting any proceeding
for any remedy available to the indenture trustee, or
executing any trust or power conferred on the property trustee
with respect to the debentures;
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- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the
principal of all the debentures will be due and payable; or
- consent to any amendment or termination of the indenture or
the debentures, where the property trustee's consent is
required. However, where a consent under the indenture
requires the consent of each holder of the affected
debentures, no consent will be given by the property trustee
without the prior consent of each holder of the preferred
securities.
The trustees may not revoke any action previously authorized or approved by a
vote of the holders of the preferred securities except by subsequent vote of the
holders of the preferred securities. The property trustee will notify each
holder of preferred securities of any notice of default with respect to the
debentures. In addition to obtaining the foregoing approvals of the holders of
the preferred securities, prior to taking any of the foregoing actions, the
trustees must obtain an opinion of counsel experienced in these matters to the
effect that the trust will not be classified as an association taxable as a
corporation for federal income tax purposes on account of the action.
Any required approval of holders of trust securities may be given at a
meeting or by written consent. The property trustee will cause a notice of any
meeting at which holders of the trust securities are entitled to vote, or of any
matter upon which action by written consent of the holders is to be taken, to be
given to each holder of record of trust securities.
No vote or consent of the holders of preferred securities will be
required for the trust to redeem and cancel its preferred securities in
accordance with the trust agreement.
Notwithstanding the fact that holders of preferred securities are
entitled to vote or consent under any of the circumstances described above, any
of the preferred securities that are owned by Second Bancorp, the trustees or
any affiliate of Second Bancorp or any trustee, will, for purposes of the vote
or consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The preferred securities will be represented by one or more global
preferred securities registered in the name of The Depository Trust Company, New
York, New York, referred to below as DTC, or its nominee. A global preferred
security is a security representing interests of more than one beneficial
holder. Ownership of beneficial interests in the global preferred securities
will be reflected in DTC participant account records through DTC's book-entry
transfer and registration system. Participants are brokers, dealers or others
having accounts with DTC. Indirect beneficial interests of other persons
investing in the preferred securities will be shown on, and transfers will be
effected only through, records maintained by DTC participants. Except as
described below, preferred securities in definitive form will not be issued in
exchange for the global preferred securities.
No global preferred security may be exchanged for preferred securities
registered in the names of persons other than DTC or its nominee unless:
- DTC notifies the indenture trustee that it is unwilling or
unable to continue as a depositary for the global preferred
security and we are unable to locate a qualified successor
depositary;
- we execute and deliver to the indenture trustee a written
order stating that we elect to terminate the book-entry system
through DTC; or
- there shall have occurred and be continuing an event of
default under the indenture.
Any global preferred security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates registered
in the names DTC directs. It is expected that the instructions will be based
upon directions received by DTC with respect to ownership of beneficial
interests in the global preferred
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security. If preferred securities are issued in definitive form, the preferred
securities will be in denominations of $10 and integral multiples of $10 and may
be transferred or exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
preferred securities represented thereby, a global preferred security may not be
transferred except as a whole by DTC to a nominee of DTC, by a nominee of DTC to
DTC or another nominee of DTC or by DTC or any nominee to a successor depositary
or any nominee of the successor.
Payments on global preferred securities will be made to DTC, as the
depositary for the global preferred securities. If the preferred securities are
issued in definitive form, distributions will be payable by check mailed to the
address of record of the persons entitled to the distribution, and the transfer
of the preferred securities will be registrable, and preferred securities will
be exchangeable for preferred securities of other denominations of a like
aggregate liquidation amount, at the corporate office of the property trustee,
or at the offices of any paying agent or transfer agent appointed by the
administrative trustees. In addition, if the preferred securities are issued in
definitive form, the record dates for payment of distributions will be the 15th
day of the month in which the relevant distribution date occurs. For a
description of the terms of DTC arrangements relating to payments, transfers,
voting rights, redemptions and other notices and other matters, see "Book-Entry
Issuance" on page __.
Upon the issuance of one or more global preferred securities, and the
deposit of the global preferred security with or on behalf of DTC or its
nominee, DTC or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate liquidation amounts of the individual
preferred securities represented by the global preferred security to the
designated accounts of persons that participate in the DTC system. These
participant accounts will be designated by the dealers, underwriters or agents
selling the preferred securities. Ownership of beneficial interests in a global
preferred security will be limited to persons or entities having an account with
DTC or who may hold interests through participants. With respect to interests of
any person or entity that is a DTC participant, ownership of beneficial
interests in a global preferred security will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee. With respect to persons or entities who hold interests in a global
preferred security through a participant, the interest and any transfer of the
interest will be shown only on the participant's records. The laws of some
states require that certain purchasers of securities take physical delivery of
securities in definitive form. These laws may impair the ability to transfer
beneficial interests in a global preferred security.
So long as DTC or another depositary, or its nominee, is the registered
owner of a global preferred security, the depositary or the nominee, as the case
may be, will be considered the sole owner or holder of the preferred securities
represented by the global preferred security for all purposes under the trust
agreement. Except as described in this prospectus, owners of beneficial
interests in a global preferred security will not be entitled to have any of the
individual preferred securities represented by the global preferred security
registered in their names, will not receive or be entitled to receive physical
delivery of any the preferred securities in definitive form and will not be
considered the owners or holders of the preferred securities under the trust
agreement.
None of us, the property trustee, any paying agent or the securities
registrar for the 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 the
preferred securities or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of the
liquidation amount or distributions in respect of a global preferred security,
immediately will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
liquidation amount of the global preferred security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in the global preferred security held through the
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." The payments will be the responsibility of
the participants.
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PAYMENT AND PAYING AGENCY
Payments in respect of the preferred securities will be made to DTC,
which will credit the relevant accounts of participants on the applicable
distribution dates, or, if any of the preferred securities are not held by DTC,
the payments will be made by check mailed to the address of the holder as listed
on the register of holders of the preferred securities. The paying agent for the
preferred securities will initially be the property trustee and any co-paying
agent chosen by the property trustee and acceptable to us and the administrative
trustees. The paying agent for the preferred securities may resign as paying
agent upon 30 days' written notice to the administrative trustees, the property
trustee and us. If the property trustee no longer is the paying agent for the
preferred securities, the administrative trustees will appoint a successor to
act as paying agent. The successor must be a bank or trust company acceptable to
us and the property trustee.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as the registrar and the transfer agent
for the preferred securities. Registration of transfers of preferred securities
will be effected without charge by or on behalf of the trust, but upon payment
of any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. The trust and its registrar and transfer agent will
not be required to register or cause to be registered the transfer of preferred
securities after they have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee undertakes to perform only the duties set forth in
the trust agreement. After the occurrence of an event of default that is
continuing, the property trustee must exercise the same degree of care and skill
as a prudent person exercises or uses in the conduct of its own affairs. The
property trustee is under no obligation to exercise any of the powers vested in
it by the trust agreement at the request of any holder of preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred. If no event of default under the trust
agreement has occurred and is continuing and the property trustee is required to
decide between alternative causes of action, construe ambiguous or inconsistent
provisions in the trust agreement or is unsure of the application of any
provision of the trust agreement, and the matter is not one on which holders of
preferred securities are entitled to vote upon, then the property trustee will
take the action directed in writing by us. If the property trustee is not so
directed, then it will take the action it deems advisable and in the best
interests of the holders of the trust securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
- the trust will not be deemed to be an "investment company"
required to be registered under the Investment Company Act;
- the trust will not be classified as an association taxable as
a corporation for federal income tax purposes; and
- the debentures will be treated as our indebtedness for federal
income tax purposes.
In this regard, we and the administrative trustees are authorized to
take any action not inconsistent with applicable law, the certificate of trust
or the trust agreement, that we and the administrative trustees determine to be
necessary or desirable for these purposes.
The administrative trustees may assist in listing the preferred
securities on the Nasdaq National Market or a national securities exchange.
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Holders of the preferred securities have no preemptive or similar
rights. The trust agreement and the trust securities will be governed by
Delaware law.
DESCRIPTION OF THE DEBENTURES
Concurrently with the issuance of the preferred securities, the trust
will invest the proceeds from the sale of the trust securities in the debentures
issued by us. The debentures will be issued as unsecured debt under the
indenture between us and Wilmington Trust Company, as indenture trustee. The
indenture will be qualified under the Trust Indenture Act.
The following discussion contains a description of the material
provisions of the debentures and is subject to, and is qualified in its entirety
by reference to, the indenture and to the Trust Indenture Act. We urge
prospective investors to read the form of the indenture, which is filed as an
exhibit to the registration statement of which this prospectus forms a part.
GENERAL
The debentures will be limited in aggregate principal amount to
$26,804,130, or $30,824,750 if the underwriters' over-allotment option is
exercised in full. This amount represents the sum of the aggregate stated
liquidation amounts of the trust securities. The debentures will bear interest
at the annual rate of % of the principal amount. The interest will be payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
beginning December 31, 2001, to the person in whose name each debenture is
registered at the close of business on the 15th day of the last month of the
calendar quarter. It is anticipated that, until the liquidation, if any, of the
trust, the debentures will be held in the name of the property trustee in trust
for the benefit of the holders of the trust securities.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. If any date on which interest
is payable on the debentures is not a business day, then payment of interest
will be made on the next day that is a business day without any additional
interest or other payment in respect of the delay. However, if the next business
day is in the next calendar year, payment of interest will be made on the
immediately preceding business day. Accrued interest that is not paid on the
applicable interest payment date will bear additional interest on the amount due
at the annual rate of %, compounded quarterly.
