PROSPECTUS
[LOGO]
$26,000,000
Sun Capital Trust II
8.875% Preferred Securities
(Liquidation Amount $10 per Preferred Security)
fully and unconditionally guaranteed, as described herein, by
Sun Bancorp, Inc.
The Preferred Securities offered hereby (the "Offering") represent
preferred undivided beneficial interests in the assets of Sun Capital Trust II,
a statutory business trust created under the laws of the State of Delaware (the
"Issuer Trust"). Sun Bancorp, Inc. (the "Company") will initially be the holder
of all of the beneficial interests represented by common securities of the
Issuer Trust (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities").
The Company intends to sell shares of its common stock, par value $1.00
per share ("Common Shares"), in an amount sufficient, in conjunction with the
Offering, to consummate a pending acquisition (as further described under
"Beneficial Acquisition," the "Common Shares Sale"). This Offering is not
contingent upon the closing of the Common Shares Sale. This Offering is being,
and the Common Shares Sale will be, made to support the growth of the Company
through a pending acquisition. See "Prospectus Summary -- The Company," "Use of
Proceeds" and "Beneficial Acquisition."
(Continued on next page)
------------------------
Prospective investors should carefully consider the factors set forth in "Risk
Factors" beginning on page 12 hereof.
------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER INSURER OR GOVERNMENTAL AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting Proceeds to
Price to Public(1) Discount (2) Issuer Trust(3)(4)
- --------------------------------------------------------------------------------
Per Preferred Security... $10.00 (4) $10.00
- --------------------------------------------------------------------------------
Total(5)................. $26,000,000 (4) $26,000,000
================================================================================
(1) Plus accrued Distributions, if any, from October 30, 1998.
(2) The Company and the Issuer Trust have each agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $160,000.
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriters, as compensation for
arranging the investment therein of such proceeds, $0.35 per Preferred
Security (or $910,000 in the aggregate). See "Underwriting."
(5) The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
$3,900,000 aggregate liquidation amount of the Preferred Securities on the
same terms as set forth above, solely to cover over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public
and Proceeds to Issuer Trust will be $29,900,000 and $29,900,000,
respectively. Advest, Inc. will receive a financial advisory fee of $25,000
in connection with this Offering. See "Underwriting."
The Preferred Securities are offered by the several Underwriters named
herein subject to receipt and acceptance by them, prior sale and the
Underwriters' right to reject any order in whole or in part and to withdraw,
cancel or modify the offer without notice. It is expected that delivery of the
Preferred Securities will be made in book-entry form through the book-entry
facilities of The Depository Trust Company on or about October 30, 1998, against
payment therefor in immediately available funds.
Advest, Inc. Janney Montgomery Scott Inc.
The date of this Prospectus is October 26, 1998
<PAGE>
(cover page continued)
The Issuer Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in 8.875% Junior Subordinated
Deferrable Interest Debentures (the "Junior Subordinated Debentures," and
together with the Trust Securities, the "Securities") to be issued by the
Company. The Junior Subordinated Debentures will mature on December 31, 2028,
which date may be shortened (such date, as it may be shortened, the "Stated
Maturity") to a date not earlier than December 31, 2003 if certain conditions
are met (including the Company having received the prior approval of the Board
of Governors of the Federal Reserve System (the "FRB"), if then required under
applicable capital guidelines or policies of the FRB (such shortening of the
maturity date, the "Maturity Adjustment"). The Preferred Securities will have a
preference under certain circumstances over the Common Securities with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise. See "Description of Preferred Securities -- Subordination of Common
Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company
("DTC"), as depositary. Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. The Preferred Securities have been approved
for quotation on the National Market of The Nasdaq Stock Market. Settlement for
the Preferred Securities will be made in immediately available funds. The
Preferred Securities will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity for the Preferred Securities will therefore
settle in immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions at the annual rate of 8.875% of the
liquidation amount of $10.00 per Preferred Security (the "Liquidation Amount")
accruing from October 30, 1998, and payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year commencing December 31, 1998,
("Distributions"). The Company has the right, so long as no Debenture Event of
Default (as defined herein) has occurred or is continuing, to defer payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarterly periods with respect to each
deferral period (each, an "Extension Period"), provided that no Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures. No
interest shall be due and payable during any Extension Period, except at the end
thereof. Upon the termination of any such Extension Period and the payment of
all amounts then due, the Company may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the Junior
Subordinated Debentures are so deferred, Distributions on the Preferred
Securities will also be deferred and the Company will not be permitted, subject
to certain exceptions described herein, to declare or pay any cash distributions
with respect to the Company's capital stock or with respect to debt securities
of the Company that rank pari passu in all respects with or junior to the Junior
Subordinated Debentures, including the Company's obligations associated with the
$28.75 million in aggregate liquidation amount of 9.85% Preferred Securities
issued by Sun Capital Trust (the "Outstanding Preferred Securities"). During an
Extension Period, interest on the Junior Subordinated Debentures will continue
to accrue (and the amount of distributions to which holders of the Preferred
Securities are entitled will accumulate) at the rate of 8.875% per annum,
compounded quarterly, and holders of Preferred Securities will be required to
accrue interest income for United States Federal Income Tax purposes in advance
of the receipt of cash distributions with respect to such deferred interest
payment. See "Description of Junior Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount." The Company has no current
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Junior Subordinated Debentures.
The Company will, through the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures and the Junior Subordinated Indenture (each as
defined herein), taken together, fully, irrevocably and unconditionally
guarantee all the Issuer Trust's obligations under the Preferred Securities as
described below. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee -- Full and Unconditional Guarantee."
The Guarantee of the Company will guarantee the payment of Distributions and
payments on liquidation or redemption of the Preferred Securities, but only in
each case to the extent of funds held by the Issuer
2
<PAGE>
Trust, as described herein (the "Guarantee"). See "Description of Guarantee." If
the Company does not make payments on the Junior Subordinated Debentures held by
the Issuer Trust, the Issuer Trust will have insufficient funds to pay
Distributions on the Preferred Securities. The Guarantee will not cover payment
of Distributions when the Issuer Trust does not have sufficient funds to pay
such Distributions. In such event, a holder of Preferred Securities may
institute a legal proceeding directly against the Company to enforce payment of
such Distributions to such holder. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Preferred Securities."
The obligations of the Company under the Guarantee and the Preferred Securities
will be subordinate and junior in right of payment to all Senior Indebtedness
(as defined in "Description of Junior Subordinated Debentures -- Subordination")
of the Company and will be pari passu with the Company's obligations associated
with the Outstanding Capital Securities.
The Preferred Securities will be subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Junior Subordinated Debentures at
Stated Maturity or, at the option of the Company, their earlier redemption in
whole upon the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein) and (ii) in whole or in part at
any time on or after December 31, 2003 contemporaneously with the optional
redemption by the Company of the Junior Subordinated Debentures in whole or in
part. The Junior Subordinated Debentures will be redeemable prior to maturity at
the option of the Company (i) on or after December 31, 2003, in whole at any
time or in part from time to time, or (ii) in whole, but not in part, at any
time within 90 days following the occurrence and during the continuation of a
Tax Event, Investment Company Event or Capital Treatment Event, in each case at
a redemption price set forth herein, which includes the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed for
redemption. The ability of the Company to exercise its rights to redeem the
Junior Subordinated Debentures or to cause the redemption of the Preferred
Securities prior to the Stated Maturity may be subject to prior regulatory
approval by the FRB, if then required under applicable FRB capital guidelines or
policies. See "Description of Junior Subordinated Debentures -- Redemption" and
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
The Company, as the holder of all of the outstanding Common Securities,
will have the right at any time to dissolve the Issuer Trust and, after
satisfaction of liabilities of creditors of the Issuer Trust as provided by
applicable law, to cause the Junior Subordinated Debentures to be distributed to
the holders of the Preferred Securities and Common Securities in liquidation of
the Issuer Trust. The ability of the Company, as holder of the Common
Securities, to dissolve the Issuer Trust may be subject to prior regulatory
approval of the FRB, if then required under applicable FRB capital guidelines or
policies. See "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction
of liabilities to creditors of the Issuer Trust as provided by applicable law,
the holders of the Preferred Securities will be entitled to receive a
Liquidation Amount of $10 per Preferred Security plus accumulated and unpaid
Distributions thereon to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior Subordinated
Debentures. See "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness (as defined herein) and will rank pari passu with the
Company's obligations associated with the Outstanding Preferred Securities of
the Company. See "Description of Junior Subordinated Debentures --
Subordination."
Prospective purchasers must carefully consider the information set forth in
"Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS
OF THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENTAL AGENCY.
3
<PAGE>
MAP
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING SHARES OF THE PREFERRED
SECURITIES AND BIDDING FOR AND PURCHASING SUCH SHARES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN
UNDERWRITERS (AND SELLING GROUP MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON SHARES ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
4
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere
in this Prospectus and in the documents incorporated by reference. This summary
is not intended to be a summary of all information relating to the Offering and
the Common Shares Sale and should be read in conjunction with, and is qualified
in its entirety by reference to, the more detailed information contained
elsewhere in this Prospectus, including the documents incorporated by reference
in this Prospectus. Unless otherwise indicated, all information in this
Prospectus is based on the assumption that the Underwriters (as defined herein)
will not exercise their over-allotment option with respect to the Offering.
The Company
The Company, a New Jersey corporation, is a bank holding company
headquartered in Vineland, New Jersey. The Company's principal subsidiary is Sun
National Bank (the "Bank"). At June 30, 1998, the Company had total assets of
$1,154 million, total deposits of $754 million and total shareholders' equity of
$59 million. Substantially all of the Company's deposits are federally insured
by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"). The Company's remaining deposits are federally
insured by the Savings Association Insurance Fund ("SAIF"), administered by the
FDIC. The Company's principal business is to serve as a holding company for the
Bank. As a registered bank holding company, the Company is subject to the
supervision and regulation of the FRB.
The ongoing consolidation of the banking industry, as well as a
regionalization of decision-making authority by larger banking institutions, has
left many businesses and individuals in the Company's market area under-served.
Beginning in 1993, the Company embarked upon a strategy to expand its operations
and retail market in central and southern New Jersey through mergers,
acquisitions and internal growth. More recently, this strategy has broadened to
include contiguous portions of Delaware. The Board of Directors and management
saw opportunities to expand the Company as a result of the lack of competitive
commercial banking services being provided to local businesses and recognized
the need for a locally based and managed community bank. In executing its
expansion strategy, the Company has successfully completed the acquisition of
two commercial banks with a total of $119 million in assets, as well as six
branch purchase transactions in which the Company acquired a total of 27
branches with $404 million in deposits, and has opened five de novo branches
since 1993. An additional acquisition of two branches in southern and central
New Jersey, from Summit Bank ("Summit") with $14.8 million in deposit
liabilities is pending.
In July 1998, the Company entered into an agreement that will expand
its banking operations into Delaware through the assumption, by a new national
bank subsidiary to be named "Sun National Bank, Delaware" ("Sun Delaware"), of
approximately $179 million in deposits (including eight branch locations) and
the purchase of $139 million in loans, from Household Bank, fsb., the successor
to Beneficial National Bank, Wilmington, Delaware (the "Beneficial
Acquisition"). The Beneficial Acquisition is expected to be consummated in the
fourth quarter of 1998. See "Beneficial Acquisition." In July 1998, the Company
also acquired its first non-bank operating subsidiary, Allegiance Mortgage
Company, a retail mortgage banking operation, in exchange for 28,302 shares of
common stock and subsequently renamed it "Sun Mortgage Company." Sun Mortgage
Company has one office located in Cherry Hill, New Jersey. The Company intends
to offer residential mortgage products and services to its customers through Sun
Mortgage Company.
Through its acquisition and expansion program, the Company has
significantly increased its asset size as well as the Company's retail network.
At December 31, 1993, the Company's total consolidated assets were $112.0
million as compared to $1,154 million at June 30, 1998.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
The Company provides community banking services through 42 branches located
in southern and central New Jersey. Sun Delaware will conduct a similar business
through eight branches in contiguous markets in Delaware. The Company offers a
wide variety of consumer and commercial lending, as well as deposit services.
The loans offered by the Company include commercial and industrial loans,
commercial real estate loans, home equity loans, mortgage loans and installment
loans. The Company's deposit and personal banking services include checking,
regular savings, money market deposits, certificates of deposit and individual
retirement accounts. Through a third party arrangement, the Company also offers
mutual funds, securities brokerage and investment advisory services. The Company
considers its primary market area to be southern and central New Jersey and
intends to expand its primary market area to contiguous markets in Delaware upon
completion of the Beneficial Acquisition. The Company's market area contains a
diverse base of customers, including agricultural, manufacturing,
transportation, hospitality and retail consumer businesses.
In recent years, the Company has experienced a significant level of
loan growth. The Company's loan portfolio increased from $83.4 million at
December 31, 1993, to $486.1 million at June 30, 1998. Much of this loan growth
is attributable to the Company's hiring of a number of experienced loan officers
previously employed by larger banking organizations. In most cases, these loan
officers brought with them established contacts and relationships with
individuals or entities throughout the Company's primary market area and thus
have been able to increase the Company's customer base and the number of loan
originations. The Company also has established a number of regional advisory
boards, comprised of prominent local business and community representatives, who
refer significant business opportunities to the Company. In addition, the
Company has made significant efforts to increase its lending to businesses along
the central and southern New Jersey seashore that are primarily operational
during certain times of each year (i.e. seasonal lending), which has contributed
to the Company's loan growth.