The debentures will mature on December 31, 2031, the stated maturity
date. We may shorten this date once at any time to any date not earlier than
December 31, 2006, subject to the prior approval of the Federal Reserve, if
required by law or regulation.
We will give notice to the indenture trustee and the holders of the
debentures, no more than 180 days and no less than 30 days prior to the
effectiveness of any change in the stated maturity date. We will not have the
right to redeem the debentures from the trust until after December 31, 2006,
except if (a) a Tax Event, an Investment Company Event or a Capital Treatment
Event, which terms are defined on pages __ and __, has occurred, or (b) we
repurchase preferred securities in the market, in which case we can elect to
redeem debentures specifically in exchange for a like amount of preferred
securities owned by us plus a proportionate amount of common securities.
The debentures will be unsecured and will rank junior to all of our
senior and subordinated debt, including indebtedness we may incur in the future.
Because we are a holding company, our right to participate in any distribution
of assets of any of our subsidiaries, upon any subsidiary's liquidation or
reorganization or otherwise, and thus the ability of holders of the debentures
to benefit indirectly from any distribution by a subsidiary, is subject to the
prior claim of creditors of the subsidiary, except to the extent that we may be
recognized as a creditor of the subsidiary. The debentures will, therefore, be
effectively subordinated to all existing and future liabilities of our
subsidiaries, and holders of debentures should look only to our assets for
payment. The indenture does not limit our ability to incur or issue secured or
unsecured senior and junior debt, except in limited circumstances. See
"-Subordination" on page __ and "-Miscellaneous" on page __.
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Except in limited circumstances, the indenture does not contain
provisions that afford holders of the debentures protection in the event of a
highly leveraged transaction or other similar transaction involving us, nor does
it require us to maintain or achieve any financial performance levels or to
obtain or maintain any credit rating on the debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
As long as no event of default under the indenture has occurred and is
continuing, we have the right under the indenture to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond the stated maturity of
the debentures or end on a date other than a date interest is normally due. At
the end of an extension period, we must pay all interest then accrued and
unpaid, together with interest thereon at the annual rate of %, compounded
quarterly. During an extension period, interest will continue to accrue and
holders of debentures, or the holders of preferred securities if they are then
outstanding, will be required to accrue and recognize as income for federal
income tax purposes the accrued but unpaid interest amounts in the year in which
such amounts accrued. See "Certain Federal Income Tax Consequences-Interest
Payment Period and Original Issue Discount" on page __.
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect
to, any of our capital stock (other than stock dividends,
non-cash dividends in connection with the implementation of a
shareholder rights plan, the issuance of stock under any such
plan or the redemption or repurchase of any such rights
pursuant thereto, purchases of common shares in connection
with benefit plans for our directors, officers or employees or
a dividend reinvestment plan, in connection with the
reclassification of any class of our capital stock into
another class of capital stock or the exchange or conversion
of one class or series of our capital stock for another class
or series of our capital stock pursuant to the conversion or
exchange provisions of that capital stock or the security
being converted or exchanged or purchases of fractional
interests in shares of our capital stock pursuant to the
conversion or exchange provisions of that capital stock or the
security being converted or exchanged, purchases of fractional
interests in shares of our capital stock issued or issuable to
the stockholders of an unaffiliated third party and payments
made in respect of not more than ten percent (10%) of the
outstanding shares of our capital stock held by our
shareholders who exercise dissenters' rights required to be
afforded to them by applicable law, in each case pursuant to a
merger, consolidation or other business combination with an
unaffiliated third party in an arm's-length transaction
entered into in good faith) or allow any of our subsidiaries
to do the same with respect to their capital stock (other than
payment of dividends or distributions to us);
- make or allow any of our subsidiaries to make any payment of
principal, interest or premium on, or repay, repurchase or
redeem any debt securities issued by us that rank equally with
or junior to the debentures;
- make or allow any of our subsidiaries to make any guarantee
payments with respect to any other guarantee by us of any
other debt securities of any of our subsidiaries if the
guarantee ranks equally with or junior to the debentures
(other than payments under the guarantee relating to the
preferred securities); or
- redeem, purchase or acquire less than all of the debentures or
any of the preferred securities.
Prior to the termination of any extension period, so long as no event
of default under the indenture is continuing, we may further defer the payment
of interest subject to the above stated requirements. Upon the termination of
any extension period and the payment of all amounts then due, we may elect to
begin a new extension period at any time. We do not currently intend to exercise
our right to defer payments of interest on the debentures.
We must give the property trustee, the administrative trustees and the
indenture trustee notice of our election of an extension period at least two
business days prior to the earlier of (a) the next date on which distributions
on the trust securities would have been payable except for the election to begin
an extension period, or
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(b) the date we are required to give notice of the record date, or the date the
distributions are payable, to the Nasdaq National Market, or other applicable
self-regulatory organization, or to holders of the preferred securities, but in
any event at least one business day prior to the record date. If the property
trustee is not the only registered holder of the debentures, then this notice
must also be given to the holders of the debentures.
Other than as described above, there is no limitation on the number of
times that we may elect to begin an extension period.
ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If the trust or the property trustee is required to pay any additional
taxes, duties, assessments or other governmental charges as a result of the
occurrence of a Tax Event, we will pay as additional interest on the debentures
any amounts which may be required so that the net amounts received and retained
by the trust after paying any additional taxes, duties, assessments or other
governmental charges will not be less than the amounts the trust and the
property trustee would have received had the additional taxes, duties,
assessments or other governmental charges not been imposed.
REDEMPTION
Subject to prior approval of the Federal Reserve, if required by law or
regulation, we may redeem the debentures prior to maturity:
- on or after December 31, 2006, in whole at any time or in part
from time to time; or
- in whole at any time within 180 days following the occurrence
of a Tax Event, an Investment Company Event or a Capital
Treatment Event; or
In each case we will pay a redemption price equal to the accrued and
unpaid interest on the debentures so redeemed to the date fixed for redemption,
plus 100% of the principal amount of the redeemed debentures.
We may also redeem the debentures prior to maturity at any time, and
from time to time, to the extent of any preferred securities we purchase, plus a
proportionate amount of the common securities we hold.
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 debentures to be
redeemed at its registered address. Redemption of less than all outstanding
debentures must be effected proportionately, by lot or in any other manner
deemed to be fair and appropriate by the indenture trustee. Unless we default in
payment of the redemption price for the debentures, on and after the redemption
date interest will no longer accrue on the debentures or the portions of the
debentures called for redemption.
The debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities-Liquidation
Distribution Upon Termination" on page __, under certain circumstances and with
the Federal Reserve's approval if required by law or regulation, the debentures
may be distributed to the holders of the preferred securities in liquidation of
the trust after satisfaction of liabilities to creditors of the trust. If this
occurs, we will use our best efforts to list the debentures on the Nasdaq
National Market or other national securities exchange or national quotation
system on which the preferred securities are then listed, if any. There can be
no assurance as to the market price of any debentures that may be distributed to
the holders of preferred securities.
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RESTRICTIONS ON PAYMENTS
We are restricted from making certain payments (as described below) if
we have chosen to defer payment of interest on the debentures, if an event of
default has occurred and is continuing under the indenture, or if we are in
default with respect to our obligations under the guarantee.
If any of these events occur, we will not:
- declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect
to, any of our capital stock (other than stock dividends,
non-cash dividends in connection with the implementation of a
shareholder rights plan, the issuance of stock under any such
plan or the redemption or repurchase of any such rights
pursuant thereto, purchases of common shares in connection
with benefit plans for our directors, officers or employees or
a dividend reinvestment plan, in connection with the
reclassification of any class of our capital stock into
another class of capital stock or the exchange or conversion
of one class or series of our capital stock for another class
or series of our capital stock pursuant to the conversion or
exchange provisions of that capital stock or the security
being converted or exchanged or purchases of fractional
interests in shares of our capital stock pursuant to the
conversion or exchange provisions of that capital stock or the
security being converted or exchanged, purchases of fractional
interests in shares of our capital stock issued or issuable to
the stockholders of an unaffiliated third party and payments
made in respect of not more than ten percent (10%) of the
outstanding shares of our capital stock held by our
shareholders who exercise dissenters' rights required to be
afforded to them by applicable law, in each case pursuant to a
merger, consolidation or other business combination with an
unaffiliated third party in an arm's-length transaction
entered into in good faith) or allow any of our subsidiaries
to do the same with respect to their capital stock (other than
payment of dividends or distributions to us);
- make or allow any of our subsidiaries to make any payment of
principal, interest or premium on, or repay or repurchase or
redeem any of our debt securities that rank equally with or
junior to the debentures;
- make or allow any of our subsidiaries to make any guarantee
payments with respect to any guarantee by us of the debt
securities of any of our subsidiaries if the guarantee ranks
equally with or junior to the debentures (other than payments
under the guarantee relating to the preferred securities); or
- redeem, purchase or acquire less than all of the debentures or
any of the preferred securities.
SUBORDINATION
The debentures are subordinated and junior in right of payment to all
of our senior and subordinated debt, as defined below. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up or reorganization of Second Bancorp, whether voluntary or involuntary in
bankruptcy, insolvency, receivership or other proceedings in connection with any
insolvency or bankruptcy proceedings, the holders of our senior and subordinated
debt will first be entitled to receive payment in full of principal and interest
before the holders of debentures will be entitled to receive or retain any
payment in respect of the debentures.