To support and manage the expanded operations of the Company and to
provide adequate management resources to support further expansion and growth,
the Company has recruited and hired, in addition to experienced commercial loan
officers, credit, compliance, loan review, internal audit, operations personnel
and senior level executives. Additionally, the Company has enhanced and expanded
its operational and management information systems and taken steps to enhance
its oversight of third-party vendors. While the Company continues to monitor its
rapid growth, as well as the adequacy of management and resources available to
support such growth, there can be no assurance that the Company will be
successful in managing all elements relating to this rapid growth.
The growth and expansion of operations through mergers and acquisitions
and internal growth has resulted in a significant increase in assets, loans and
deposits since December 31, 1993, and a corresponding increase in net interest
income, non-interest income and non-interest expenses.
The executive office of the Company is located at 226 Landis Avenue,
Vineland, New Jersey 08360 and its telephone number is (609) 691-7700.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Sun Capital Trust II
The Issuer Trust is a statutory business trust created under Delaware
law on August 12, 1998. The Issuer Trust will be governed by a trust agreement,
as amended and supplemented from time to time (the "Trust Agreement"), among the
Company, as Depositor, Bankers Trust (Delaware), as Delaware trustee (the
"Delaware Trustee"), and Bankers Trust Company, as property trustee (the
"Property Trustee") (the Delaware Trustee and Property Trustee together, the
"Trustees"). The Issuer Trust exists for the exclusive purpose of (i) issuing
and selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures issued by the
Company, and (iii) engaging in only those other activities necessary,
convenient, or incidental thereto (such as registering the transfer of the Trust
Securities). Accordingly, the Junior Subordinated Debentures will be the sole
assets of the Issuer Trust, and payments under the Junior Subordinated
Debentures will be sole source of revenue of the Issuer Trust. The Issuer Trust
has a term of 31 years, unless terminated earlier as provided in the Trust
Agreement. The principal executive office of the Issuer Trust is 226 Landis
Avenue, Vineland, New Jersey 08360, and its telephone number is (609) 691-7700.
The Offering
Securities Offered..$26,000,000 aggregate Liquidation Amount of 8.875% Preferred
Securities (Liquidation Amount $10 per Preferred Security)
representing preferred undivided beneficial interests in the
Issuer Trust's assets, which will consist solely of the
Junior Subordinated Debentures. The Company has granted the
Underwriters an option, exercisable within 30 days after the
date of this Prospectus, to purchase up to an additional
$3,900,000 aggregate Liquidation Amount of Preferred
Securities at the offering price, solely to cover
over-allotments, if any.
Offering Price.... $10 per Preferred Security (Liquidation Amount $10 per
Preferred Security), plus accumulated Distributions, if any,
from October 30, 1998.
Distributions..... The Distributions payable on each Preferred Security will be
fixed at a rate per annum of 8.875% of the stated
Liquidation Amount per Preferred Security. Such
distributions will be cumulative, will accrue from October
30, 1998 (the date of issuance of the Preferred Securities),
and will be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, commencing
December 31, 1998. See "Description of Preferred Securities
-- Distributions."
Preferred
Securities Rank... The Preferred Securities will rank pari passu, and payments
thereon, will be made pro rata, with the Common Securities
except as described under "Description of Preferred
Securities -- Subordination of Common Securities."
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Junior Subordinated
Debentures........ The Issuer Trust will invest the proceeds from the issuance
of the Preferred Securities and Common Securities in an
equivalent amount of 8.875% Junior Subordinated Debentures
of the Company. The Junior Subordinated Debentures will
mature on December 31, 2028, subject to the Maturity
Adjustment. The Junior Subordinated Debentures will rank
subordinate and junior in right of payment to all Senior
Indebtedness of the Company and will be pari passu with the
Company's obligations associated with the Outstanding
Preferred Securities. See "Description of Junior
Subordinated Debentures." In addition, the Company's
obligations under the Junior Subordinated Debentures will be
structurally subordinated to all existing and future
liabilities and obligations of the Company's subsidiaries.
Guarantee.......... Under the terms of the Guarantee, the Company will guarantee
the payment of Distributions and payments on liquidation or
redemption of the Preferred Securities, but only in each
case to the extent of funds held by the Issuer Trust, as
described herein. The Company and the Issuer Trust believe
that the obligations of the Company under the Guarantee, the
Trust Agreement, the Junior Subordinated Debentures, and the
Junior Subordinated Indenture, when taken together, fully,
irrevocably, and unconditionally guarantee all of the Issuer
Trust's obligations relating to the Preferred Securities.
The obligations of the Company under the Guarantee and the
Preferred Securities are subordinate and junior in right of
payment to all Senior Indebtedness and will be pari passu
with the Company's obligations associated with the
Outstanding Preferred Securities. See "Description of
Guarantee."
Right to Defer
Interest...........The Company has the right, at any time, so long as no
Debenture Event of Default has occurred and is continuing,
to defer payments of interest on Junior Subordinated
Debentures for a period not exceeding 20 consecutive
quarters; provided, that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated
Debentures. As a consequence of the Company's extension of
the interest payment period, quarterly Distributions on the
Preferred Securities will be deferred (though such
Distributions would continue to accrue with interest thereon
compounded quarterly, since interest will continue to accrue
and compound on the Junior Subordinated Debentures during
any such Extension Period). During an Extension Period, the
Company will be prohibited, subject to certain exceptions
described herein, from declaring or paying any cash
distributions with respect to its capital stock or debt
securities that rank pari passu with or junior to the Junior
Subordinated Debentures, including the Company's obligations
associated with the Outstanding Preferred Securities. Upon
the termination of any Extension Period and the payment of
all amounts then due, the Company may commence a new
Extension Period, subject to the foregoing requirements. See
"Description of Junior Subordinated Debentures -- Option to
Extend Interest Payment Period."
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
In the event that an Extension Period should occur,
Preferred Security holders will continue to include interest
income (and de minimis original issue discount, if any) for
United States federal income tax purposes in advance of
receipt of the cash distributions with respect to such
deferred interest payments. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount." The Company has no current intention of
exercising its right to defer payments of interest by
extending the interest payment period of the Junior
Subordinated Debentures.
Redemption......... The Preferred Securities will be subject to mandatory
redemption (i) in whole, but not in part, at the Stated
Maturity upon repayment of the Junior Subordinated
Debentures, (ii) in whole, but not in part,
contemporaneously with the optional redemption at any time
by the Company of the Junior Subordinated Debentures upon
the occurrence and continuation of a Tax Event, Investment
Company Event or Capital Treatment Event and (iii) in whole
or in part at any time on or after December 31, 2003,
contemporaneously with the optional redemption by the
Company of the Junior Subordinated Debentures in whole or in
part, in each case at the applicable Redemption Price. See
"Description of Preferred Securities -- Redemption."
Liquidation of the
Issuer Trust........The Company, as holder of the Common Securities, will have
the right at any time to dissolve the Issuer Trust and cause
the Junior Subordinated Debentures to be distributed to
holders of Preferred Securities in liquidation of the Issuer
Trust, subject to the Company having received prior approval
of the FRB to do so if then required under applicable
capital guidelines or policies of the FRB. See "Description
of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
Voting Rights...... Generally, except in limited circumstances, the holders of
the Preferred Securities will not have any voting rights.
See "Description of Preferred Securities -- Voting Rights;
Amendment of Trust Agreement" and "Risk Factors -- Risk
Factors Relating to the Offering -- Limited Voting Rights."
Use of Proceeds.... All of the net proceeds to the Issuer Trust from the sale of
the Preferred Securities offered hereby will be used by the
Issuer Trust to purchase the Junior Subordinated Debentures
issued by the Company. Substantially all of the net proceeds
received by the Company from the sale of the Junior
Subordinated Debentures and from the Common Shares Sale will
be used to contribute capital to Sun Delaware in connection
with the Beneficial Acquisition and for the Company's other
corporate purposes. Sun Delaware intends to use the capital
for general corporate purposes, primarily to support the
Beneficial Acquisition. The proceeds from the Offering will
qualify under the capital adequacy guidelines of the FRB as
Tier 2 capital of the Company. See "Use of Proceeds."
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
ERISA
Considerations....Prospective purchasers must carefully consider the information
set forth under "Certain ERISA Considerations."
Nasdaq National
Market Symbol..... The Preferred Securities have been approved for quotation on
the Nasdaq National Market under the symbol "SNBCO."
Risk Factors
Prospective investors should carefully consider the matters set forth
under "Risk Factors" beginning on page 12.
- --------------------------------------------------------------------------------
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary information regarding the Company should be
read in conjunction with the consolidated financial statements of the Company
and notes thereto included in the Company's 1997 Annual Report to Stockholders
which is incorporated herein by reference as part of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, and included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, and
June 30, 1998. See "Incorporation of Certain Documents by Reference" and
"Management's Discussion and Analysis of Financial Condition of the Company and
Recent Results of Operations." Consolidated historical financial and other data
regarding the Company at or for the six months ended June 30, 1998 and 1997,
have been prepared by the Company, are unaudited, and may not be indicative of
results on an annualized basis or for any other period. In the opinion of
management, all adjustments (consisting only of normal recurring accruals) that
are necessary for a fair presentation for such periods or dates have been made.
<TABLE>
<CAPTION>
At or For the Six
Months Ended
June 30, At or For the Years Ended December 31,
----------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Selected Results of Operations
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............................. $ 39,222 $ 18,145 $ 47,185 $ 29,270 $ 20,850 $ 12,194 $ 8,164
Net interest income......................... 18,247 9,454 22,778 16,736 13,163 8,256 5,327
Provision for loan losses................... 1,010 825 1,665 900 808 383 2
Net interest income after
provision for loan losses................ 17,237 8,629 21,113 15,836 12,355 7,873 5,325
Other income................................ 2,705 776 2,236 1,746 1,651 732 472
Other expenses.............................. 14,550 7,332 17,445 13,207 10,047 5,991 4,198
Net income.................................. 3,807 1,482 4,171 3,013 2,819 1,840 1,128
Net income excluding goodwill amortization.. 5,712 1,951 5,676 3,840 3,162 1,974 1,226
Per Share Data
Net income
Basic.................................... 0.60 0.32 0.86 0.68 0.66 0.57 0.41
Diluted.................................. 0.53 0.30 0.78 0.63 0.61 0.57 0.41
Book value.................................. 9.32 6.33 8.64 5.98 5.74 5.07 4.64
Selected Balance Sheet Data
Assets...................................... 1,153,562 585,219 1,099,973 436,795 369,895 217,351 112,015
Cash and investments........................ 604,613 188,418 610,339 117,388 164,251 70,809 24,134
Loans receivable (net) ..................... 486,059 363,705 427,761 295,501 183,634 134,861 83,387
Deposits.................................... 753,508 467,394 695,388 385,987 335,248 196,019 99,099
Borrowings and securities sold
under agreements to repurchase............ 307,500 57,426 316,314 21,253 8,000 -- --
Shareholders' equity........................ 59,124 29,071 54,632 27,415 24,671 20,571 12,306
Performance Ratios(1)
Return on average assets.................... 0.70% 0.62% 0.66% 0.74% 1.03% 1.09% 1.04%
Return on average equity.................... 13.49% 10.69% 12.89% 11.99% 12.42% 11.74% 9.61%
Net yield on interest-earning assets........ 3.68% 4.33% 3.89% 4.57% 5.30% 5.39% 5.29%
Asset Quality Ratios
Nonperforming loans to total loans.......... 0.50% 0.72% 0.51% 0.81% 1.72% 1.82% 1.84%
Nonperforming assets to total loans
and other real estate owned............... 0.50% 0.90% 0.57% 1.06% 2.19% 2.56% 2.26%
Net charge-offs to average total loans...... 0.02% 0.02% 0.02% 0.16% 0.23% 0.29% 0.02%
Total allowance for loan losses to
total nonperforming loans................. 209.73% 127.32% 189.77% 107.26% 64.47% 64.74% 69.10%
Capital Ratios
Equity to assets............................ 5.13% 4.97% 4.97% 6.28% 6.67% 9.46% 10.99%
Tier 1 risk-based capital ratio............. 8.60% 7.52% 8.17% 7.44% 8.67% 14.01% 15.59%
Total risk-based capital ratio.............. 10.91% 12.99% 10.75% 8.28% 9.64% 15.22% 16.84%
Leverage ratio.............................. 4.96% 5.68% 6.42% 5.43% 5.74% 8.44% 10.74%
Ratio of Earnings to Fixed Charges
Including interest on deposits.............. 1.26x 1.24x 1.24x 1.35x 1.51x 1.66x 1.62x
Excluding interest on deposits.............. 1.59x 1.97x 1.74x 8.54x 84.94x 28.88x N/A
</TABLE>
(1) Ratios are annualized for the six months ended June 30, 1998 and 1997.
11
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors which address those risks material to the Offering and the Company
should be considered carefully in evaluating an investment in the Preferred
Securities offered by this Prospectus. Certain statements in this Prospectus are
forward-looking and are identified by the use of forward-looking words or
phrases such as "intended," "will be positioned," "expects," is or are
"expected," "anticipates," and "anticipated." These forward-looking statements
are based on the Company's current expectations. To the extent any of the
information contained in this Prospectus constitutes a "forward-looking
statement" as defined in Section 27A(i)(1) of the Securities Act of 1933, as
amended (the "Securities Act"), the risk factors set forth below are cautionary
statements identifying important factors that could cause actual results to
differ materially from those in the forward-looking statement.
RISK FACTORS RELATING TO THE OFFERING
Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures
The obligations of the Company under the Guarantee issued by the
Company for the benefit of the holders of Preferred Securities and under the
Junior Subordinated Debentures are subordinate and junior in right of payment to
all Senior Indebtedness and rank pari passu with the Company's obligations
associated with the Outstanding Preferred Securities. Senior Indebtedness as of
June 30, 1998, totalled $307.5 million. None of the Junior Subordinated
Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Indebtedness, that may be
incurred by the Company. See "Description of Guarantee -- Status of the
Guarantee" and "Description of Junior Subordinated Debentures -- Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
Option to Extend Interest Payment Period; Tax Consequences
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures -- Debenture Events of Default." As a consequence of any
such deferral, quarterly Distributions on the Preferred Securities by the Issuer
Trust will be deferred during any such Extension Period. Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon during any Extension Period at the rate of 8.875% per
annum, compounded quarterly from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distribution" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior in
interest to the Junior Subordinated Debentures including the Outstanding
Preferred Securities (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangements with or for the
12
<PAGE>
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of a reclassification or an exchange or conversion of any class
or series of the Company's capital stock (or any capital stock of a subsidiary
of the Company) for any class or series of the Company's capital stock or any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock, or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options, or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options, or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the annual rate of 8.875%,
compounded quarterly, to the extent permitted by applicable law), the Company
may elect to begin a new Extension Period subject to the above conditions. No
interest shall be due and payable during an Extension Period, except at the end
thereof. The Company must give the Issuer Trustees notice of its election to
begin an Extension Period at least one Business Day prior to the earlier of (i)
the date the Distributions on the Preferred Securities would have been payable
but for the election to begin such Extension Period and (ii) the date the
Property Trustee is required to give notice to holders of the Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The Property
Trustee will give notice of the Company's election to begin a new Extension
Period to the holders of the Preferred Securities. Subject to the foregoing,
there is no limitation on the number of times that the Company may elect to
begin an Extension Period. See "Description of Preferred Securities --
Distributions" and "Description of Junior Subordinated Debentures -- Option to
Extend Interest Payment Period."
In the event an Extension Period should occur, a holder of Preferred
Securities will continue to accrue and recognize income (in the form of original
issue discount ("OID")) for United States federal income tax purposes in respect
of its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust, which will include a holder's pro rata share of both the stated interest
and de minimis OID, if any, on the Junior Subordinated Debentures. As a result,
a holder of Preferred Securities will include such OID in gross income for
United States federal income tax purposes in advance of the receipt of cash, and
will not receive the cash related to such income from the Issuer Trust if the
holder disposes of the Preferred Securities prior to the record date for the
payment of Distributions. See "Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount" and "-- Sales of Preferred
Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, if the Company should elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of his, her or its Preferred
Securities during an Extension Period, therefore, might not receive the same
return on his, her or its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of the Company's
right to defer interest payments, the market price of the Preferred Securities
(which represent preferred undivided beneficial interest in the assets of the
Issuer Trust) may be more volatile than the market price
13
<PAGE>
of other securities on which original issue discount or interest accrues that
are not subject to such deferrals.
Redemption Due to Tax Event, Investment Company Event or Capital Treatment Event
Upon the occurrence and during the continuation of a Tax Event,
Investment Company Event, or Capital Treatment Event, the Company has the right
to redeem the Junior Subordinated Debentures in whole, but not in part, at any
time within 90 days following the occurrence of such Tax Event, Investment
Company Event, or Capital Treatment Event and thereby cause a mandatory
redemption of the Preferred Securities. Any such redemption shall be at a price
equal to the Liquidation Amount of the Preferred Securities, together with
accumulated Distributions to but excluding the date fixed for redemption. The
ability of the Company to exercise its right to redeem the Junior Subordinated
Debentures prior to the Stated Maturity may be subject to prior regulatory
approval by the FRB, if then required, as it currently is, under applicable FRB
capital guidelines or policies. See "Description of Junior Subordinated
Debentures -- Redemption" and "Description of Preferred Securities --
Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
See "Certain Federal Income Tax Consequences -- Pending Tax Litigation
Affecting the Preferred Securities" for a discussion of pending United States
Tax Court litigation that, if decided adversely to the taxpayer, could give rise
to a Tax Event, which may permit the Company to redeem the Junior Subordinated
Securities prior to December 31, 2003.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision
14
<PAGE>
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement, action or decision is announced on or after the
date of issuance of the Preferred Securities, there is more than an
insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation Amount of the Preferred Securities as "Tier 1 Capital"
(or the then equivalent thereof) except as otherwise restricted under the 25%
Capital Limitation (as defined herein), for purposes of the risk-based capital
adequacy guidelines of the FRB, as then in effect and applicable to the Company.
Exchange of Preferred Securities for Junior Subordinated Debentures
The Company, as holder of all the outstanding Common Securities, has
the right at any time to dissolve the Issuer Trust and, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of
Preferred Securities and Common Securities in liquidation of the Issuer Trust.
The ability of the Company, as holder of the Common Securities, to dissolve the
Issuer Trust may be subject to prior regulatory approval of the FRB, if then
required under applicable FRB capital guidelines or policies. See "Description
of Preferred Securities -- Liquidation Distribution Upon Dissolution."
Under current United States federal income tax law and interpretation
and assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain Federal Income Tax Consequences -- US Holders -- Receipt of Junior
Subordinated Debentures or Cash Upon Liquidation of the Issuer Trust."
Rights Under the Guarantee
Bankers Trust Company will act as the trustee under the Guarantee (the
"Guarantee Trustee") and will hold the Guarantee for the benefit of the holders
of the Preferred Securities. Bankers Trust Company also will act as Debenture
Trustee for the Junior Subordinated Debentures and as Property Trustee under the
Trust Agreement. Bankers Trust (Delaware) will act as Delaware Trustee under the
Trust Agreement. The Guarantee guarantees to the holders of the Preferred
Securities the following payments, to the extent not paid by or on behalf of the
Issuer Trust: (i) any accumulated and unpaid Distributions required to be paid
on the Preferred Securities, to the extent that the Issuer Trust has funds on
hand available therefor at the payment date, (ii) the Redemption Price with
respect to any Preferred Securities called for redemption, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding up or liquidation of the
Issuer Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Preferred Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Issuer Trust has funds on hand available
therefor at such time, and (b) the amount of assets of the Issuer Trust
remaining available for distribution to holders of the Preferred Securities on
liquidation of the Issuer Trust. The Guarantee is subordinated as described
under "-- Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures" and "Description of Guarantee -- Status of the
Guarantee" and pari passu with the Company's obligations associated with the
Outstanding Preferred Securities. The holders of not less than a majority in
aggregate Liquidation Amount of the outstanding Preferred Securities have the
right to direct the time, method, and place of conducting any proceeding for any
remedy available to the Guarantee Trustee in respect of the
15
<PAGE>
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of the Preferred Securities
may institute a legal proceeding directly against the Company to enforce its
rights under the Guarantee without first instituting a legal proceeding against
the Issuer Trust, the Guarantee Trustee, or any other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). The exercise by the Company of its right, as described herein, to
defer the payment of interest on the Junior Subordinate Debentures does not
constitute a Debenture Event of Default. In connection with such Direct Action,
the Company will have a right of set-off under the Junior Subordinated Indenture
to the extent of any payment made by the Company to such holder of Preferred
Securities in the Direct Action. Except as described herein, holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures or assert
directly any other rights in respect of the Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Enforcement of Certain Rights
by Holders of Preferred Securities," "-- Debenture Events of Default" and
"Description of Guarantee." The Trust Agreement provides that each holder of
Preferred Securities by acceptance thereof agrees to the provisions of the
Guarantee and the Junior Subordinated Indenture.
Limited Voting Rights
Holders of Preferred Securities will have limited voting rights
relating generally to the modification of the Preferred Securities and the
Guarantee and the exercise of the Issuer Trust's rights as holder of Junior
Subordinated Debentures. Holders of Preferred Securities will not be entitled to
appoint, remove, or replace the Property Trustee or the Delaware Trustee except
upon the occurrence of certain events specified in the Trust Agreement. The
Property Trustee and the holders of all the Common Securities may, subject to
certain conditions, amend the Trust Agreement without the consent of holders of
Preferred Securities to cure any ambiguity or make other provisions not
inconsistent with the Trust Agreement or to ensure that the Issuer Trust (i)
will not be taxable as a corporation for United States federal income tax
purposes, or (ii) will not be required to register as an "investment company"
under the Investment Company Act. See "Description of Preferred Securities --
Voting Rights; Amendment of Trust Agreement" and "-- Removal of Issuer Trustees;
Appointment of Successors."
Absence of Market
The Preferred Securities are a new issue of securities with no
established trading market. The Preferred Securities have been approved for
quotation on the Nasdaq National Market, but the Nasdaq National Market
standards require the existence of three market makers for initial listing, and
two for continued listing. Although the Company has been advised that certain
firms intend to make a market in the Preferred Securities, such firms are not
obligated to do so and such market making may be interrupted or discontinued at
any time without any notice at their sole discretion. Moreover, there can be no
assurance that an established and liquid trading market will develop or, if
developed, will be sustained following the issuance of the Preferred Securities.
16
<PAGE>
Market Prices
There can be no assurance as to the market prices for Preferred
Securities, or the market prices for Junior Subordinated Debentures that may be
distributed in exchange for Preferred Securities if a liquidation of the Issuer
Trust occurs. Accordingly, the Preferred Securities or the Junior Subordinated
Debentures that a holder of Preferred Securities may receive on liquidation of
the Issuer Trust may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby. Because holders of Preferred
Securities may receive Junior Subordinated Debentures on termination of the
Issuer Trust, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of Junior Subordinated
Debentures."
Securities are not Insured
Neither the Preferred Securities nor the Junior Subordinated Debentures
are insured by the FDIC or by any other governmental agency or any private
insurer.
RISK FACTORS RELATING TO THE COMPANY
Restrictions on the Company as a Bank Holding Company
The Company is a legal entity separate and distinct from the Bank,
although the principal source of the Company's cash revenues is dividends from
the Bank. The ability of the Company to pay the interest on, and principal of,
the Junior Subordinated Debentures will be significantly dependent on the
ability of the Bank to pay dividends to the Company in amounts sufficient to
service the Company's debt obligations. Payment of dividends by the Bank is, and
by Sun Delaware will be, restricted by various legal and regulatory limitations.
At June 30, 1998, approximately $15.0 million was available for payment of
dividends to the Company from the Bank without prior regulatory approval.
The right of the Company to participate in the assets of any subsidiary
upon the latter's liquidation, reorganization or otherwise (and thus the ability
of the holders of Preferred Securities to benefit indirectly from any such
distribution) will be subject to the claims of the subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim. As of June 30, 1998 the Company had Senior
Indebtedness of approximately $307.5 million.
The Bank is, and Sun Delaware will be, subject also to restrictions
under federal law which limit the transfer of funds by the Bank or Sun Delaware
to the Company, whether in the form of loans, extensions of credit, investments,
asset purchases or otherwise. Such transfers by the Bank, or Sun Delaware, to
the Company and any nonbank subsidiary are limited in amount to 10% of such
bank's capital and surplus and, with respect to the Company and all its nonbank
subsidiaries, to an aggregate of 20% of such bank's capital and surplus.
Furthermore, such loans and extensions of credit are required to be secured in
specified amounts.
Ability of the Company to Maintain and Manage Growth
During the last five years, the Company has experienced rapid and
significant growth. The total assets of the Company have increased from $112.0
million at December 31, 1993, to $1,154 million at June 30, 1998. Although the
Company believes that it has adequately managed its growth in the past, there
can be no assurance that the Company will continue to experience such rapid
growth, or any
17
<PAGE>
growth, in the future and, to the extent that it does experience continued
growth, it will be able to adequately and profitably manage such growth.
The continued growth has led the Company to undertake the present
Offering and the Common Shares Sale. The capital to be raised from the sale of
the Preferred Securities offered hereby and from the Common Shares Sale, is
necessary to provide sufficient capital to support the Beneficial Acquisition.
No assurance can be given that this rapid growth will continue, and, if it does,
there is no assurance that the earnings of the Company, the Bank and Sun
Delaware can adequately provide the necessary capital for the Bank, Sun Delaware
and the Company to maintain required regulatory capital levels commensurate with
continued rapid growth. The Company expects that its leverage ratio will be in
excess of 4%, and that it will be adequately capitalized for regulatory
purposes, at the time of the consummation of the Beneficial Acquisition, and as
of December 31, 1998. The combination of an increase in retained earnings and
the amortization of goodwill will increase the Company's regulatory capital
ratios above the June 30, 1998 pro forma ratios presented herein. After giving
effect to the sale of the Preferred Securities, the Common Shares Sale and the
Beneficial Acquisition, Sun Delaware will be "well capitalized" for federal bank
regulatory purposes. The Bank will also continue to be "well capitalized" for
federal bank regulatory purposes. The level of future earnings of the Company
also will depend on the ability of the Company and its subsidiaries to
profitably deploy and manage the increased assets.
The rapid growth of the Company in asset size and the rapid increase in
its volume of total loans during the past five years have increased the possible
risks inherent in an investment in the Company. In addition, the Beneficial
Acquisition will result in the acquisition of a significant amount of deposits.
The deposits to be assumed pursuant to the Beneficial Acquisition are
predominantly core deposits with lower costs. If the Company is unable to
maintain a low cost of funds on such deposits or if the Company is unable to
retain a substantial portion of the deposits to be assumed, the Beneficial
Acquisition may have an adverse impact on the Company's financial condition,
results of operations and cash flows. The Beneficial Acquisition will also
result in the acquisition by the Company of approximately $139 million of loans,
approximately $87 million of which are commercial and industrial loans. The
nature of commercial and industrial loans is such that they may present more
credit risk to the Company than other types of loans such as home equity loans
or residential real estate loans. See "Beneficial Acquisition."