If the maturity of any debentures is accelerated and our senior and
subordinated debt is also accelerated, the holders of all of our senior and
subordinated debt outstanding at the time of the acceleration will also be
entitled to first receive payment in full of all amounts due to them, including
any amounts due upon acceleration, before the holders of the debentures will be
entitled to receive or retain any principal or interest payments on the
debentures.
No payments of principal or interest on the debentures may be made if
there has occurred and is continuing a default in any payment with respect to
any of our senior or subordinated debt or an event of default with respect to
any of our senior or subordinated debt resulting in the acceleration of the
maturity of the senior or subordinated debt, or if any judicial proceeding is
pending with respect to any default.
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The term "debt" means, with respect to any person, whether recourse is
to all or a portion of the assets of the person and whether or not contingent:
- every obligation of the person for money borrowed;
- every obligation of the person evidenced by bonds, debentures,
notes or other similar instruments, including obligations
incurred in connection with the acquisition of property,
assets or businesses;
- every reimbursement obligation of the person with respect to
letters of credit, bankers' acceptances or similar facilities
issued for the account of the person;
- every obligation of the person issued or assumed as the
deferred purchase price of property or services, excluding
trade accounts payable or accrued liabilities arising in the
ordinary course of business;
- every capital lease obligation of the person; and
- every obligation of the type referred to in the first five
points of another person and all dividends of another person
the payment of which, in either case, the first person has
guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise.
The term "senior debt" means the principal of, and premium and
interest, including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to us, on debt, whether incurred on or
prior to the date of the indenture or incurred after the date. However, senior
debt will not be deemed to include:
- any debt where it is provided in the instrument creating the
debt that the obligations are not superior in right of payment
to the debentures or to other debt which is equal with, or
subordinated to, the debentures;
- any of our debt that when incurred and without regard to any
election under the federal bankruptcy laws, was without
recourse to us;
- any debt to any of our employees;
- any debt that by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course
of business to the extent that payments made to the holders of
the debt by the holders of the debentures as a result of the
subordination provisions of the indenture would be greater
than they otherwise would have been as a result of any
obligation of the holders to pay amounts over to the obligees
on the trade accounts payable or accrued liabilities arising
in the ordinary course of business as a result of
subordination provisions to which the debt is subject; and
- debt which constitutes subordinated debt.
The term "subordinated debt" means the principal of, and premium and
interest, including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to us, on debt. Subordinated debt
includes debt incurred on or prior to the date of the indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other debt of ours, other than the debentures. However, subordinated debt
will not be deemed to include:
- any of our debt which, when incurred and without regard to any
election under the federal bankruptcy laws, was without
recourse to us;
- any debt to any of our employees;
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- any debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course
of business to the extent that payments made to the holders of
the debt by the holders of the debentures as a result of the
subordination provisions of the indenture would be greater
than they otherwise would have been as a result of any
obligation of the holders to pay amounts over to the obligees
on the trade accounts payable or accrued liabilities arising
in the ordinary course of business as a result of
subordination provisions to which the debt is subject;
- debt which constitutes senior debt; and
- any debt of ours under debt securities (and guarantees in
respect of these debt securities) initially issued to any
trust, or a trustee of a trust, partnership or other entity
affiliated with us that is, directly or indirectly, our
financing subsidiary in connection with the issuance by that
entity of preferred securities or other securities which are
intended to qualify for "Tier 1" capital treatment.
We expect from time to time to incur additional indebtedness, and,
except in certain circumstances, there is no limitation under the indenture on
the amount of indebtedness we may incur. We had consolidated senior and
subordinated debt of $1.0 million outstanding principal amount at June 30, 2001.
PAYMENT AND PAYING AGENTS
Generally, payment of principal of and interest on the debentures will
be made at the office of the indenture trustee in Wilmington, Delaware. However,
we have the option to make payment of any interest by (a) check mailed to the
address of the person entitled to payment at the address listed in the register
of holders of the debentures, or (b) wire transfer to an account maintained by
the person entitled thereto as specified in the register of holders of the
debentures, provided that proper transfer instructions have been received by the
applicable record date. Payment of any interest on debentures will be made to
the person in whose name the debenture is registered at the close of business on
the regular record date for the interest payment, except in the case of
defaulted interest.
Any moneys deposited with the indenture trustee or any paying agent for
the debentures, or then held by us in trust, for the payment of the principal of
or interest on the debentures and remaining unclaimed for two years after the
principal or interest has become due and payable, will be repaid to us on
December 31 of each year. If we hold any of this money in trust, then it will be
discharged from the trust to us and the holder of the debenture will thereafter
look, as a general unsecured creditor, only to us for payment.
REGISTRAR AND TRANSFER AGENT
The indenture trustee will act as the registrar and the transfer agent
for the debentures. Debentures may be presented for registration of transfer,
with the form of transfer endorsed thereon, or a satisfactory written instrument
of transfer, duly executed, at the office of the registrar. Provided that we
maintain a transfer agent in Wilmington, Delaware or New York, New York, we may
rescind the designation of any transfer agent or approve a change in the
location through which any transfer agent acts. We may at any time designate
additional transfer agents with respect to the debentures.
If we redeem any of the debentures, neither we nor the indenture
trustee will be required to (a) issue, register the transfer of or exchange any
debentures during a period beginning at the opening of business 15 days before
the day of the mailing of and ending at the close of business on the day of the
mailing of the relevant notice of redemption, or (b) transfer or exchange any
debentures so selected for redemption, except, in the case of any debentures
being redeemed in part, any portion not to be redeemed.
MODIFICATION OF INDENTURE
We and the indenture trustee may, from time to time without the consent
of the holders of the debentures, amend, waive our rights under or supplement
the indenture for purposes which do not materially adversely affect the rights
of the holders of the debentures. Other changes may be made by us and the
indenture trustee with the consent
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of the holders of a majority in principal amount of the outstanding debentures.
However, without the consent of the holder of each outstanding debenture
affected by the proposed modification, no modification may:
- extend the maturity date of the debentures; or
- reduce the principal amount or the rate or extend the time of
payment of interest; or
- reduce the percentage of principal amount of debentures
required to amend the indenture.
As long as any of the preferred securities remain outstanding, no
modification of the indenture may be made that requires the consent of the
holders of the debentures, no termination of the indenture may occur, and no
waiver of any event of default under the indenture may be effective, without the
prior consent of the holders of a majority of the aggregate liquidation amount
of the preferred securities.
DEBENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following events
with respect to the debentures that has occurred and is continuing constitutes
an event of default under the indenture:
- our failure to pay any interest on the debentures for 30 days
after the due date, except where we have properly deferred the
interest payment;
- our failure to pay any principal on the debentures when due
whether at maturity, upon redemption or otherwise;
- our failure to observe or perform in any material respect any
other covenants or agreements contained in the indenture for
90 days after written notice to us from the indenture trustee
or the holders of at least 25% in aggregate outstanding
principal amount of the debentures; or
- our bankruptcy, insolvency or similar reorganizations in
bankruptcy or dissolution of the trust other than in
connection with a distribution of the debentures in connection
with such dissolution, redemption of the trust securities or
certain transactions permitted under the trust agreement.
The holders of a majority of the aggregate outstanding principal amount
of the debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee. The
indenture trustee, or the holders of at least 25% in aggregate outstanding
principal amount of the debentures, may declare the principal due and payable
immediately upon an event of default under the indenture. The holders of a
majority of the outstanding principal amount of the debentures may rescind and
annul the declaration and waive the default if the default has been cured and a
sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the indenture trustee as
long as the holders of a majority in liquidation amount of the trust securities
have consented to the waiver of the default. The holders may not annul the
declaration and waive a default if the default is the non-payment of the
principal of the debentures which has become due solely by the acceleration.
So long as the property trustee is the holder of the debentures, if an
event of default under the indenture has occurred and is continuing, the
property trustee will have the right to declare the principal of and the
interest on the debentures, and any other amounts payable under the indenture,
to be immediately due and payable and to enforce its other rights as a creditor
with respect to the debentures.
We are required to file annually with the indenture trustee a
certificate as to whether or not we are in compliance with all of the conditions
and covenants applicable to us under the indenture.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If an event of default under the indenture has occurred and is
continuing and the event is attributable to the failure by us to pay interest on
or principal of the debentures on the date on which the payment is due and
payable, then a holder of preferred securities may institute a direct action
against us to compel us to make the payment. We may not amend the indenture to
remove the foregoing right to bring a direct action without the prior written
consent of all of the holders of the preferred securities. If the right to bring
a direct action is removed, the trust may become subject to the reporting
obligations under the Securities Exchange Act of 1934.
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 debentures unless there has been an event of
default under the trust agreement.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may not consolidate with or merge into any other entity or convey or
transfer our properties and assets substantially as an entirety to any entity,
and no entity may be consolidated with or merged into us or sell, convey,
transfer or otherwise dispose of its properties and assets substantially as an
entirety to us, unless:
- if we consolidate with or merge into another entity or convey
or transfer our properties and assets substantially as an
entirety to any entity, the successor entity is organized
under the laws of the United States or any state or the
District of Columbia, and the successor entity expressly
assumes by supplemental indenture our obligations on the
debentures, and the ultimate parent entity of the successor
entity expressly assumes our obligations under the guarantee,
to the extent the preferred securities are then outstanding;
- immediately after the transaction, no event of default under
the indenture, and no event which, after notice or lapse of
time, or both, would become an event of default under the
indenture, has occurred and is continuing; and
- other conditions as prescribed in the indenture are met.