Growth in Loan Portfolio; Concentration of Credit
During the past five years, the Company has experienced significant
growth in its loan portfolio. Net loans increased to $486.1 million at June 30,
1998, from $83.4 million at December 31, 1993. While many components of the loan
portfolio have contributed to this increase over the past five years, much of
this loan growth has occurred in the portfolio of commercial and industrial
loans. Commercial and industrial loans increased by 55.3% or $123.4 million
during 1997 as compared to 1996 and comprised 80.2% of total loans as of
December 31, 1997. As of June 30, 1998, commercial and industrial loans
comprised 81.6% of total loans. As a result of this recent growth, a significant
portion of the Company's total loan portfolio may be considered unseasoned.
Accordingly, specific payment and loss experience for this portion of the
portfolio has not yet been fully established and the potential for additional
loan losses does exist. Furthermore, the nature of commercial and industrial
loans is such that they may present more credit risk to the Company than other
types of loans such as home equity or residential real estate loans. In
addition, a significant portion of the Company's commercial and industrial loans
are concentrated in the hospitality, entertainment and leisure industries. Many
of these industries are dependent upon seasonal business and other factors
beyond the control of such industries, such as weather and beach conditions
along the New Jersey seashore. Any significant or prolonged adverse
18
<PAGE>
weather or beach conditions along the New Jersey seashore could have an adverse
impact on the borrowers' ability to repay such loans. Additionally, because
these loans are concentrated in southern and central New Jersey and so a decline
in the general economic conditions of southern or central New Jersey could have
a material adverse effect on the Company's financial condition, results of
operations and cash flows.
Adequacy of Allowance for Loan Losses
The risk of loan losses varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value of the collateral for the loan. Management maintains an allowance for
loan losses based upon, among other things, historical experience, an evaluation
of economic conditions and regular review of delinquencies and loan portfolio
quality. Based upon such factors, management makes various assumptions and
judgments about the ultimate collectibility of the loan portfolio and provides
an allowance for loan losses based upon a percentage of the outstanding balances
and for specific loans when their ultimate collectibility is considered
questionable. If management's assumptions and judgments prove to be incorrect
and the allowance for loan losses is inadequate to absorb future credit losses,
or if the bank regulatory authorities require the Bank and/or Sun Delaware to
increase the allowance for loan losses, the Company's earnings could be
significantly and adversely affected.
As of June 30, 1998, the allowance for loan losses was $5.1 million,
which represented 1.05% of total loans. The allowance for loan losses as a
percentage of nonperforming loans was 209.73% as of June 30, 1998. The Company
actively manages its nonperforming loans in an effort to minimize credit losses
and monitors its asset quality to maintain an adequate allowance for loan
losses. As its loan growth has increased, the Company has increased its
allowance for loan losses. However, future additions to the allowance in the
form of provisions for loan losses may be necessary due to changes in economic
conditions and growth of the Company's loan portfolio.
High Degree of Competition
The banking business is highly competitive. In its primary market
areas, the Company competes, and in Delaware will compete, with other commercial
banks, savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. Many of the Company's primary competitors have
substantially greater resources and lending limits than the Bank or than Sun
Delaware will have. The profitability of the Company depends upon the ability of
its subsidiaries to compete in the Company's primary market areas.
Potential Impact of Changes in Interest Rates
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels and by other economic factors beyond its
control. Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities, and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time period is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time period is considered liability-sensitive and is
reflected as negative gap. An asset-sensitive position (i.e., a positive gap)
will generally enhance earnings in a rising interest rate environment and will
negatively impact earnings in a falling interest rate environment, while a
liability-sensitive position (i.e., a negative
19
<PAGE>
gap) will generally enhance earnings in a falling interest rate environment and
negatively impact earnings in a rising interest rate environment. Fluctuations
in interest rates are not predictable or controllable. The Company has attempted
to structure its asset and liability management strategies to mitigate the
impact on net interest income of changes in market interest rates. However,
there can be no assurance that the Company will be able to manage interest rate
risk so as to avoid significant adverse effects in net interest income. At June
30, 1998, the Company had a one year cumulative positive gap of 0.56%.
Limitations Imposed by Industry Regulation
Bank holding companies and banks operate in a highly regulated
environment and are subject to the supervision and examination by several
federal regulatory agencies. The Company is subject to the Bank Holding Company
Act of 1956, as amended ("BHCA"), and to regulation and supervision by the FRB,
and the Bank is, and Sun Delaware will be, subject to regulation and supervision
by the Office of the Comptroller of the Currency (the "OCC") and the FDIC. The
Bank is, and Sun Delaware will also be, a member of the Federal Home Loan Bank
of New York (the "FHLB") and subject to regulation thereby. Federal and state
banking laws and regulations govern matters ranging from the regulation of
certain debt obligations, changes in the control of bank holding companies, and
the maintenance of adequate capital to the general business operations and
financial condition of the Bank and, in the future, Sun Delaware, including
permissible types, amounts and terms of loans and investments, the amount of
reserves maintained against deposits, restrictions on dividends, establishment
of branch offices, and the maximum rate of interest that may be charged by law.
The FRB, the FDIC, and the OCC also possess cease and desist powers over bank
holding companies and banks, to prevent or remedy unsafe or unsound practices or
violations of law. These and other restrictions limit the manner in which the
Company and its bank subsidiaries may conduct their business and obtain
financing. Furthermore, the commercial banking business is affected not only by
general economic conditions, but also by the monetary policies of the FRB. These
monetary policies have had, and are expected to continue to have, significant
effects on the operating results of commercial banks. Changes in monetary or
legislative policies may affect the ability of the Bank and Sun Delaware to
attract deposits and make loans.
Cross Guarantee Liability of the Bank and Sun Delaware
Federal law contains a "cross-guarantee" provision which could result
in an insured depository institution which is owned by the Company, such as the
Bank or Sun Delaware, being liable for losses incurred by the FDIC in connection
with assistance provided to, or the failure of, another depository institution
"commonly controlled" by the Company. As the Bank and Sun Delaware will be
"commonly controlled" by the Company, losses incurred by the FDIC in connection
with assistance provided to, or failure of, one such bank could result in an
assessment against the other bank and such assessment could have a material
adverse effect on the financial condition of such bank and the Company.
Impact of Changes in Economic Conditions and Monetary Policies
Conditions beyond the Company's control may have a significant impact
on changes in net interest income from one period to another. Examples of such
conditions could include: (i) the strength of credit demands by customers; (ii)
fiscal and debt management policies of the federal government, including changes
in tax laws; (iii) the FRB's monetary policy; (iv) the introduction and growth
of new investment instruments and transaction accounts by non-bank financial
competitors; and (v) changes in rules and regulations governing the payment of
interest on deposit accounts.
20
<PAGE>
Year 2000
The Year 2000 issue is created by the potential inability of computer
systems to use more than two digits in the data field for the year, thus making
them unable to identify years after 1999 with accuracy. If a bank does not
resolve problems related to the Year 2000 issue, computer systems may
incorrectly compute payment, interest or delinquency information. In addition,
because payment and other important data systems are linked by computer, if the
banks with which the Company or its subsidiaries conducts ongoing operations do
not resolve this potential problem in time, the Company or its subsidiaries may
experience significant data processing delays, mistakes or failures. These
delays, mistakes or failures may have a significant adverse impact on the
financial condition, results of operations and cash flows of the Company.
The Company processes much of its data processing using licensed
software from a third party including all of its deposit and loan accounting and
general ledger functions. The third party has advised the Company that it has
made all the necessary programming changes to its systems for the Year 2000. The
Company plans to test its systems for Year 2000 compliance in late 1998. The
Company does not expect to incur significant incremental direct expenses related
to the Year 2000. Failure of third party computer systems relative to the Year
2000 would have a material adverse impact on the Company's ability to conduct
its business. Costs associated with the Year 2000 problem are expected to be
expensed as incurred in compliance with generally accepted accounting
principles. In addition, the Company cannot guarantee that the inability of loan
customers to adequately correct the Year 2000 issue will not have an adverse
effect on the Company.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RECENT RESULTS OF OPERATIONS OF THE COMPANY
General
The primary activity of the Company is the oversight of the Bank.
Through the Bank, the Company engages in community banking activities by
accepting deposit accounts from the general public and investing such funds in a
variety of loans. These community banking activities primarily include providing
home equity loans, mortgage loans, a variety of commercial business and
commercial real estate loans and, to a much lesser extent, installment loans.
The Company also maintains an investment securities portfolio. The Company's
lending and investing activities are funded by retail deposits. The largest
component of the Company's net income is net interest income. Consequently, the
Company's earnings are primarily dependent on its net interest income, which is
determined by (i) the difference between rates of interest earned on
interest-earning assets and rates paid on interest-bearing liabilities (interest
rate spread), and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Company's net income is also affected by its
provision for loan losses, as well as the amount of non-interest income and
non-interest expenses, such as salaries and employee benefits, professional fees
and services, deposit insurance premiums, occupancy and equipment costs and
income taxes. Set forth below is an analysis of the financial condition and
recent operating results of the Company. In July 1998, the Company entered into
an agreement regarding the Beneficial Acquisition which is expected to result in
significant incremental growth in loans, deposits, intangible assets, interest
income, interest expense and noninterest expense. See "-- Financial Condition,"
"Beneficial Acquisition" and "Pro Forma Consolidated Statement of Financial
Condition."
Financial Condition
Total assets at June 30, 1998 increased $53.6 million to $1,154 million
from $1,100 million at December 31, 1997. The growth was primarily due to an
increase in net loans of $58.3 million, an increase in federal funds sold of
$9.5 million and offset by a decrease in the investment securities portfolio of
$18.9 million.
Investment securities available for sale at June 30, 1998 decreased
$18.9 million to $557.4 million from $576.3 million at December 31, 1997. The
decrease was primarily a result of net sales of investment securities, the
proceeds of which funded loan growth and repayment of short-term borrowings.
Net loans at June 30, 1998 increased $58.3 million to $486.1 million
from $427.8 million at December 31, 1997. The increase was primarily from
increased originations of commercial and industrial loans. The ratio of
non-performing assets to total loans and real estate owned was 0.50% at June 30,
1998 compared to 0.51% at December 31, 1997. The ratio of allowance for loan
losses to total non-performing loans was 209.73% at June 30, 1998 compared to
189.77% at December 31, 1997. The increase in this ratio was the result of a
higher allowance for loan losses at June 30, 1998. The ratio of allowance for
loan losses to total loans was 1.05% at June 30, 1998 compared to 0.97% at
December 31, 1997.
Excess of cost over fair value of assets acquired (goodwill) at June
30, 1998 decreased $1.1 million to $25.1 million from $26.2 million at December
31, 1997. The decrease was a result of related amortization and a $289,000
refund of the purchase premium from the purchase of The Bank of New York
branches, substantially offset by the addition of a $1.1 million premium paid
for the acquisition of the Eatontown office of First Savings.
22
<PAGE>
Total liabilities at June 30, 1998 increased $49.1 million to $1,066
million from $1,017 million at December 31, 1997.
Total deposits at June 30, 1998 increased $58.1 million to $753.5
million from $695.4 million at December 31, 1997. The increase was the result of
approximately $25.1 million in deposits acquired from First Savings Bank, as
well as from internal deposit growth of 4.74%.
There were $35.7 million in advances from the Federal Home Loan Bank
and $15 million in federal funds purchased at June 30, 1998 compared to $75.0
million and $5.5 million, respectively, at December 31, 1997. The combined net
decrease in these liabilities was due to the availability of funds from
increased deposit levels combined with the proceeds from sales of investment
securities.
Total shareholders' equity grew by $4.5 million, from $54.6 million at
December 31, 1997, to $59.1 million at June 30, 1998. The increase was a result
of net earnings of $3.8 million for the six months ended June 30, 1998,
augmented by proceeds received from the issuance of common stock under Company
benefit plans amounting to approximately $409,000, and an improvement in the net
unrealized gains on securities available for sale, net of income taxes of
$283,000.
Beginning in 1997, to more fully leverage its capital, the Company
entered into certain structured transactions in which the Bank borrows funds
from the FHLB at a rate similar to the London Inter-Bank Offered Rate ("LIBOR").
It invests the borrowed funds in mortgage-backed securities that are priced to
yield a spread over LIBOR. The securities are pledged as collateral for FHLB
borrowings. For the six months ended June 30, 1998, net interest income related
to structured transactions amounted to $2.3 million, or a 1.03% weighted average
net spread. Partly as a result of the implementation of this strategy, the net
interest margin of the Company has narrowed to 3.68% for the six months ended
June 30, 1998. Excluding the effect of the structured transactions, the
Company's net interest margin would have been 4.15% for that period.
Additionally, for the six months ended June 30, 1998, the Company
reported a return on average assets, a return on average equity and an
efficiency ratio of 0.70%, 13.49%, and 69.44%. On a cash earnings basis
(computed excluding the amortization of goodwill) the return on average assets,
the return on average equity and the efficiency ratios for the same period would
have been 1.06%, 20.24%, and 60.35%. Amortization of goodwill resulting from the
Beneficial Acquisition is expected to further reduce the Company's profitability
ratios, while the transaction is expected to be accretive to earnings.
Comparison of Operating Results for the Six Months Ended June 30, 1998 and 1997
General. Net income increased by $2.3 million for the six months ended
June 30, 1998 to $3.8 million from $1.5 million for the six months ended June
30, 1997. Net interest income increased $8.8 million and the provision for loan
losses increased $185,000 for the six months ended June 30, 1998 compared to the
same period in 1997. Other income increased by $1.9 million to $2.7 million for
the six months ended June 30, 1998 as compared to $776,000 for the six months
ended June 30, 1997. Other expenses increased by $7.2 million to $14.5 million
for the six months ended June 30, 1998 as compared to $7.3 million for the six
months ended June 30, 1997. The return on average assets for the six months
ended June 30, 1998 and 1997 were 0.70% and 0.62%, respectively. The return on
average equity for the six months ended June 30, 1998 and 1997 were 13.49% and
10.69%, respectively.
Net Interest Income. The increase in net interest income was due to a
$21.1 million increase in interest income partially offset by a $12.3 million
increase in interest expense.
23
<PAGE>
Interest Income. Interest income for the six months ended June 30, 1998
increased approximately $21.1 million, or 116.2%, from $18.1 million for the
same period in 1997 to $39.2 million in 1998. The increase was primarily the
result of an increase of $6.7 million in interest and fees on loans resulting
from acquisitions and internal growth and $14.3 million in interest on
investment securities resulting from the deployment of cash received from
financing transactions, branch acquisitions and deposit growth into the
Company's investment portfolio. The Beneficial Acquisition, the Offering and the
Common Shares Sale are expected to generate additional net cash that can be
deployed into loan growth and investments that will create interest income.
Interest Expense. Interest expense for the six months ended June 30,
1998 increased approximately $12.3 million, from $8.7 million for the same
period in 1997 to $21.0 million in 1998. This increase was primarily due to a
$5.3 million increase in interest on deposit accounts resulting from
significantly higher deposit balances due to acquisitions and internal growth, a
$6.3 million increase in interest on short-term borrowed funds resulting from
higher levels of borrowings from correspondent banks and securities sold under
agreements to repurchase and a $615,000 increase in interest on guaranteed
preferred beneficial interest in subordinated debt. The Beneficial Acquisition
and the Offering will result in increased interest expense in future periods.
Provision for Loan Losses. For the six months ended June 30, 1998, the
provision for loan losses amounted to $1.01 million, an increase of $185,000,
compared to $825,000 for the same period in 1997. The increase in the provision
for loan losses was due to higher levels of loans outstanding. Management
continually reviews the adequacy of the loan loss reserve based upon internal
review of loans and using guidelines promulgated by the Bank's primary
regulator.
Other Income. Other income increased approximately $1.9 million to $2.7
million for the six-month period ended June 30, 1998 compared to $776,000 for
the six-month period ended June 30, 1997. The increase was a result of
approximately $978,000 in fees generated by a larger base due to deposit
acquisitions and internal growth, augmented by $110,000 in gains from the sale
of loans and an increase of $573,000 in gains on the sale of investment
securities and $250,000 in other income.
Other Expenses. Other expenses increased approximately $7.2 million to
$14.5 million for the six months ended June 30, 1998 as compared to $7.3 million
for the same period in 1997. Of the increase, $3.1 million was in salaries and
employee benefits, $824,000 was in occupancy expense, $525,000 was in equipment
expense, $116,000 was in professional fees and services, $389,000 was in data
processing expense, $174,000 was in postage and supplies, $1.4 million was in
amortization of excess of cost over fair value of assets acquired (amortization
of goodwill) and $644,000 was in Other Expenses. The increase in other expenses
reflects the Company's strategy to support planned expansion. Salaries and
benefits increased due to additional staff positions in financial service
centers, lending, loan review, compliance and audit departments. The increase in
occupancy, equipment, professional fees and services and data processing
expenses were the result of internal growth and the effect of the Company's
acquisitions. The Company has entered into two purchase and assumption
agreements which, when completed, will result in the acquisition of a total of
ten branch locations, including the eight branch locations in connection with
the Beneficial Acquisition. As a result, the Company expects the level of
amortization of excess of cost over fair value of assets acquired to increase in
periods subsequent to the completion of the transactions.
Income Taxes. Applicable income taxes increased $995,000 for the six
months ended June 30, 1998 as compared to the same period in 1997. The increase
resulted from higher pre-tax earnings.
24
<PAGE>
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The proceeds from the sale of the Preferred Securities are expected
to qualify initially as Tier 2 capital with respect to the Company under the
capital adequacy guidelines established by the FRB and ultimately as Tier 1
capital when permitted under the 25% Capital Limitation. (The proceeds from the
Common Shares Sale will qualify as Tier 1 capital for the Company.)
Substantially all of the net proceeds to be received by the Company from the
sale of the Junior Subordinated Debentures, as well as from the Common Shares
Sale, will be used by the Company to provide equity capital to Sun Delaware for
the purpose of providing sufficient capital to Sun Delaware to consummate the
Beneficial Acquisition and for the Company's other corporate purposes.
BENEFICIAL ACQUISITION
The Company has entered into an agreement to acquire certain loans, and
assume certain deposits, of Beneficial National Bank ("Beneficial"). As part of
the Beneficial Acquisition, the Company will acquire eight leased branch
offices, all located in New Castle County, Delaware. It is anticipated that the
current senior management of Beneficial, comprised of the president, senior
credit officer and senior business development/operations officer, will continue
in similar positions at Sun Delaware. The State of Delaware is a contiguous
extension of the Company's existing marketplace, with the Company's closest New
Jersey branch being located only a few miles from the closest Beneficial branch.
The agreement with Beneficial includes the purchase by the Company of
performing loans and loans that are not thirty days or more past due in the
payment of principal or interest or not adversely classified. While the Company
did not originate or underwrite such loans, the Company has performed a loan
review on a significant portion of the commercial and industrial loans it is
acquiring from Beneficial and will not acquire any loans that are more than 30
days delinquent in the payment of interest or principal or that are adversely
classified at the time of consummation of the Beneficial Acquisition.
The Company is currently evaluating the amount of capital it will need
to raise, in addition to the proceeds of this Offering, in order to provide
sufficient capital to Sun Delaware to consummate the Beneficial Acquisition. In
that regard, the Company has filed a Registration Statement with the Securities
and Exchange Commission with respect to a potential underwritten public offering
of certain Common Shares. In the event that the Company is unable to raise
sufficient capital pursuant to this Offering and such public offering of Common
Shares, Mr. Bernard A. Brown, Chairman of the Board of the Company, has
undertaken to purchase Common Shares directly from the Company at fair market
value in an amount necessary to provide sufficient capital to the Company and
Sun Delaware in order to consummate the Beneficial Acquisition. No final
decision has been made as to the amount of or timing for the Common Shares Sale.
25
<PAGE>
At June 30, 1998, loans to be purchased under the agreement with
Beneficial were as follows:
Weighted
Average
Amount Yield
------ -----
(In thousands)
Commercial and industrial............. $ 87,158 10.32%
Home equity........................... 21,700 9.96
Residential real estate............... 11,519 7.91
Installment........................... 18,674 11.14
------- -----
Gross Loans......................... 139,051 10.18%
Reserve for loan losses............... (1,000)
--------
Net loans........................... $138,051
=======
At June 30, 1998, deposits to be assumed under the agreement with
Beneficial were as follows:
Weighted
Average
Amount Interest Cost
------ -------------
(In thousands)
Demand deposits........................ $ 58,110 1.50%
Savings deposits....................... 43,441 3.01
Time deposits.......................... 77,062 4.99
------- -----
Total deposits....................... $178,613 3.38%
=======
The closing of the Beneficial Acquisition is subject to pending
regulatory approvals and certain other conditions, and is expected to occur in
the fourth quarter of 1998.
PRO FORMA CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998
The following tables set forth the unaudited pro forma consolidated
statement of financial condition of the Company assuming the branch purchases
are consummated as of June 30, 1998 and are presented on the basis of two
capital raising strategies and related business strategies that the Company is
evaluating. The pro forma consolidated statements of financial condition should
be read in conjunction with the consolidated financial statements of the Company
and notes thereto included in the Company's 1997 Annual Report to Stockholders
which is incorporated herein by reference as part of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, and included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, and
June 30, 1998. See "Incorporation of Certain Documents by Reference." The pro
forma consolidated statements of financial condition have been prepared by the
Company, are unaudited, and may not be indicative of results on an annualized
basis or for any other period.
26
<PAGE>
The following table assumes $12 million of Common Shares and $26
million of Preferred Securities would be sold.
<TABLE>
<CAPTION>
Pro Forma
Consolidated Pro Forma
Company Consolidated
Beneficial Summit Before Company After
Branch Branch Securities Securities Securities
Company Purchase Purchase Offerings Offerings Offerings
------- -------- -------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and amounts due from banks......... $ 37,721 $ 1,400 (1) $ $ 39,121 $ $ 39,121
Federal funds sold...................... 9,500 38,700 (1) 14,596 (1) 38,000 (5)
(4,100) (2) (660)(4) (2,000) (5)
(19,900) (3) 38,136 74,136
Investment securities available-for-
sale.................................. 557,392 557,392 557,392
Loans receivable (net).................. 486,059 138,000 (1)
4,100 (2) 628,159 628,159
Bank properties and equipment, net...... 25,342 500 (1) 178 (1) 26,020 26,020
Real estate owned....................... 396 396 396
Accrued interest receivable............. 8,234 8,234 8,234
Excess of cost over fair value
of net assets acquired................ 25,065 19,900 (3) 660 (4) 45,625 45,625
Deferred taxes.......................... 1,511 1,511 1,511
Other assets............................ 2,342 -- -- 2,342 1,110 (5) 3,452
--------- ------- ------ --------- ------ ---------
Total................................ $1,153,562 $178,600 $14,774 $1,346,936 $37,110 $1,384,046
========= ======= ====== ========= ====== =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits................................ $753,507 $178,600 (1) $14,774 (1) $946,881 $ $946,881
Advances from the Federal Home Loan
Bank.................................. 35,700 35,700 35,700
Federal funds purchased................. 15,000 15,000 15,000
Securities sold under agreements
to repurchase......................... 256,800 256,800 256,800
Other liabilities....................... 4,681 -- -- 4,681 -- 4,681
--------- -------- ------ --------- ------ ---------
Total liabilities..................... 1,065,688 178,600 14,774 1,259,062 -- 1,259,062
--------- ------- ------ --------- ------ ---------
Guaranteed preferred beneficial interest
in subordinated debt.................. 28,750 28,750 26,000 (5) 54,750
Shareholders' equity:
Preferred stock.........................
Common stock............................ 6,341 6,341 600 (5) 6,941
Surplus................................. 38,935 38,935 10,510 (5) 49,445
Retained earnings....................... 13,412 13,412 13,412
Unrealized gain on securities
available-for-sale, net of income taxes 436 -- -- 436 -- 436
--------- -------- ------ --------- ------ ---------
Total shareholders' equity............ 59,124 -- -- 59,124 11,110 70,234
--------- -------- ------ --------- ------ ---------
Total................................. $1,153,562 $178,600 $14,774 $1,346,936 $37,110 $1,384,046
========= ======= ====== ========= ====== =========
</TABLE>
- ----------------------------
(1) To record branch purchase.
(2) To record premium paid on the purchase of loans ($4.1 million). The
premium will be amortized over a five year period.
(3) To record premium paid on the assumption of the deposit liabilities
($19.9 million). The excess of cost over fair value of assets acquired
will be amortized over a seven year period.
(4) To record premium paid on the assumption of deposit liabilities
($660,000). The excess of cost over fair value of assets acquired will
be amortized over a seven year period. (5) To record net proceeds from
this Offering and the sale of $12 million of Common Shares.
27
<PAGE>
The following table assumes $5 million of Common Shares and $26 million
of Preferred Securities would be sold and the Company would sell approximately
$240 million of investment securities and repay borrowings of approximately $240
million.
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Consolidated
Consolidated Company
Company Securities After
Beneficial Summit Before Offerings Securities
Branch Branch Securities and Offerings and
Company Purchase Purchase Offerings Investment Sale Investment Sale
------- -------- -------- --------- --------------- ---------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and amounts due from banks......... $ 37,721 $ 1,400 (1) $ $ 39,121 $ $ 39,121
Federal funds sold...................... 9,500 38,700 (1) 14,596 (1) 31,000 (5)
(4,100) (2) (660)(4) (1,580) (5)
(19,900) (3) 38,136 67,556
Investment securities available-for-
sale.................................. 557,392 557,392 (239,824) (6) 317,568
Loans receivable (net).................. 486,059 138,000 (1)
4,100 (2) 628,159 628,159
Bank properties and equipment, net...... 25,342 500 (1) 178 (1) 26,020 26,020
Real estate owned....................... 396 396 396
Accrued interest receivable............. 8,234 8,234 8,234
Excess of cost over fair value
of net assets acquired................ 25,065 19,900 (3) 660 (4) 45,625 45,625
Deferred taxes.......................... 1,511 1,511 1,511
Other assets............................ 2,342 -- -- 2,342 1,110 (5) 3,452
---------- ------- ------ ---------- ------- ---------
Total................................ $1,153,562 $178,600 $14,774 $1,346,936 $(209,294) $1,137,642
========= ======= ====== ========= ======== =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits................................ $753,507 $178,600 (1) $14,774 (1) $ 946,881 $ $946,881
Advances from the Federal Home Loan
Bank.................................. 35,700 35,700 35,700
Federal funds purchased................. 15,000 15,000 15,000
Securities sold under agreements
to repurchase......................... 256,800 256,800 (239,824) (6) 16,976
Other liabilities....................... 4,681 -- -- 4,681 -- 4,681
--------- ------- ------ ---------- -------- ---------
Total liabilities..................... 1,065,688 178,600 14,774 1,259,062 (239,824) 1,019,238
--------- ------- ------ ---------- ---------
Guaranteed preferred beneficial interest
in subordinated debt.................. 28,750 28,750 26,000 (5) 54,750
Shareholders' equity:
Preferred stock.........................
Common stock............................ 6,341 6,341 250 (5) 6,591
Surplus................................. 38,935 38,935 4,280 (5) 43,215
Retained earnings....................... 13,412 13,412 13,412
Net unrealized gain on securities
available-for-sale of income taxes.... 436 -- -- 436 -- 436
------ ------- ------ ---------- -------- ---------
Total shareholders' equity............ 59,124 -- -- 59,124 4,530 63,654
--------- ------- ------ ---------- -------- ---------
Total................................. $1,153,562 $178,600 $14,774 $1,346,936 $(209,294) $1,137,642
========= ======= ====== ========= ======== =========
</TABLE>
- -------------------------
(1) To record branch purchase.