Under certain circumstances, if we consolidate or merge with another
entity, or transfer or sell substantially all of our assets to another entity,
such transaction may be considered to involve a replacement of the trust, and
the provisions of the trust agreement relating to a replacement of the trust
would apply to such transaction. See "Description of the Preferred Securities
- -Mergers, Consolidations, Conversions, Amalgamations or Replacements of the
Trust" on page __.
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect and we will be deemed
to have satisfied and discharged our obligations under the indenture when all
debentures not previously delivered to the indenture trustee for cancellation:
- have become due and payable; and
- will become due and payable at their stated maturity within
one year or are to be called for redemption within one year,
and we deposit or cause to be deposited with the indenture
trustee funds, in trust, for the purpose and in an amount
sufficient to pay and discharge the entire indebtedness on the
debentures not previously delivered to the indenture trustee
for cancellation, for the principal and interest due to the
date of the deposit or to the stated maturity or redemption
date, as the case may be.
We may still be required to provide officers' certificates and opinions
of counsel and pay fees and expenses due after these events occur.
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GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with Ohio law.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to these provisions, the indenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered reasonable security or indemnity by the
holder against the costs, expenses and liabilities which might be incurred. The
indenture trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
indenture trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
MISCELLANEOUS
We have agreed, pursuant to the indenture, for so long as preferred
securities remain outstanding:
- to maintain directly or indirectly 100% ownership of the
common securities of the trust, except that certain successors
that are permitted pursuant to the indenture may succeed to
our ownership of the common securities;
- not to voluntarily terminate, wind up or liquidate the trust
without prior approval of the Federal Reserve, if required by
law or regulation;
- to use our reasonable efforts to cause the trust (a) to remain
a business trust (and to avoid involuntary termination,
winding up or liquidation), except in connection with a
distribution of debentures, the redemption of all of the trust
securities of the trust or mergers, consolidations,
conversions or amalgamations, each as permitted by the trust
agreement; and (b) to otherwise continue not to be treated as
an association taxable as a corporation or partnership for
federal income tax purposes;
- to use our reasonable efforts to cause each holder of trust
securities to be treated as owning an individual beneficial
interest in the debentures;
- to use our best efforts to maintain the eligibility of the
preferred securities for quotation or listing on the Nasdaq
National Market or other national securities exchange or
national quotation system on which the preferred securities
are then listed, if any, but this will not prevent us from
redeeming all or a portion of the preferred securities in
accordance with the terms of the trust agreement;
- not to issue or incur, directly or indirectly, any additional
indebtedness in connection with the issuance of additional
trust preferred securities or similar securities that are
senior in right of payment to the debentures; and
- not to issue or incur, directly or indirectly, any additional
indebtedness related to the issuance of additional trust
preferred securities or similar securities that rank equal in
right of payment with the debentures unless:
the pro forma sum of all outstanding debt issued by us or any
of our subsidiaries in connection with any trust preferred
securities issued by any of our finance subsidiaries,
including the debentures and the maximum liquidation amount of
the additional trust preferred or similar securities that we
or our finance subsidiary is then proposing to offer, plus our
total long-term debt (excluding any long-term debt which, by
its terms, is expressly stated to be junior and subordinate to
the debentures),
is less than 60 percent of
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the sum of our common and preferred shareholders' equity, plus
any long-term debt which, by its terms, is expressly stated to
be junior and subordinate to the debentures, in each case on a
consolidated basis.
BOOK-ENTRY ISSUANCE
GENERAL
DTC will act as securities depositary for the preferred securities and
may act as securities depositary for all of the debentures in the event of the
distribution of the debentures to the holders of preferred securities. Except as
described below, the preferred securities will be issued only as registered
securities in the name of Cede & Co. (DTC's nominee). One or more global
preferred securities will be issued for the preferred securities and will be
deposited with DTC.
DTC is a limited purpose trust company organized under 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 Section 17A of the Securities Exchange Act of 1934. 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, the American Stock Exchange and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to indirect participants, such as securities brokers and dealers,
banks and trust companies that clear through or maintain custodial relationships
with direct participants, either directly or indirectly. The rules applicable to
DTC and its participants are on file with the SEC.
Purchases of preferred securities within the DTC system must be made by
or through direct participants, which will receive a credit for the preferred
securities on DTC's records. The ownership interest of each actual purchaser of
each preferred security, referred to below as a "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. Transfers of ownership interests in the
preferred securities 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 interest in preferred
securities, except if use of the book-entry-only system for the preferred
securities is discontinued.
DTC will have no knowledge of the actual beneficial owners of the
preferred securities. DTC's records reflect only the identity of the direct
participants to whose accounts the preferred securities 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.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be accurate, but we and
the trust assume no responsibility for the accuracy thereof. Neither we nor the
trust have any responsibility for the performance by DTC or its participants of
their respective obligations as described in this prospectus or under the rules
and procedures governing their respective operations.
NOTICES AND VOTING
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to 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.
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Redemption notices will be sent to Cede & Co. as the registered holder
of the preferred securities. If less than all of the preferred securities are
being redeemed, the amount to be redeemed will be determined in accordance with
the trust agreement.
Although voting with respect to the preferred securities is limited to
the holders of record of the preferred securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to preferred securities. Under its usual procedures, DTC would mail an
omnibus proxy to the property 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 the preferred securities are credited on
the record date.
DISTRIBUTION OF FUNDS
The property trustee will make distribution payments on the preferred
securities 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 the payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices and will be the
responsibility of the participant and not of DTC, the property trustee, the
trust or us, 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 property trustee, disbursement of the payments to direct participants is
the responsibility of DTC, and disbursements of the payments to the beneficial
owners is the responsibility of direct and indirect participants.
SUCCESSOR DEPOSITARIES AND TERMINATION OF BOOK-ENTRY SYSTEM
DTC may discontinue providing its services with respect to any of the
preferred securities at any time by giving reasonable notice to the property
trustee or us. If no successor securities depositary is obtained, definitive
certificates representing the preferred securities are required to be printed
and delivered. We also have the option to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary). After an event of
default under the indenture, the holders of a majority in liquidation amount of
preferred securities may determine to discontinue the system of book-entry
transfers through DTC. In these events, definitive certificates for the
preferred securities will be printed and delivered.
DESCRIPTION OF THE GUARANTEE
The preferred securities guarantee agreement will be executed and
delivered by us concurrently with the issuance of the preferred securities for
the benefit of the holders of the preferred securities. The guarantee agreement
will be qualified as an indenture under the Trust Indenture Act. Wilmington
Trust Company, the guarantee trustee, will act as trustee for purposes of
complying with the provisions of the Trust Indenture Act, and will also hold the
guarantee for the benefit of the holders of the preferred securities. The
following discussion contains a description of the material provisions of the
guarantee and is subject to, and is qualified in its entirety by reference to,
the guarantee agreement and the Trust Indenture Act. Prospective investors are
urged to read the form of the guarantee agreement, which has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
GENERAL
We agree to pay in full on a subordinated basis, to the extent
described in the guarantee agreement, the guarantee payments (as defined below)
to the holders of the preferred securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the trust may have or assert
other than the defense of payment.
The following payments with respect to the preferred securities are
called the "guarantee payments" and, to the extent not paid or made by the trust
and to the extent that the trust has funds available for those distributions,
will be subject to the guarantee:
- any accumulated and unpaid distributions required to be paid
on the preferred securities;
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- with respect to any preferred securities called for
redemption, the redemption price; and
- upon a voluntary or involuntary dissolution, winding up or
termination of the trust (other than in connection with the
distribution of debentures to the holders of preferred
securities in exchange for preferred securities), the lesser
of:
(a) the amount of the liquidation distribution; and
(b) the amount of assets of the trust remaining available
for distribution to holders of preferred securities
in liquidation of the trust.
We may satisfy our obligations to make a guarantee payment by making a
direct payment of the required amounts to the holders of the preferred
securities or by causing the trust to pay the amounts to the holders.
The guarantee agreement is a guarantee, on a subordinated basis, of the
guarantee payments, but the guarantee only applies to the extent the trust has
funds available for those distributions. If we do not make interest payments on
the debentures purchased by the trust, the trust will not have funds available
to make the distributions and will not pay distributions on the preferred
securities.
STATUS OF THE GUARANTEE
The guarantee constitutes our unsecured obligation that ranks
subordinate and junior in right of payment to all of our senior and subordinated
debt in the same manner as the debentures. We expect to incur additional
indebtedness in the future, although other than described in "Use of Proceeds"
on page [__], we have no specific plans in this regard presently. Except in
certain circumstances limiting our ability to issue additional trust preferred
securities or similar securities or indebtedness, our ability to incur
additional indebtedness is not limited. See "Description of the
Debentures-Miscellaneous" on page [__].
The guarantee constitutes a guarantee of payment and not of collection.
If we fail to make guarantee payments when required, holders of preferred
securities may institute a legal proceeding directly against us to enforce their
rights under the guarantee without first instituting a legal proceeding against
any other person or entity.
The guarantee will not be discharged except by payment of the guarantee
payments in full to the extent not paid by the trust or upon distribution of the
debentures to the holders of the preferred securities. Because we are a bank
holding company, our right to participate in any distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of that subsidiary, except to the
extent we may be recognized as a creditor of that subsidiary. The ability of
claimants under the guarantee to realize upon the value of any of our
subsidiaries, therefore, will be subordinated to all existing and future
liabilities of our subsidiaries.
AMENDMENTS
Except with respect to any changes that do not materially adversely
affect the rights of holders of the preferred securities, in which case no vote
will be required, the guarantee may be amended only with the prior approval of
the holders of a majority of the aggregate liquidation amount of the outstanding
preferred securities.