(2) To record premium paid on the purchase of loans ($4.1 million). The
premium will be amortized over a five year period.
(3) To record premium paid on the assumption of the deposit liabilities
($19.9 million). The excess of cost over fair value of assets acquired
will be amortized over a seven year period.
(4) To record premium paid on the assumption of deposit liabilities
($660,000). The excess of cost over fair value of assets acquired will
be amortized over a seven year period.
(5) To record net proceeds from the this Offering and the sale of $5
million of Common Shares.
(6) To record the repayment of securities sold under agreements to
repurchase using proceeds from the sale of investment securities.
28
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of
the Company at June 30, 1998, (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Preferred Securities (assuming the
Underwriters' over-allotment option was not exercised with respect to the
Offering) and (a) the sale of $12 million of Common Shares pursuant to the
Common Shares, and, (b) the sale of $5 million of Common Shares and the sale of
certain investment securities and repayment of certain borrowings of the
Company; (iii) the pro forma effect of branch purchases from Summit and
Beneficial, and (iv) the actual and pro forma capital ratios of the Company. At
June 30, 1998, the Bank's Tier 1 risk-based capital, total risk-based capital
and leverage capital ratios were 9.77%, 10.60% and 5.63%, respectively. At June
30, 1998, the pro forma Tier 1 risk-based capital, total risk-based capital and
leverage capital ratios for Sun Delaware were 10.67%, 11.34% and 8.19%,
respectively. The Bank is "well capitalized" and Sun Delaware will be "well
capitalized" on a pro forma basis for federal bank regulatory purposes. The
Company expects that its leverage ratio will be in excess of 4%, and that it
will be adequately capitalized for regulatory purposes, at the time of the
consummation of the Beneficial Acquisition, and as of December 31, 1998. The
combination of an increase in retained earnings and the amortization of goodwill
will increase the Company's regulatory capital ratios above the June 30, 1998
pro forma ratios presented herein.
29
<PAGE>
Consolidated Capitalization at June 30, 1998
<TABLE>
<CAPTION>
As Adjusted
-------------------------------------------------------------
Sale of
Securities
(Including)
Sale of $5 million
Sale of Securities of Common
Sale of Securities (Including Shares),
Securities (Including $5 million Investment
(Including $12 million of Common Sale
$12 million of Common Shares) and and
of Common Shares) and Investment Branch
Actual Shares) Branch Purchases Sale Purchases
------ ------- ---------------- ------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Guaranteed preferred beneficial interest in subordinated debt..$28,750 $ 54,750 $ 54,750 $ 54,750 $ 54,750
SHAREHOLDERS' EQUITY:
Preferred stock $1 par value, 1,000,000 shares authorized,
none issued................................................ -- -- -- -- --
Common stock $1 par value - 25,000,000 shares authorized...... 6,341 (1) 6,941 (2) 6,941 (2) 6,591 (3) 6,591 (3)
Surplus...................................................... 38,935 49,445 49,445 43,215 43,215
Retained earnings............................................ 13,412 13,412 13,412 13,412 13,412
Net unrealized gain on securities available- for-sale,
net of income taxes........................................ 436 436 436 436 436
------- ------ ------- ------- -------
Total shareholders' equity............................... 59,124 70,234 70,234 63,654 63,654
------- ------- ------- ------- -------
Total capitalization.........................................$87,874 $124,984 $124,984 $118,404 $118,404
======= ======= ======= ======= =======
COMPANY CAPITAL RATIOS(4):
Tier 1 risk-based capital ratio.............................. 8.60% 10.85% 6.16% 10.25% 5.36%
Total risk-based capital ratio............................... 10.91% 16.69% 11.04% 16.97% 10.72%
Leverage ratio............................................... 4.96% 6.13% 3.70% 6.86% 3.73%
SUN DELAWARE CAPITAL RATIOS (5)
Tier 1 risk-based capital ratio.............................. 10.67% 10.67%
Total risk-based capital ratio............................... 11.34% 11.34%
Leverage ratio............................................... 8.19% 8.19%
</TABLE>
- ------------------------
(1) 6,341,811 shares outstanding
(2) 6,940,811 shares outstanding
(3) 6,590,811 shares outstanding
(4) The capital ratios, as adjusted, are computed including the total
estimated net proceeds from the sale of the securities, in a manner
consistent with Federal Reserve guidelines (5) Assumes that the
Company will contribute to Sun Delaware $35,750,000 of proceeds from
the sale of the securities. The capital ratios, as adjusted, are
computed in a manner consistent with OCC guidelines.
30
<PAGE>
SUN CAPITAL TRUST II
The Issuer Trust is a statutory business trust created under Delaware
law pursuant to the filing of a Certificate of Trust with the Delaware Secretary
of State on August 12, 1998. The Issuer Trust will be governed by the Trust
Agreement among the Company, as Depositor, Bankers Trust (Delaware), as Delaware
Trustee, and Bankers Trust Company, as Property Trustee (together with the
Delaware Trustee, the "Issuer Trustees"). Two individuals will be selected by
the holder of the Common Securities to act as administrators with respect to the
Issuer Trust (the "Administrators"). The Company, while holder of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as the Administrators. See "Description
of Preferred Securities -- Miscellaneous." The Issuer Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary, convenient or incidental thereto (such as registering the transfer of
the Trust Securities). Accordingly, the Junior Subordinated Debentures will be
the sole assets of the Issuer Trust, and payments under the Junior Subordinated
Debentures will be the sole source of revenue of the Issuer Trust.
All the Common Securities will initially be owned by the Company. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Preferred Securities, except that upon the occurrence and during
the continuation of a Debenture Event of Default arising as a result of any
failure by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holder of the Common Securities to
payment in respect of Distributions and Payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of Preferred Securities -- Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee is Bankers Trust
(Delaware), 1101 Centre Road, Suite 200, Trust Department, Wilmington, Delaware
19805, telephone number (302) 636-3301. The address of the Property Trustee, the
Guarantee Trustee and the Debenture Trustee is Bankers Trust Company, Four
Albany Street, 4th Floor, New York, New York 10006, telephone number (212)
250-2500.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Preferred Securities will be recorded in the
consolidated statements of income of the Company.
31
<PAGE>
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trust will issue the Preferred Securities and the Common Securities. The
Preferred Securities will represent preferred undivided beneficial interests in
the assets of the Issuer Trust and the holders thereof will be entitled to a
preference in certain circumstances with respect to Distributions and amounts
payable on redemption or liquidation over the Common Securities, as well as
other benefits as described in the Trust Agreement. This summary of certain
provisions of the Preferred Securities and the Trust Agreement does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein of
certain terms. Wherever particular defined terms of the Trust Agreement are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of the Trust Agreement is available upon request from the
Issuer Trustees.
General
The Preferred Securities will be limited to $26,000,000 aggregate
Liquidation Amount outstanding (which amount may be increased by up to
$3,900,000 aggregate Liquidation Amount of Preferred Securities for exercise of
the Underwriters' over-allotment option). See "Underwriting." The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "-- Subordination of Common
Securities." The Junior Subordinated Debentures will be registered in the name
of the Issuer Trust and held by the Property Trustee in trust for the benefit of
the holders of the Preferred Securities and Common Securities. The Guarantee
will be a guarantee on a subordinated basis with respect to the Preferred
Securities but will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of such Preferred Securities when the Issuer Trust
does not have funds on hand available to make such payments. See "Description of
Guarantee."
Distributions
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and Distributions on each Preferred
Security will be payable at the annual rate of 8.875% of the stated Liquidation
Amount of $10, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year (each a "Distribution Date"), to the holders of the
Preferred Securities at the close of business on 15th day of March, June,
September and December (whether or not a Business Day (as defined below)) next
preceding the relevant Distribution Date. Distributions on the Preferred
Securities will be cumulative. Distributions will accumulate from October 30,
1998. The first Distribution Date for the Preferred Securities will be December
31, 1998. The amount of Distributions payable for any period less than a full
Distribution period will be computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period.
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. If any date on which Distributions are
payable on the Preferred Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable, except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable.
32
<PAGE>
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right under the Junior Subordinated Indenture to
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 20 consecutive quarterly periods
with respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate of 8.875% per
annum, compounded quarterly from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distributions" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior in
interest to the Junior Subordinated Debentures, including the Company's
obligations associated with the Outstanding Preferred Securities (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of a reclassification or an
exchange or conversion of any class or series of the Company's capital stock (or
any capital stock of a subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's indebtedness
for any class or series of the Company's capital stock, (c) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (d) any declaration of a dividend in connection with any
stockholder's rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock). Prior
to the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period may exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may elect to begin a new
Extension Period. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company must give the Trustees notice of
its election of such Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Preferred Securities would have
been payable but for the election to begin such Extension Period and (ii) the
date the Property Trustee is required to give notice to holders of the Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The Property
Trustee will give notice of the Company's election to begin a new Extension
Period to the holders of the Preferred Securities. Subject to the foregoing,
there is no limitation on the number of times that the Company may elect to
begin an Extension Period. See "Description of Junior Subordinated Debentures --
Option To Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
33
<PAGE>
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders
of the Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Preferred Securities. The payment
of Distributions and other amounts payable on the Preferred Securities (if and
to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of Guarantee."
Redemption
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Preferred Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date") and the related amount of the premium, if any, paid by the Company upon
the concurrent redemption of such Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Redemption." If less than all
the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The amount of premium, if any, paid by the Company upon the redemption of all or
any part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures
(i) on or after December 31, 2003, in whole at any time or in part from time to
time, or (ii) in whole, but not in part, at any time within 90 days following
the occurrence and during the continuation of a Tax Event, Investment Company
Event or Capital Treatment Event (each as defined below), in each case subject
to possible regulatory approval. See "-- Liquidation Distribution Upon
Dissolution." A redemption of the Junior Subordinated Debentures would cause a
mandatory redemption of a Like Amount of the Preferred Securities and Common
Securities at the Redemption Price.
"25% Capital Limitation" means the limitation imposed by the FRB that
the proceeds of certain qualifying securities like the Trust Securities will
qualify as Tier 1 capital of the Company up to an amount not to exceed, when
taken together with all cumulative preferred stock of the Company, if any, 25%
of the Company's Tier 1 capital, or any subsequent limitation adopted by the
FRB.
"Business Day" means a day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the State of New Jersey or the City of New
York are authorized or required by law or executive order to remain closed, or
(iii) a day on which the Property Trustee's Corporate Trust Office or the
Corporate Trust Office of the Debenture Trustee is closed for business.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount (as defined below)
equal to that portion of the principal amount of Junior
34
<PAGE>
Subordinated Debentures to be contemporaneously redeemed in accordance with the
Junior Subordinated Indenture, allocated to the Common Securities and to the
Preferred Securities based upon the relative Liquidation Amounts of such classes
and (ii) with respect to a distribution of Junior Subordinated Debentures to
holders of Trust Securities in connection with a dissolution or liquidation of
the Issuer Trust, Junior Subordinated Debentures having a principal amount equal
to the Liquidation Amount of the Trust Securities of the holder to whom such
Junior Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges. See "Certain Federal Income Tax Consequences-Pending Tax
Litigation Affecting the Preferred Securities" for a discussion of pending
United States Tax Court litigation that, if decided adversely to the taxpayer,
could give rise to a Tax Event, which may permit the Company to redeem the
Junior Subordinated Debentures prior to December 31, 2003.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof),
except as otherwise restricted under the 25% Capital Limitation, for purposes of
the risk-based capital adequacy guidelines of the FRB, as then in effect and
applicable to the Company.
If a Tax Event described in clause (i) or (iii) of the definition of
Tax Event above has occurred and is continuing and the Issuer Trust is the
holder of all the Junior Subordinated Debentures, the Company will pay
Additional Sums (as defined below), if any, on the Junior Subordinated
Debentures.
35
<PAGE>
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer Trust
on the outstanding Preferred Securities and Common Securities of the Issuer
Trust will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
Redemption Procedures
Preferred Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred Securities
held in book-entry form, the Property Trustee will deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
beneficial owners of the Preferred Securities. With respect to Preferred
Securities not held in book-entry form, the Property Trustee, to the extent
funds are available, will irrevocably deposit with the paying agent for the
Preferred Securities funds sufficient to pay the applicable Redemption Price and
will give such paying agent irrevocable instructions and authority to pay the
Redemption Price to the holders thereof upon surrender of their certificates
evidencing the Preferred Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Preferred
Securities called for redemption shall be payable to the holders of the
Preferred Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit all rights of the holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Preferred Securities will
cease to be outstanding. If any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Issuer Trust or by the
Company pursuant to the Guarantee as described under "Description of Guarantee,"
Distributions on such Preferred Securities will continue to accumulate at the
then applicable rate, from the Redemption Date originally established by the
Issuer Trust for such Preferred Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to
be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
36
<PAGE>
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from the outstanding
Preferred Securities not previously called for redemption, or if the Preferred
Securities are then held in the form of a Global Preferred Security (as defined
below), in accordance with DTC's customary procedures. The Property Trustee
shall promptly notify the securities registrar for the Trust Securities in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or Liquidation Distribution in respect
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all the outstanding Preferred
Securities then called for redemption, shall have been made or provided for, and
all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or Redemption Price of, the
Preferred Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Preferred Securities have been cured, waived or otherwise eliminated.