EVENTS OF DEFAULT; REMEDIES
An event of default under the guarantee agreement will occur upon our
failure to make any required guarantee payments or to perform any other
obligations under the guarantee. If the guarantee trustee obtains actual
knowledge that an event of default has occurred and is continuing, the guarantee
trustee must enforce the guarantee for the benefit of the holders of the
preferred securities. The holders of a majority in aggregate liquidation amount
of the preferred securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the guarantee
trustee in respect of the guarantee and may direct the exercise of any power
conferred upon the guarantee trustee under the guarantee agreement.
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Any holder of preferred securities may institute and prosecute a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against the trust, the guarantee trustee or
any other person or entity.
We are required to provide to the guarantee trustee annually a
certificate as to whether or not we are in compliance with all of the conditions
and covenants applicable to us under the guarantee agreement.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect
upon:
- full payment of the redemption price of the preferred
securities;
- full payment of the amounts payable upon liquidation of the
trust; or
- distribution of the debentures to the holders of the preferred
securities.
If at any time any holder of the preferred securities must restore
payment of any sums paid under the preferred securities or the guarantee, the
guarantee will continue to be effective or will be reinstated with respect to
such amounts.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance
of our default in performance of the guarantee, undertakes to perform only those
duties as are specifically set forth in the guarantee. When an event of default
has occurred and is continuing, the guarantee trustee must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. The guarantee trustee is under no obligation
to exercise any of the powers vested in it by the guarantee at the request of
any holder of any preferred securities unless it is offered reasonable security
and indemnity against the costs, expenses and liabilities that might be incurred
thereby; but this does not relieve the guarantee trustee of its obligations to
exercise the rights and powers under the guarantee in the event of a default.
EXPENSE AGREEMENT
We will, pursuant to the agreement as to expenses and liabilities
entered into by us and the trust under the trust agreement, irrevocably and
unconditionally guarantee to each person or entity to whom the trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the trust, other than obligations of the trust to pay to the holders of the
preferred securities or other similar interests in the trust of the amounts due
to the holders pursuant to the terms of the preferred securities or other
similar interests, as the case may be. Third party creditors of the trust may
proceed directly against us under the expense agreement, regardless of whether
they had notice of the expense agreement.
GOVERNING LAW
The guarantee will be governed by Ohio law.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We irrevocably guarantee, as and to the extent described in this
prospectus, payments of distributions and other amounts due on the preferred
securities, to the extent the trust has funds available for the payment of these
amounts. We and the trust believe that, taken together, our obligations under
the debentures, the indenture, the trust agreement, the expense agreement and
the guarantee agreement provide, in the aggregate, a full, irrevocable and
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unconditional guarantee, on a subordinated basis, of payment of distributions
and other amounts due on the preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes a guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the trust under the preferred securities.
If and to the extent that we do not make payments on the debentures,
the trust will not pay distributions or other amounts due on the preferred
securities. The guarantee does not cover payment of distributions when the trust
does not have sufficient funds to pay the distributions. In this event, the
remedy of a holder of preferred securities is to institute a legal proceeding
directly against us for enforcement of payment of the distributions to the
holder. Our obligations under the guarantee are subordinated and junior in right
of payment to all of our other indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the debentures, these payments will be sufficient to cover distributions and
other payments due on the preferred securities, primarily because:
- the aggregate principal amount of the debentures will be equal
to the sum of the aggregate stated liquidation amount of the
trust securities;
- the interest rate and interest and other payment dates on the
debentures will match the distribution rate and distribution
and other payment dates for the preferred securities;
- we will pay for any and all costs, expenses and liabilities of
the trust, except the obligations of the trust to pay to
holders of the preferred securities the amounts due to the
holders pursuant to the terms of the preferred securities; and
- the trust will not engage in any activity that is not
consistent with the limited purposes of the trust.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any preferred security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person. A default or event of default under any of our senior or
subordinated debt would not constitute a default or event of default under the
trust agreement. In the event, however, of payment defaults under, or
acceleration of, our senior or subordinated debt, the subordination provisions
of the indenture provide that no payments may be made in respect of the
debentures until the obligations have been paid in full or any payment default
has been cured or waived. Failure to make required payments on the debentures
would constitute an event of default under the trust agreement.
LIMITED PURPOSE OF THE TRUST
The preferred securities evidence preferred undivided beneficial
interests in the assets of the trust. The trust exists for the exclusive
purposes of issuing the trust securities, investing the proceeds thereof in
debentures and engaging in only those other activities necessary, advisable or
incidental thereto. A principal difference between the rights of a holder of a
preferred security and the rights of a holder of a debenture is that a holder of
a debenture is entitled to receive from us the principal amount of and interest
accrued on debentures held, while a holder of preferred securities is entitled
to receive distributions from the trust (or from us under the guarantee) if and
to the extent the trust has funds available for the payment of the
distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or
liquidation of the trust involving the liquidation of the debentures, the
holders of the preferred securities will be entitled to receive, out of assets
held by
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the trust, the liquidation distribution in cash. See "Description of the
Preferred Securities-Liquidation Distribution Upon Termination" at page __.
Upon our voluntary or involuntary liquidation or bankruptcy, the
property trustee, as holder of the debentures, would be a subordinated creditor
of ours. Therefore, the property trustee would be subordinated in right of
payment to all of our senior and subordinated debt, but is entitled to receive
payment in full of principal and interest before any of our shareholders receive
payments or distributions. Since we are the guarantor under the guarantee and
have agreed to pay for all costs, expenses and liabilities of the trust other
than the obligations of the trust to pay to holders of the preferred securities
the amounts due to the holders pursuant to the terms of the preferred
securities, the positions of a holder of the preferred securities and a holder
of the debentures relative to our other creditors and to our shareholders in the
event of liquidation or bankruptcy are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain of the material United States
federal income tax consequences of the purchase, ownership and disposition of
the preferred securities held as capital assets by a holder who purchases such
securities upon initial issuance at their original issue price. The statements
of law and legal conclusions set forth in this summary regarding the United
States federal income tax consequences to the holders of the preferred
securities represents the opinion of Vorys, Sater, Seymour and Pease LLP,
counsel to Second Bancorp and the trust ("Tax Counsel").
The summary is based upon current provisions of the Internal Revenue
Code of 1986, as amended, Treasury regulations promulgated thereunder and
current administrative rulings and court decisions, all of which are subject to
change at any time, with possible retroactive effect. An opinion of Tax Counsel
is not binding on the Internal Revenue Service ("IRS") or the courts. Subsequent
changes may cause tax consequences to vary substantially from the consequences
described below. Furthermore, the authorities on which the following summary is
based are subject to various interpretations, and it is therefore possible that
the federal income tax treatment of the purchase, ownership and disposition of
the preferred securities may differ from the treatment described below. No
rulings have been or are expected to be sought from the IRS with respect to any
of the transactions described herein and no assurance can be given that the IRS
will not take contrary positions. Moreover, no assurance can be given that the
opinions expressed herein will not be challenged by the IRS or, if challenged,
that such a challenge would not be successful.
No attempt has been made in the following summary to comment on all
United States federal income tax matters affecting purchasers of the preferred
securities. Moreover, the discussion generally focuses on the following holders
of the preferred securities who acquire the preferred securities on their
original issue at their initial offering price and hold the preferred securities
as capital assets: (i) an individual, citizen or resident of the United States;
(ii) a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision; (iii) an estate the income of
which is includable in its gross income for United States federal income tax
purposes without regard to its source; or (iv) a trust if a court within the
United States is able to exercise primary supervision over its administration
and at least one United States person has the authority to control all
substantial decisions of the trust. The summary does not address the tax
consequences that may be relevant to holders who may be subject to special tax
treatment, such as nonresident aliens, banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors or persons that will hold the
preferred securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. The following summary also does
not address the tax consequences to persons that have a functional currency
other than the U.S. dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of the preferred securities. Further, it does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to the preferred securities. Accordingly, each prospective investor
should consult, and should rely exclusively on, the investor's own tax advisors
in analyzing the federal, state, local and foreign tax consequences of the
purchase, ownership or disposition of the preferred
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securities with regard to the particular tax consequences specific to that
investor, which may vary for investors in different tax situations, and not
addressed in the following summary.
CLASSIFICATION OF THE DEBENTURES
Tax Counsel has rendered its opinion that the debentures will be
classified for United States federal income tax purposes as indebtedness of
Second Bancorp under current law, and, by acceptance of a preferred security,
you, as a holder, covenant to treat the debentures as indebtedness and the
preferred securities as evidence of an indirect beneficial ownership interest in
the debentures for all United States federal income tax purposes. The remainder
of this summary assumes that the debentures will be classified for United States
federal income tax purposes as indebtedness of Second Bancorp.
CLASSIFICATION OF THE TRUST
Tax Counsel has rendered its opinion that, under current law and
assuming full compliance with the terms of the trust agreement and indenture,
and based on certain facts and assumptions contained in Tax Counsel's opinion,
the trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for federal income tax purposes, you, as a holder of the preferred securities
will be treated as owning an undivided beneficial interest in the debentures,
and you will be required to include in your gross income any interest with
respect to the debentures at the time such interest is accrued or is received
with respect to your pro rata share of the debentures, in accordance with your
method of accounting. As discussed below, if the debentures were determined to
be subject to the original issue discount ("OID") rules, you, as a holder, would
instead be required to include in your gross income any OID accrued on a daily
basis with respect to your allocable share of the debentures whether or not cash
was actually distributed to you.
INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations, debt instruments such as the
debentures, which are issued at face value will not be considered issued with
OID, even if their issuer can defer payments of interest, if the likelihood of
any deferral is remote. Assuming the accuracy of the conclusion as set forth
below that the likelihood of exercising our option to defer payments is remote,
the debentures will not be treated as issued with OID. Accordingly, except as
set forth below, stated interest on the debentures generally will be included in
your income as ordinary income at the time it is paid or accrued in accordance
with your regular method of accounting.
A debt instrument will generally be treated as issued with OID if the
stated interest on the instrument does not constitute "qualified stated
interest." Qualified stated interest is generally any one of a series of stated
interest payments on an instrument that are unconditionally payable at least
annually at a single fixed rate. In determining whether stated interest on an
instrument is unconditionally payable and thus constitutes qualified stated
interest, remote contingencies as to the timely payment of stated interest are
ignored. In the case of the debentures, we have concluded that the likelihood of
exercising our option to defer payments of interest is remote. This is in part
because we have been paying dividends on our common shares and intend to
continue to do so, and we would be unable to continue paying these dividends if
we deferred our payments under the debentures, which could adversely affect the
market for our common shares.
The Treasury regulations referred to above have not been interpreted by
any court decisions or addressed in any ruling or other pronouncements of the
IRS referred to above, and it is possible that the IRS could take a position
contrary to the conclusions herein. If the likelihood that we would exercise the
option to defer any payment of interest was determined not to be "remote" or if
we actually exercise our option to defer the payment of interest, the debentures
would be treated as issued with OID at the time of issuance or at the time of
such exercise, as the case may be, and all stated interest would thereafter be
treated as OID as long as the debentures remained outstanding. In such event,
all of your taxable interest income in respect of the debentures would
constitute OID that would accrue on a daily basis and be includable in your
income before the receipt of the cash attributable to such income, regardless of
your method of tax accounting, and actual distributions of stated interest would
not be reported separately as taxable income. Consequently, you, as a holder of
the preferred securities, would be required to include such OID in gross income
even though we would not make any actual cash payments during an extension
period.
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Because income on the preferred securities will constitute interest,
corporate holders of the preferred securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the preferred securities.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under the circumstances described under "Description of the Preferred
Securities-Redemption or Exchange" and "-Liquidation Distribution Upon
Termination," the debentures may be distributed to holders of the preferred
securities upon a liquidation of the trust. Under current United States federal
income tax law, such a distribution would be treated as a nontaxable event to
the holder and would result in the holder having an aggregate tax basis in the
debentures received in the liquidation equal to the holder's aggregate tax basis
in the preferred securities immediately before the distribution. A holder's
adjusted tax basis in the preferred securities generally will be its initial
purchase price increased by OID, if any, previously includible in the holder's
gross income to the date of disposition and decreased by payments, if any,
received on the preferred securities in respect of OID to the date of
disposition. A holder's holding period in debentures received in liquidation of
the trust would include the period for which the holder held the preferred
securities. A holder will account for interest in respect of the debentures
received from the trust in the manner described above under "--Interest Payment
Period and Original Issue Discount," including any accrual of OID.
If, however, a Tax Event occurs which results in the trust being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to holders of the preferred securities. Under
certain circumstances described herein, the debentures may be redeemed for cash
and the proceeds of the redemption distributed to holders in redemption of their
preferred securities. Under current law, such a redemption should, to the extent
that it constitutes a complete redemption, constitute a taxable disposition of
the redeemed preferred securities, and, for United States federal income tax
purposes, a holder should therefore recognize gain or loss as if the holder sold
the preferred securities for cash. Such gain or loss would amount to the
difference between the cash received upon redemption and the holder's adjusted
tax basis in the preferred securities.
DISPOSITION OF PREFERRED SECURITIES
A holder that sells the preferred securities (including a redemption of
the preferred securities for cash) will recognize gain or loss equal to the
difference between the amount realized on the sale of the preferred securities
and the holder's adjusted tax basis in the preferred securities (other than with
respect to accrued and unpaid interest which has not yet been included in
income, which will be treated as ordinary income, as discussed above). A gain or
loss of this kind will generally be a capital gain or loss and will be a
long-term capital gain or loss if the preferred securities have been held for
more than one year at the time of sale.
The preferred securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
debentures. A holder who uses the accrual method of accounting for tax purposes
(and a cash-method holder, if the debentures are deemed to have been issued with
OID) and who disposes of the holder's preferred securities between record dates
for payments of distributions thereon will be required to include accrued but
unpaid interest on the debentures through the date of disposition in income as
ordinary income, and to add the amount to its adjusted tax basis in its
proportionate share of the underlying debentures deemed disposed of. Any OID
included in income will increase a holder's adjusted tax basis as discussed
above. To the extent the selling price is less than the holder's adjusted tax
basis, a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
EFFECT OF POSSIBLE CHANGES IN TAX LAWS
Congress and previous administrations have considered certain proposed
tax law changes in the past that would, among other things, generally deny
corporate issuers a deduction for interest in respect of certain debt
obligations if the debt obligations have a maximum term in excess of 15 years
and are not shown as indebtedness on the issuer's applicable consolidated
balance sheet. Other proposed tax law changes would have denied interest
deductions if the term was in excess of 20 years. Although these proposed tax
law changes have not been enacted, there can be no assurance that tax law
changes will not be reintroduced into future legislation which, if enacted after
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the date hereof, may adversely affect the federal income tax deductibility of
interest payable on the debentures. To date, the present administration and
Congress have not proposed any legislation with such adverse effect.
In addition, in a case filed in the U.S. Tax Court, Enron Corp. v.
Commissioner, Tax Court Docket No. 6149-98, the IRS challenged the deductibility
for federal income tax purposes of interest paid on securities which are
similar, but not identical, to the preferred securities. The parties filed a
stipulation of settled issues, a portion of which stipulated that there shall be
no adjustment for the interest deducted by the taxpayer with respect to the
securities. The IRS may also challenge the deductibility of interest paid on the
debentures, which, if such challenge were litigated resulting in the IRS's
position being sustained, would trigger a Tax Event and possibly a redemption of
the preferred securities.
Accordingly, there can be no assurance that a Tax Event will not occur.
A Tax Event would permit us, upon approval of the Federal Reserve, if then
required, to cause a redemption of the preferred securities before, as well as
after, December 31, 2006.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Interest paid, or, if applicable, OID accrued, on the preferred
securities held of record by individual citizens or residents of the United
States, or certain trusts, estates and partnerships, will be reported to the IRS
on Forms 1099-INT, or, where applicable, Forms 1099-OID, which forms should be
mailed to the holders by January 31 following each calendar year. Payments made
on, and proceeds from the sale of, the preferred securities may be subject to a
"backup" withholding tax (currently at 31%) unless the holder complies with
certain identification and other backup withholding requirements. Any amounts
withheld under the backup withholding rules will be allowed as a credit against
the holder's federal income tax liability, provided the required information is
provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX SUMMARY PROVIDED ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF THE PREFERRED SECURITIES. HOLDERS OF
PREFERRED SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
INCOME TAX OR OTHER TAX LAWS AND PARTICULARLY WITH REGARD TO THE TAX
CONSEQUENCES WHICH VARY FOR INVESTORS IN DIFFERENT TAX SITUATIONS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement
Income Security Act of 1974, or Section 4975 of the Internal Revenue Code,
generally may purchase preferred securities, subject to the investing
fiduciary's determination that the investment in preferred securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the plan.
In any case, we and/or any of our affiliates may be considered a "party
in interest" (within the meaning of ERISA) or a "disqualified person" (within
the meaning of Section 4975 of the Internal Revenue Code) with respect to
certain plans. These plans generally include plans maintained or sponsored by,
or contributed to by, any such persons with respect to which we or any of our
affiliates are a fiduciary or plans for which we or any of our affiliates
provide services. The acquisition and ownership of preferred securities by a
plan (or by an individual retirement arrangement or other plans described in
Section 4975(e)(1) of the Internal Revenue Code) with respect to which we or any
of our affiliates are considered a party in interest or a disqualified person
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Internal Revenue Code, unless the preferred securities are acquired
pursuant to and in accordance with an applicable exemption.
As a result, plans with respect to which we or any of our affiliates is
a party in interest or a disqualified person should not acquire preferred
securities unless the preferred securities are acquired pursuant to and in
accordance with an applicable exemption. Any other plans or other entities whose
assets include plan assets subject to ERISA or Section 4975 of the Internal
Revenue Code proposing to acquire preferred securities should consult with their
own counsel.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Second Bancorp, the trust and the underwriters named below, for whom Stifel,
Nicolaus & Company, Incorporated and Sandler O'Neill & Partners, L.P. are acting
as representatives, the underwriters have severally agreed to purchase from the
trust, and the trust has agreed to sell to them, an aggregate of 2,600,000
preferred securities in the numbers set forth below opposite their respective
names.
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
Stifel, Nicolaus & Company, Incorporated...............
Sandler O'Neill & Partners L.P. .......................
---------
Total.................................................. 2,600,000
=========
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to accept and pay for all of the preferred
securities, if any are taken. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of a non-defaulting underwriter
may be increased or, in certain cases, the underwriting agreement may be
terminated. In the underwriting agreement, the obligations of the underwriters
are subject to approval of certain legal matters by their counsel, including,
without limitation, the authorization and the validity of the preferred
securities, and to various other conditions contained in the underwriting
agreement, such as receipt by the underwriters of officers' certificates and
legal opinions.