See "-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events of Default." Until all such Events of Default
under the Trust Agreement with respect to the Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Preferred Securities and not on behalf of the
holders of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
37
<PAGE>
Liquidation Distribution Upon Dissolution
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $10 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at
any time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The FRB's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the FRB before redeeming any equity or capital instrument prior to
maturity if such redemption could have a material effect on the level or
composition of the organization's capital base (unless the equity or capital
instrument were redeemed with the proceeds of, or replaced by, a like amount of
a similar or higher quality capital instrument and the FRB considers the
organization's capital position to be fully adequate after the redemption).
In the event the Company, while a holder of Common Securities,
dissolves the Issuer Trust prior to the Stated Maturity of the Preferred
Securities and the dissolution of the Issuer Trust is deemed to constitute the
redemption of capital instruments by the FRB under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by the Company may
be subject to the prior approval of the FRB. Moreover, any changes in applicable
law or changes in the FRB's risk-based capital guidelines or policies could
impose a requirement on the Company that it obtain the prior approval of the FRB
to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Preferred
Securities in connection with the redemption of all the Trust Securities as
described under "-- Redemption" and (iv) the entry of an order for the
dissolution of the Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i),
(ii) or (iv) above, the Issuer Trust will be liquidated by the Property Trustee
as expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer Trust
as provided by applicable law, to the holders of such Trust Securities a Like
Amount of the Junior Subordinated Debentures, unless such distribution is not
practical, in which event such holders will be entitled to receive out of the
assets of the Issuer Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to, in the case of holders of Preferred
Securities, the aggregate of the Liquidation Amount plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Issuer Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Issuer Trust on its Preferred Securities shall be paid on a pro rata basis. The
holders of the Common Securities will
38
<PAGE>
be entitled to receive distributions upon any such liquidation pro rata with the
holders of the Preferred Securities, except that if a Debenture Event of Default
has occurred and is continuing as a result of any failure by the Company to pay
any amounts in respect of the Junior Subordinated Debentures when due, the
Preferred Securities shall have a priority over the Common Securities. See "--
Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior
to maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Preferred Securities offered
hereby.
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether it is
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a period
of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (ii) or (iii) above), and
39
<PAGE>
continuation of such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the Issuer Trustees and the
Company by the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Preferred Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not been
appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a
result of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "-- Subordination of
Common Securities," "-- Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures -- Debenture Events of Default."
Removal of Issuer Trustees; Appointment of Successors
The holders of at least a majority in aggregate Liquidation Amount of
the outstanding Preferred Securities may remove an Issuer Trustee for cause or,
if a Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in aggregate Liquidation Amount of Preferred Securities. If an Issuer
Trustee resigns, such Issuer Trustee will appoint its successor. If an Issuer
Trustee fails to appoint a successor, the holders of at least 25% in aggregate
Liquidation Amount of the outstanding Preferred Securities may appoint a
successor. If a successor has not been appointed by the holders, any holder of
Preferred Securities or Common Securities or the other Issuer Trustee may
petition a court in the State of Delaware to appoint a successor. Any Delaware
Trustee must meet the applicable requirements of Delaware law. Any Property
Trustee must be a national or state-chartered bank, and at the time of
appointment have securities rated in one of the three highest rating categories
by a nationally recognized statistical rating organization and have capital and
surplus of at least $50,000,000. No resignation or removal of an Issuer Trustee
and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees
Any entity into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
40
<PAGE>
Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust
The Issuer Trust may not merge with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (v) such successor entity has
a purpose substantially identical to that of the Issuer Trust, (vi) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Issuer Trust has received an opinion from independent counsel
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act,
and (vii) the Company or any permitted successor or assignee owns all the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer Trust or the successor entity to be taxable as a corporation for United
States federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided above and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of
a majority of the Common Securities and the Property Trustee, without the
consent of the holders of the Preferred Securities, (i) to cure any ambiguity,
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, provided that
any such amendment does not adversely affect in any material respect the
interests of any holder of Trust Securities, or (ii) to modify, eliminate or add
41
<PAGE>
to any provisions of the Trust Agreement to such extent as may be necessary to
ensure that the Issuer Trust will not be taxable as a corporation for United
States federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Issuer Trust will not be required to register
as an "investment company" under the Investment Company Act, and any such
amendments of the Trust Agreement will become effective when notice of such
amendment is given to the holders of Trust Securities. The Trust Agreement may
be amended by the holders of a majority of the Common Securities and the
Property Trustee with (i) the consent of holders representing not less than a
majority in aggregate Liquidation Amount of the outstanding Preferred Securities
and (ii) receipt by the Issuer Trustees of an opinion of counsel to the effect
that such amendment or the exercise of any power granted to the Issuer Trustees
in accordance with such amendment will not affect the Issuer Trust's not being
taxable as a corporation for United States federal income tax purposes or the
Issuer Trust's exemption from status as an "investment company" under the
Investment Company Act, except that, without the consent of each holder of Trust
Securities affected thereby, the Trust Agreement may not be amended to (i)
change the amount or timing of any Distribution on the Trust Securities or
otherwise adversely affect the amount of any Distribution required to be made in
respect of the Trust Securities as of a specified date or (ii) restrict the
right of a holder of Trust Securities to institute suit for the enforcement of
any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer
Trust, the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without the prior consent of each holder
of the Preferred Securities. The Property Trustee may not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee will notify each holder of Preferred Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, before taking any of the foregoing actions, the Property Trustee
will obtain an opinion of counsel experienced in such matters to the effect that
the Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given
at a meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be given to each registered holder of Preferred Securities in the manner set
forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be
required to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
42
<PAGE>
Notwithstanding that holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Issuer Trustees or any
affiliate of the Company or any Issuer Trustees, will, for purposes of such vote
or consent, be treated as if they were not outstanding.
Expenses and Taxes
In the Junior Subordinated Indenture, the Company, as borrower, has
agreed to pay all debts and other obligations (other than with respect to the
Preferred Securities) and all costs and expenses of the Issuer Trust (including
costs and expenses relating to the organization of the Issuer Trust, the fees
and expenses of the Issuer Trustees and the costs and expenses relating to the
operation of the Issuer Trust) and to pay any and all taxes and all costs and
expenses with respect thereto (other than United States withholding taxes) to
which the Issuer Trust might become subject. The foregoing obligations of the
Company under the Junior Subordinated Indenture are for the benefit of, and
shall be enforceable by, any person to whom any such debts, obligations, costs,
expenses and taxes are owed (a "Creditor") whether or not such Creditor has
received notice thereof. Any such Creditor may enforce such obligations of the
Company directly against the Company, and the Company has irrevocably waived any
right or remedy to require that any such Creditor take any action against the
Issuer Trust or any other person before proceeding against the Company. The
Company has also agreed in the Junior Subordinated Indenture to execute such
additional agreements as may be necessary or desirable to give full effect to
the foregoing.
Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more
fully registered global securities which will be deposited with, or on behalf
of, DTC and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole or in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited
to persons that have accounts with DTC or its nominee ("Participants") or
persons that may hold interests through Participants. The Company expects that,
upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of Participants)
and on the records of Participants (with respect to interests of Persons held
through Participants). Beneficial owners will not receive written confirmation
from DTC of their purchase, but are expected to receive written confirmations
from the Participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests will be accomplished by entries on
the books of Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Trust Agreement. Except as provided below, owners of
beneficial interests in a global security will not be entitled to receive
physical delivery of the Preferred Securities in definitive form and will not be
considered the owners or holders thereof under the Trust Agreement. Accordingly,
each person owning a beneficial interest in such a global
43
<PAGE>
security must rely on the procedures of DTC and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise any rights of a holder of Preferred Securities under
the Trust Agreement. The Company understands that, under DTC's existing
practices, in the event that the Company requests any action of holders, or an
owner of a beneficial interest in such a global security desires to take any
action which a holder is entitled to take under the Trust Agreement, DTC would
authorize the Participants holding the relevant beneficial interests to take
such action, and such Participants would authorize beneficial owners owning
through such Participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them. Redemption notices will
also be sent to DTC. If less than all of the Preferred Securities are being
redeemed, the Company understands that it is DTC's existing practice to
determine by lot the amount of the interest of each Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Issuer Trustees, the Administrators, any Paying Agent
or any other agent of the Company or the Issuer Trustees will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Company, the Issuer
Trustees, the Paying Agent or any other agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depository
with respect to the Preferred Securities at any time by giving reasonable notice
to the Company or the Issuer Trustees. If DTC notifies the Company that it is
unwilling to continue as such, or if it is unable to continue or ceases to be a
clearing agency registered under the Exchange Act and a successor depository is
not appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the FRB, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book entry changes to
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers (such as
the Underwriters), banks, trust companies and clearing corporations and may
include certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with a
Participant, either directly or indirectly.
44
<PAGE>
Same-Day Settlement and Payment
Settlement for the Preferred Securities will be made by the
Underwriters in immediately available funds.
Secondary trading in preferred securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The paying
agent (the "Paying Agent") will initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrators. The Paying Agent will be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Administrators. If
the Property Trustee is no longer the Paying Agent, the Property Trustee will
appoint a successor (which must be a bank or trust company reasonably acceptable
to the Administrators) to act as Paying Agent.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected
without charge by or on behalf of the Issuer Trust, but upon payment of any tax
or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer Trust will not be required to register or cause
to be registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, after such Event of Default,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
45
<PAGE>
Miscellaneous
The Administrators and the Property Trustee are authorized and directed
to conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Issuer Trust may not borrow money, issue debt or mortgage or pledge
any of its assets.
Governing Law
The Trust Agreement will be governed by and construed in accordance
with the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture between the Company and the Debenture Trustee (the
"Junior Subordinated Indenture"), pursuant to which Bankers Trust Company is
acting as Debenture Trustee. This summary of certain terms and provisions of the
Junior Subordinated Debentures and the Junior Subordinated Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Junior Subordinated Indenture, including
the definitions therein of certain terms. Whenever particular defined terms of
the Junior Subordinated Indenture (as amended or supplemented from time to time)
are referred to herein, such defined terms are incorporated herein by reference.
A copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
General
Concurrently with the issuance of the Preferred Securities, the Issuer
Trust will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from October 30, 1998, at the annual rate of 8.875% of the principal
amount thereof, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year (each, an "Interest Payment Date"), commencing
December 31, 1998, to the person in whose name each Junior Subordinated
Debenture is registered at the close of business on the 15th day of March, June,
September or December (whether or not a Business Day) next preceding such
Interest Payment Date. It is anticipated that, until the liquidation, if any, of
the Issuer Trust, each Junior Subordinated Debenture will be registered in the
name of the Issuer Trust and held by the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The amount of interest payable
for any period less than a full interest period will be computed on the basis of
a 360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of interest payable for any full interest
period will be computed by dividing the rate per annum by four. If any date on
which interest is payable on
46
<PAGE>
the Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable, except that, if such Business Day falls in the next calendar
year, such payment 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 thereof (to the extent permitted by law)
at the rate per annum of 8.875%, compounded quarterly and computed on the basis
of a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. The amount of additional interest payable for any
full interest period will be computed by dividing the rate per annum by four.
The term "interest" as used herein includes quarterly interest payments,
interest on quarterly interest payments not paid on the applicable Interest
Payment Date and Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on December 31, 2028,
subject to the Maturity Adjustment (such date, as it may be shortened by the
Maturity Adjustment is referred to herein as the Stated Maturity). The Maturity
Adjustment represents the right of the Company to shorten the maturity date once
at any time to any date not earlier than December 31, 2003, subject to the
Company having received prior approval of the FRB if then required under
applicable capital guidelines or policies of the FRB. In the event the Company
elects to shorten the Stated Maturity of the Junior Subordinated Debentures, it
will give notice to the registered holders of the Junior Subordinated
Debentures, the Debenture Trustee and the Issuer Trust of such shortening no
less than 90 days prior to the effectiveness thereof. The Property Trustee must
give notice to the holders of the Trust Securities of the shortening of the
Stated Maturity at least 30 but not more than 60 days before such date.
The Junior Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Indebtedness of the
Company and pari passu with the Company's obligations associated with the
Outstanding Capital Securities. The Junior Subordinated Debentures will not be
subject to a sinking fund. The Junior Subordinated Indenture does not limit the
incurrence or issuance of other secured or unsecured debt by the Company,
including Senior Indebtedness, whether under the Junior Subordinated Indenture
or any existing or other indenture that the Company may enter into in the future
or otherwise. See "-- Subordination."
Option to Extend Interest Payment Period
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. During any
such Extension Period the Company shall have the right to make partial payments
of interest on any interest payment date. At the end of such Extension Period,
the Company must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of 8.875%, compounded quarterly and computed
on the basis of a 360-day year of twelve 30-day months and the actual days
elapsed in a partial month in such period, to the extent permitted by applicable
law). The amount of additional interest payable for any full interest period
will be computed by dividing the rate per annum by four. During an Extension
Period, interest will continue to accrue and holders of Junior Subordinated
Debentures (or holders of Preferred Securities while outstanding) will be
required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount."
47
<PAGE>
During any such Extension Period, the Company may not (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures,
including the Company's obligations associated with the Outstanding Preferred
Securities (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of a reclassification or an exchange or conversion of any class or series
of the Company's capital stock (or any capital stock of a subsidiary of the
Company) for any class or series of the Company's capital stock or of any class
or series of the Company's indebtedness for any class or series of the Company's
capital stock, (c) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholders rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the above
conditions. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Trustees notice of its
election of such Extension Period at least one Business Day prior to the earlier
of (i) the date the Distributions on the Preferred Securities would have been
payable but for the election to begin such Extension Period and (ii) the date
the Property Trustee is required to give notice to holders of the Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The Property
Trustee will give notice of the Company's election to begin a new Extension
Period to the holders of the Preferred Securities. There is no limitation on the
number of times that the Company may elect to begin an Extension Period.