The underwriters propose to offer the preferred securities directly to
the public at the public offering price set forth on the cover page of this
prospectus, and to certain securities dealers (who may include the underwriters)
at this price, less a concession not in excess of $ per preferred
security. The underwriters may allow, and the selected dealers may reallow, a
concession not in excess of $ per preferred security to certain brokers
and dealers. After the preferred securities are released for sale to the public,
the offering price and other selling terms may from time to time be changed by
the underwriters.
The trust has granted to the underwriters an option, exercisable within
30 days after the date of this prospectus, to purchase up to 390,000 additional
preferred securities at the same price per preferred security to be paid by the
underwriters for the other preferred securities being offered as set forth in
the table below. If the underwriters purchase any of the additional preferred
securities under this option, each underwriter will be committed to purchase the
additional preferred securities in approximately the same proportion allocated
to them in the table above. The underwriters may exercise the option only for
the purpose of covering over-allotments, if any, made in connection with the
distribution of the preferred securities being offered.
If the underwriters exercise their option to purchase additional
preferred securities, the trust will issue and sell to us additional common
securities and we will issue and sell to the trust additional debentures in an
aggregate principal amount equal to the total aggregate liquidation amount of
the additional preferred securities being purchased under the option and the
additional common securities sold to us.
The table below shows the price and proceeds on a per security and
aggregate basis. The proceeds to be received by the trust as shown in the table
below do not reflect the underwriting commissions set forth on the cover page of
this prospectus or estimated expenses of $290,000, in each case payable by us.
See "Use of Proceeds" on page __.
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TOTAL WITH EXERCISE
PER PREFERRED OF OVER-
SECURITY TOTAL ALLOTMENT OPTION
------------- ----- -------------------
Public offering price............................... $10.00 $26,000,000 $29,900,000
Proceeds, before expenses, to the trust............. $10.00 $26,000,000 $29,900,000
Underwriting commission............................. $ $ $
Net proceeds to Second Bancorp Incorporated......... $ $ $
The offering of the preferred securities is made for delivery when, as
and if accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject any order for the purchase of the preferred
securities.
We and the trust have agreed to indemnify the several underwriters
against several liabilities, including liabilities under the Securities Act of
1933.
The preferred securities are expected to be approved for inclusion in
the Nasdaq National Market under the symbol "SECDP," and trading is expected to
commence on or prior to delivery of the preferred securities. The
representatives have advised the trust that they presently intend to make a
market in the preferred securities after the commencement of trading on Nasdaq,
but no assurances can be made as to the liquidity of the preferred securities or
that an active and liquid market will develop or, if developed, that the market
will continue. The offering price and distribution rate have been determined by
negotiations among representatives of Second Bancorp and the underwriters, and
the offering price of the preferred securities may not be indicative of the
market price following the offering. The representatives will have no obligation
to make a market in the preferred securities, however, and may cease
market-making activities, if commenced, at any time.
In connection with the offering, the underwriters may engage in
transactions that are intended to stabilize, maintain or otherwise affect the
price of the preferred securities during and after the offering, such as the
following:
- the underwriters may over-allot or otherwise create a short
position in the preferred securities for their own account by
selling more preferred securities than have been sold to them;
- the underwriters may elect to cover any short position by
purchasing preferred securities in the open market or by
exercising the over-allotment option;
- the underwriters may stabilize or maintain the price of the
preferred securities by bidding;
- the underwriters may engage in passive market making
transactions; and
- the underwriters may impose penalty bids, under which selling
concessions allowed to syndicate members or other
broker-dealers participating in this offering are reclaimed if
preferred securities previously distributed in the offering
are repurchased in connection with stabilization transactions
or otherwise.
The effect of these transactions may be to stabilize or maintain the
market price at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the
preferred securities to the extent that it discourages resales. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected in the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
Because the National Association of Securities Dealers, Inc. may view
the preferred securities as interests in a direct participation program, the
offer and sale of the preferred securities is being made in compliance with the
provisions of Rule 2810 under the NASD Conduct Rules.
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58
Certain of the underwriters and their affiliates have, from time to
time, performed investment banking and other services for us in the ordinary
course of business and have received fees from us for their services.
LEGAL MATTERS
Certain legal matters, including matters relating to federal income tax
considerations, for Second Bancorp and the trust will be passed upon by Vorys,
Sater, Seymour and Pease LLP, counsel to Second Bancorp and the trust. Certain
legal matters will be passed upon for the underwriters by Lewis, Rice &
Fingersh, L.C., St. Louis, Missouri. Vorys, Sater, Seymour and Pease LLP and
Lewis, Rice & Fingersh, L.C. will rely on the opinion of Richards, Layton &
Finger, P.A. as to matters of Delaware law.
EXPERTS
The consolidated financial statements of Second Bancorp appearing in
Second Bancorp's Annual Report (Form 10-K) for the year ended December 31, 2000,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon the report of Ernst & Young LLP, given on the authority of such
firm as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
This prospectus is a part of a Registration Statement on Form S-3 filed
by us and the trust with the SEC under the Securities Act, with respect to the
preferred securities, the debentures and the guarantee. This prospectus does not
contain all the information set forth in the registration statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and the securities offered by
this prospectus, reference is made to the registration statement, including the
exhibits to the registration statement and documents incorporated by reference.
Statements contained in this prospectus concerning the provisions of such
documents are necessarily summaries of such documents and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC.
We file periodic reports, proxy statements and other information with
the SEC. Our filings are available to the public over the Internet at the SEC's
website at http://www.sec.gov. You may also inspect and copy these materials at
the public reference facilities of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information.
The trust is not currently subject to the information reporting
requirements of the Securities Exchange Act of 1934 and, although the trust will
become subject to such requirements upon the effectiveness of the registration
statement, it is not expected that the trust will file separate reports under
the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
We "incorporate by reference" into this prospectus the information in
documents we file with the SEC, which means that we can disclose important
information to you through those documents. The information incorporated by
reference is an important part of this prospectus. Some information contained in
this prospectus updates the information incorporated by reference and some
information that we file subsequently with the SEC will automatically update
this prospectus. We incorporate by reference:
- our Annual Report on Form 10-K for the year ended December 31,
2000;
- our Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2001 and June 30, 2001, as amended by the Forms
10-Q/A filed with the SEC on August 30, 2001; and
- our Current Reports on Form 8-K, filed with the SEC on March
27, 2001, March 27, 2001, April 25, 2001, May 11, 2001, July
26, 2001 and July 26, 2001.
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59
We also incorporate by reference any filings we make with the SEC under
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 after
the initial filing of the registration statement that contains this prospectus
and before the time that all of the securities offered in this prospectus are
sold.
You may request, either orally or in writing, and we will provide, a
copy of these filings at no cost by contacting Christopher Stanitz, our
Executive Vice President and Secretary, at the following address and phone
number:
Second Bancorp Incorporated
108 Main Avenue, S.W.
Warren, Ohio 44481
(330) 841-0234
Each holder of the trust securities will receive a copy of our annual
report at the same time as we furnish the annual report to the holders of our
common shares.
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60
=========================================================
TABLE OF CONTENTS
PAGE
----
Summary.............................................2
Selected Consolidated Financial Data................9
Risk Factors.......................................11
Special Note Regarding Forward-Looking Statements..17
Use of Proceeds....................................18
Capitalization.....................................18
Accounting and Regulatory Treatment................20
Management.........................................20
Description of the Trust...........................23
Description of the Preferred Securities............24
Description of the Debentures......................36
Book-Entry Issuance................................45
Description of the Guarantee.......................46
Relationship Among the Preferred Securities, the
Debentures and the Guarantee.....................48
Certain Federal Income Tax Consequences............50
ERISA Considerations...............................53
Underwriting.......................................54
Legal Matters......................................56
Experts............................................56
Where You Can Get More Information.................56
Documents Incorporated By Reference................56
- - YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT, AND OUR UNDERWRITERS HAVE
NOT, AUTHORIZED ANY PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION.
IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU
SHOULD NOT RELY ON IT.
- - WE ARE NOT, AND OUR UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
- - YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS
ACCURATE AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS ONLY.
- - THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES.
=========================================================
=========================================================
2,600,000 PREFERRED SECURITIES
SECOND BANCORP
CAPITAL TRUST I
% CUMULATIVE TRUST
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER
PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY
GUARANTEED ON A SUBORDINATED BASIS, AS
DESCRIBED IN THIS PROSPECTUS, BY
[SECOND BANCORP LOGO]
----------------
$26,000,000
% SUBORDINATED DEBENTURES
OF
SECOND BANCORP
INCORPORATED
-------------------
PROSPECTUS
, 2001
-------------------
STIFEL, NICOLAUS & COMPANY
INCORPORATED
SANDLER O'NEILL & PARTNERS, L.P
=========================================================
61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting commissions, payable by Second Bancorp in connection with the sale
of the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
SEC registration fee...................................................$ 7,475
NASD filing fee........................................................$ 3,490
Nasdaq National Market listing fee.....................................$ 44,750 *
Legal fees and expenses................................................$ 85,000
Accounting fees and expenses...........................................$ 60,000
Printing and engraving expenses........................................$ 65,000
Blue sky fees and expenses.............................................$ 2,500
Trustee fees and expenses..............................................$ 17,500
Miscellaneous..........................................................$ 4,285
Total.........................................................$290,000
---------------
* Includes $43,750 entry fee payable upon approval of inclusion
of the ____% Cumulative Trust Preferred Securities of Second
Bancorp Capital Trust I in the Nasdaq National Market.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Second Bancorp Amended and Restated Articles of
Incorporation provides that Second Bancorp shall indemnify, to the full extent
permitted by the laws of the State of Ohio, any director, officer, employee or
agent of Second Bancorp for any costs or expenses incurred by him/her in his/her
capacity, or arising out of his/her status, as a director, officer, employee or
agent of Second Bancorp. Such indemnification is not exclusive of any other
rights to which any such indemnified person may be entitled by the Second
Bancorp Regulations, as a matter of law or otherwise.
Article VI, Section 1 of the Second Bancorp Regulations provides that
Second Bancorp shall indemnify, to the full extent then permitted by law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he/she is
or was a director, trustee, officer, employee or agent of Second Bancorp, or is
or was serving at the request of Second Bancorp as a director, trustee, officer,
employee or agent of another corporation, domestic or foreign, non-profit or for
profit, partnership, joint venture, trust or other enterprise; provided,
however, that Second Bancorp shall indemnify any agent of Second Bancorp to an
extent greater than that required by law only if and to the extent that the
directors of Second Bancorp may, in their discretion, so determine. Such
indemnification is not exclusive of any other rights to which any such
indemnified person may be entitled under the Amended and Restated Articles of
Incorporation of Second Bancorp, as a matter of law or otherwise.
Section 1701.13(E) of the Ohio Revised Code (which is applicable to
Second Bancorp) permits a corporation to indemnify its officers and directors
and to pay their expenses subject to certain limitations and exceptions. Section
1701.13(E) of the Ohio Revised Code is very similar, but not identical, to the
language contained in Article Seventh of the Second Bancorp Amended and Restated
Articles of Incorporation.
Second Bancorp has purchased a liability insurance policy which insures
directors and officers of Second Bancorp against certain liabilities which might
be incurred by them in such capacities
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The amended and restated trust agreement will provide for
indemnification of the Delaware trustee and each of the administrative trustees
by Second Bancorp against any loss, damage, claims, liability, penalty or
expense of any kind or nature incurred by the trustees arising out of or in
connection with the acceptance or administration of the trust agreement, except
that none of these trustees will be so indemnified for any loss, damage or claim
incurred by reason of such trustee's gross negligence, bad faith or willful
misconduct. Similarly, the trust agreement provides for indemnification of the
property trustee except that the property trustee is not indemnified from
liability for its own negligent action, negligent failure to act or willful
misconduct.
Under the form of underwriting agreement filed as Exhibit 1.1 hereto,
the underwriters have agreed to indemnify, under certain circumstances, the
Registrants, their officers, directors and persons who control the Registrants
against certain liabilities which may be incurred in connection with the
offering, including certain liabilities under the Securities Act of 1933.
ITEM 16. EXHIBITS.
The following exhibits are filed as part of this Registration
Statement:
1.1 Form of Underwriting Agreement (to be filed by amendment).
2.1 Agreement and Plan of Merger, dated as of July 23, 2001, by and
among Second Bancorp Incorporated and Second Merger Corp. and Commerce Exchange
Corporation.
4.1 Form of Indenture for % Subordinated Debentures due 2031 of
Second Bancorp Incorporated.
4.2 Form of % Subordinated Debenture due 2031 of Second Bancorp
Incorporated (included as Exhibit A to Exhibit 4.1).
4.3 Certificate of Trust of Second Bancorp Capital Trust I.
4.4 Trust Agreement of Second Bancorp Capital Trust I.
4.5 Form of Amended and Restated Trust Agreement of Second Bancorp
Capital Trust I.
4.6 Form of % Cumulative Trust Preferred Securities Certificate of
Second Bancorp Capital Trust I (included as Exhibit D to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement between Second
Bancorp Incorporated and Wilmington Trust Company, as guarantee trustee.
4.8 Form of Agreement as to Expenses and Liabilities of Second Bancorp
Capital Trust I (included as Exhibit C to Exhibit 4.5).
5.1 Opinion of Vorys, Sater, Seymour and Pease LLP.
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Opinion of Vorys, Sater, Seymour and Pease LLP as to certain tax
matters (to be filed by amendment).
12.1 Calculation of ratios of earnings to fixed charges.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Vorys, Sater, Seymour and Pease LLP (included in
opinions filed as Exhibits 5.1 and 8.1).
23.3 Consent of Richards, Layton & Finger, P.A. (included in opinion
filed as Exhibit 5.2).
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24.1 Powers of Attorney of Directors and Executive Officers of Second
Bancorp authorizing the signing of their names to this Registration Statement
and any and all amendments to this Registration Statement and other documents
submitted in connection herewith.
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as indenture trustee under the
Indenture for % Subordinated Debentures due 2031 of Second Bancorp
Incorporated.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as property trustee and Delaware
trustee under the Amended and Restated Trust Agreement for Second Bancorp
Capital Trust I.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as guarantee trustee under the
Preferred Securities Guarantee Agreement relating to Second Bancorp Capital
Trust I.
ITEM 17. UNDERTAKINGS.
(a) Each of the undersigned Registrants hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of Second Bancorp Incorporated's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof
(b) The undersigned Registrants hereby undertake to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the provisions described in Item 15 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and, is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer
or controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted against the Registrants by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) Each of the undersigned Registrants hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Second
Bancorp Incorporated certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Warren, State of Ohio, on the 29th day of
August, 2001.
SECOND BANCORP INCORPORATED
(Co-Registrant)
By: /s/ R. L. Blossom
-----------------------------------
Printed Name: R.L. (Rick) Blossom
------------------------
Title: President, Chief Executive Officer
and Chairman
----------------------------------
Pursuant to the requirements of the Securities Act of 1933, Second
Bancorp Capital Trust I certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Warren, State of Ohio, on the 29th day of
August, 2001.
SECOND BANCORP INCORPORATED
(Co-Registrant)
By: Second Bancorp Incorporated, as Depositor
By: /s/ R. L. Blossom
-----------------------------------
Printed Name: R.L. (Rick) Blossom
---------------------
Title: President, Chief Executive Officer
and Chairman
-----------------------------------
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65
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ R.L. Blossom President, Chief Executive Officer, August 29, 2001
- ------------------------------------ Chairman and Director
R.L. (Rick) Blossom
* David L. Kellerman Principal Financial Officer and August 29, 2001
- ------------------------------------ Principal Accounting Officer
David L. Kellerman
* Dr. David A. Allen, Jr. Director August 29, 2001
- ------------------------------------
Dr. David A. Allen, Jr.
* John A. Anderson Director August 29, 2001
- ------------------------------------
John A. Anderson
* Alan G. Brant Director August 29, 2001
- ------------------------------------
Alan G. Brant
* John C. Gibson Director August 29, 2001
- ------------------------------------
John C. Gibson
* Norman C. Harbert Director August 29, 2001
- ------------------------------------
Norman C. Harbert
* James R. Izant Director August 29, 2001
- ------------------------------------
James R. Izant
* Phyllis J. Izant Director August 29, 2001
- ------------------------------------
Phyllis J. Izant
* John L. Pogue Director August 29, 2001
- ------------------------------------
John L. Pogue
* Raymond John Wean, III Director August 29, 2001
- ------------------------------------
Raymond John Wean, III
*By R.L. (Rick) Blossom pursuant to Powers of Attorney executed by the directors
and executive officers listed above, which Powers of Attorney are filed herewith
with the Securities and Exchange Commission
/s/ R.L. Blossom
- ---------------------------------
Name: R.L. (Rick) Blossom
Title: President, Chief Executive Officer and Chairman
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EXHIBIT INDEX
Exhibit
-------
1.1 Form of Underwriting Agreement (to be filed by amendment).
2.1 Agreement and Plan of Merger, dated as of July 23, 2001, by and
among Second Bancorp Incorporated and Second Merger Corp. and Commerce Exchange
Corporation.
4.1 Form of Indenture for % Subordinated Debentures due 2031 of
Second Bancorp Incorporated.
4.2 Form of % Subordinated Debenture due 2031 of Second Bancorp
Incorporated (included as Exhibit A to Exhibit 4.1).
4.3 Certificate of Trust of Second Bancorp Capital Trust I.
4.4 Trust Agreement of Second Bancorp Capital Trust I.
4.5 Form of Amended and Restated Trust Agreement of Second Bancorp
Capital Trust I.
4.6 Form of % Cumulative Trust Preferred Securities Certificate of
Second Bancorp Capital Trust I (included as Exhibit D to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement between Second
Bancorp Incorporated and Wilmington Trust Company, as guarantee trustee.
4.8 Form of Agreement as to Expenses and Liabilities of Second Bancorp
Capital Trust I (included as Exhibit C to Exhibit 4.5).
5.1 Opinion of Vorys, Sater, Seymour and Pease LLP.
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Opinion of Vorys, Sater, Seymour and Pease LLP as to certain tax
matters (to be filed by amendment).
12.1 Calculation of ratios of earnings to fixed charges.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Vorys, Sater, Seymour and Pease LLP (included in
opinions filed as Exhibits 5.1 and 8.1).
23.3 Consent of Richards, Layton & Finger, P.A. (included in opinion
filed as Exhibit 5.2).
24.1 Powers of Attorney of Directors and Executive Officers of Second
Bancorp authorizing the signing of their names to this Registration Statement
and any and all amendments to this Registration Statement and other documents
submitted in connection herewith.
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as indenture trustee under the
Indenture for % Subordinated Debentures due 2031 of Second Bancorp
Incorporated.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as property trustee and Delaware
trustee under the Amended and Restated Trust Agreement for Second Bancorp
Capital Trust I.
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25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as guarantee trustee under the
Preferred Securities Guarantee Agreement relating to Second Bancorp Capital
Trust I.
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