Redemption
The Junior Subordinated Debentures are redeemable prior to maturity at
the option of the Company (i) on or after December 31, 2003, in whole at any
time or in part from time to time, or (ii) in whole, but not in part, at any
time within 90 days following the occurrence and during the continuation of a
Tax Event, Investment Company Event or Capital Treatment Event (each as defined
under "Description of Preferred Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Preferred Securities.
The FRB's risk-based capital guidelines, which are subject to change,
currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the FRB before redeeming any
equity or capital
48
<PAGE>
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the FRB considers
the organization's capital position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company
prior to their Stated Maturity would constitute the redemption of capital
instruments under the FRB's current risk-based capital guidelines and may be
subject to the prior approval of the FRB. The redemption of the Junior
Subordinated Debentures also could be subject to the additional prior approval
of the FRB under its current risk-based capital guidelines.
The redemption price for Junior Subordinated Debentures is the
outstanding principal amount of the Junior Subordinated Debentures plus accrued
interest (including any Additional Interest or any Additional Sums) thereon to
but excluding the date fixed for redemption.
Additional Sums
The Company has covenanted in the Junior Subordinated Indenture that,
if and for so long as (i) the Issuer Trust is the holder of all Junior
Subordinated Debentures and (ii) the Issuer Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay as additional sums on the Junior Subordinated
Debentures such amounts as may be required so that the Distributions payable by
the Issuer Trust will not be reduced as a result of any such additional taxes,
duties or other governmental charges. See "Description of Preferred Securities
- -- Redemption."
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the
name of the Issuer Trust. If the Junior Subordinated Debentures are distributed
to holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
Preferred Securities -- Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in New York, New
York or at the offices of any Paying Agent or transfer agent appointed by the
Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto. However,
a holder of $1 million or more in aggregate principal amount of Junior
Subordinated Debentures may receive payments of interest (other than interest
payable at the Stated
49
<PAGE>
Maturity) by wire transfer of immediately available funds upon written request
to the Debenture Trustee not later than 15 calendar days prior to the date on
which the interest is payable.
Junior Subordinated Debentures are issuable only in registered form
without coupons in integral multiples of $10. Junior Subordinated Debentures
will be exchangeable for other Junior Subordinated Debentures of like tenor, of
any authorized denominations, and of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as
provided above, and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Company
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with, or junior in interest to, the Junior Subordinated Debentures,
including the Company's obligations associated with the Outstanding Preferred
Securities (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any
50
<PAGE>
stockholder's rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock), if at
such time (i) there has occurred any event (a) of which the Company has actual
knowledge that with the giving of notice or the lapse of time, or both, would
constitute a Debenture Event of Default and (b) that the Company has not taken
reasonable steps to cure, (ii) if the Junior Subordinated Debentures are held by
the Issuer Trust, the Company is in default with respect to its payment of any
obligations under the Guarantee or (iii) the Company has given notice of its
election of an Extension Period as provided in the Junior Subordinated Indenture
and has not rescinded such notice, or such Extension Period, or any extension
thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
Modification of Junior Subordinated Indenture
From time to time, the Company and the Debenture Trustee may, without
the consent of any of the holders of the outstanding Junior Subordinated
Debentures, amend, waive or supplement the provisions of the Junior Subordinated
Indenture to: (1) evidence succession of another corporation or association to
the Company and the assumption by such person of the obligations of the Company
under the Junior Subordinated Debentures, (2) add further covenants,
restrictions or conditions for the protection of holders of the Junior
Subordinated Debentures, (3) cure ambiguities or correct the Junior Subordinated
Debentures in the case of defects or inconsistencies in the provisions thereof,
so long as any such cure or correction does not adversely affect the interest of
the holders of the Junior Subordinated Debentures in any material respect, (4)
change the terms of the Junior Subordinated Debentures to facilitate the
issuance of the Junior Subordinated Debentures in certificated or other
definitive form, (5) evidence or provide for the appointment of a successor
Debenture Trustee, or (6) qualify, or maintain the qualification of, the Junior
Subordinated Indentures under the Trust Indenture Act. The Junior Subordinated
Indenture contains provisions permitting the Company and the Debenture Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Junior Subordinated Debentures, to modify the Junior Subordinated
Indenture in a manner affecting the rights of the holders of the Junior
Subordinated Debentures, except that no such modification may, without the
consent of the holder of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated Maturity of the Junior Subordinated Debentures,
or reduce the principal amount thereof, the rate of interest thereon or any
premium payable upon the redemption thereof, or change the place of payment
where, or the currency in which, any such amount is payable or impair the right
to institute suit for the enforcement of any Junior Subordinated Debenture or
(ii) reduce the percentage of principal amount of Junior Subordinated
Debentures, the holders of which are required to consent to any such
modification of the Junior Subordinated Indenture. Furthermore, so long as any
of the Preferred Securities remain outstanding, no such modification may be made
that adversely affects the holders of such Preferred Securities in any material
respect, and no termination of the Junior Subordinated Indenture may occur, and
no waiver of any Debenture Event of Default or compliance with any covenant
under the Junior
51
<PAGE>
Subordinated Indenture may be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities unless and until the principal of (and premium,
if any, on) the Junior Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full and certain other conditions are
satisfied.
Debenture Events of Default
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated
Debentures when due and continuance of such default for a
period of 30 days (subject to the deferral of any due date in
the case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at the Stated
Maturity; or
(iii) failure to observe or perform certain other covenants
contained in the Junior Subordinated Indenture for 90 days
after written notice to the Company from the Debenture Trustee
or the holders of at least 25% in aggregate outstanding
principal amount of the outstanding Junior Subordinated
Debentures; or
(iv) the occurrence of the appointment of a receiver or other
similar official in any liquidation, insolvency or similar
proceeding with respect to the Company or all or substantially
all of its property; or a court or other governmental agency
shall enter a decree or order appointing a receiver or similar
official and such decree or order shall remain unstayed and
undischarged for a period of 60 days.
For purposes of the Trust Agreement and this Prospectus, each such
Event of Default under the Junior Subordinated Debenture is referred to as a
"Debenture Event of Default." As described in "Description of Preferred
Securities -- Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
52
<PAGE>
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture affected thereby. See "-- Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Preferred Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Preferred
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Preferred Securities by
the Company in connection with a Direct Action.
The holders of the Preferred Securities are not able to exercise directly
any remedies available to the holders of the Junior Subordinated Debentures
except under the circumstances described in the preceding paragraph. See
"Description of Preferred Securities -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures
provided, however, that nothing in the Junior Subordinated Indenture shall be
deemed to restrict or prohibit, and no supplemental indenture shall be required
in the case of the merger of a Principal Subsidiary Bank with and into a
Principal Subsidiary Bank or the Company, the consolidation of Principal
Subsidiary Banks into a Principal Subsidiary Bank or the Company, or the sale or
other disposition of all or substantially all of the assets of any Principal
Subsidiary Bank to another Principal Subsidiary Bank or the Company, if, in any
such case in which the surviving, resulting or acquiring entity is not the
Company, the Company would own, directly or indirectly, at least 80% of the
voting securities of the Principal Subsidiary Bank
53
<PAGE>
(and of any other Principal Subsidiary Bank any voting securities of which are
owned, directly or indirectly, by such Principal Subsidiary Bank) surviving such
merger, resulting from such consolidation or acquiring such assets; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
For purposes of clause (i) above, the term "Principal Subsidiary Bank"
means each of (a) Sun National Bank, (b) any other banking subsidiary of the
Company the consolidated assets of which constitute 20% or more of the
consolidated assets of the Company and its consolidated subsidiaries, (c) any
other banking subsidiary designated as a Principal Subsidiary Bank pursuant to a
Board Resolution and set forth in an Officers' Certificate delivered to the
Trustee, and (d) any subsidiary of the Company that owns, directly or
indirectly, any voting securities, or options, warrants or rights to subscribe
for or purchase voting securities, of any Principal Subsidiary Bank under clause
(a), (b) or (c), and in the case of clause (a), (b), (c) or (d) their respective
successors (whether by consolidation, merger, conversion, transfer of
substantially all their assets and business or otherwise) so long as any such
successor is a banking subsidiary (in the case of clause (a), (b) or (c)) or a
subsidiary (in the case of clause (d)) of the Company.
The provisions of the Junior Subordinated Indenture do not afford
holders of the Junior Subordinated Debentures protection in the event of a
highly leveraged or other transaction involving the Company that may adversely
affect holders of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Junior Subordinated Indenture provides that when, among other
things, all Junior Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation (i) have become due and payable, (ii) will
become due and payable at the Stated Maturity within one year, and the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if any)
and interest to the date of the deposit or to the Stated Maturity, as the case
may be, then the Junior Subordinated Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will be
deemed to have satisfied and discharged the Junior Subordinated Indenture.
Subordination
The Junior Subordinated Debentures will be subordinate and junior in
right of payment, to the extent set forth in the Junior Subordinated Indenture,
to all Senior Indebtedness (as defined below) of the Company and pari passu with
the Company's obligations associated with the Outstanding Preferred Securities.
If the Company defaults in the payment of any principal, premium, if any, or
interest, if any, or any other amount payable on any Senior Indebtedness when
the same becomes due and payable, whether at maturity or at a date fixed for
redemption or by declaration of acceleration or otherwise, then, unless and
until such default has been cured or waived or has ceased to exist or all Senior
Indebtedness has been paid, no direct or indirect payment (in cash, property,
securities, by set- off or otherwise) may be made or agreed to be made on the
Junior Subordinated Debentures, or in respect of any redemption, repayment,
retirement, purchase or other acquisition of any of the Junior Subordinated
Debentures.
54
<PAGE>
As used herein, "Senior Indebtedness" means, whether recourse is to all
or a portion of the assets of the Company and whether or not contingent, (i)
every obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person and all dividends of another person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise; provided
that Senior Indebtedness shall not include (i) any obligations which, by their
terms, are expressly stated to rank pari passu in right of payment with, or to
not be superior in right of payment to, the Junior Subordinated Debentures, (ii)
any Senior Indebtedness of the Company which when incurred and without respect
to any election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company, (iii) any indebtedness of
the Company to any of its subsidiaries, (iv) indebtedness to any executive
officer or director of the Company, or (v) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing entity of the Company in
connection with the issuance by such financing entity of securities that are
similar to the Preferred Securities, including the Outstanding Preferred
Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshaling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior
55
<PAGE>
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. By reason of such subordination, in the event of the
insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Information Concerning the Debenture Trustee
The Debenture Trustee, other than during the occurrence and continuance
of a default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to
time as trustee under other indentures or trust agreements with the Company or
its subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
Governing Law
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company
concurrently with the issuance of Preferred Securities by the Issuer Trust for
the benefit of the holders from time to time of the Preferred Securities.
Bankers Trust Company will act as Guarantee Trustee under the Guarantee. This
summary of certain provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all the
provisions of the Guarantee, including the definitions therein of certain terms.
A copy of the form of Guarantee is available upon request from the Guarantee
Trustee. The Guarantee Trustee will hold the Guarantee for the benefit of the
holders of the Preferred Securities.
General
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth in the Guarantee and described herein, the
Guarantee Payments (as defined below) to the holders of the Preferred
Securities, as and when due, regardless of any defense, right of set-off or
counterclaim that the Issuer Trust may have or assert other than the defense of
payment. The following payments with respect
56
<PAGE>
to the Preferred Securities, to the extent not paid by or on behalf of the
Issuer Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i)
any accrued and unpaid Distributions required to be paid on such Preferred
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, termination, winding up or liquidation of the Issuer
Trust (unless the Junior Subordinated Debentures are distributed to holders of
the Preferred Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment, to
the extent that the Issuer Trust has funds on hand available therefor at such
time, and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Company's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of the
Preferred Securities or by causing the Issuer Trust to pay such amounts to such
holders.
The Guarantee will be an irrevocable guarantee of payment on a
subordinated basis of the Issuer Trust's obligations under the Preferred
Securities, but will apply only to the extent that the Issuer Trust has funds
sufficient to make such payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
any amounts payable in respect of the Preferred Securities and will not have
funds legally available therefor. The Guarantee will rank subordinate and junior
in right of payment to all Senior Indebtedness of the Company. See "-- Status of
the Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Preferred Securities on a subordinated basis. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company and pari passu with the Company's obligations
associated with the Outstanding Preferred Securities in the same manner as the
Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
57
<PAGE>
Amendments and Assignment
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no
consent will be required), the Guarantee may not be amended without the prior
approval of the holders of not less than a majority of the aggregate Liquidation
Amount of the outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of Preferred Securities --
Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default with respect to the Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested in
it by the Guarantee at the request of any holder of the Preferred Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
as Guarantee Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Preferred Securities in exchange for all of the
Preferred Securities. The
58
<PAGE>
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Preferred Securities must restore payment
of any sums paid under the Preferred Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Issuer Trust has funds available for such payment)
are irrevocably guaranteed, on a subordinated basis, by the Company as and to
the extent set forth under "Description of Guarantee." Taken together, the
Company's obligations under the Junior Subordinated Debentures, the Junior
Subordinated Indenture, the Trust Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. If and to the extent that the Company does not make
payments on the Junior Subordinated Debentures, the Issuer Trust will not have
sufficient funds to pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of amounts payable with respect
to the Preferred Securities when the Issuer Trust does not have sufficient funds
to pay such amounts. In such event, the remedy of a holder of the Preferred
Securities is to institute a legal proceeding directly against the Company for
enforcement of payment of the Company's obligations under Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Preferred Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures
and the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness and rank pari passu with the Company's obligations associated with
the Outstanding Preferred Securities.
Sufficiency of Payments
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Preferred
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Preferred Securities;
(iii) the Company will pay for any and all costs, expenses and liabilities of
the Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
59
<PAGE>
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
Enforcement Rights of Holders of Preferred Securities
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the
Company would not constitute a default or Event of Default in respect of the
Preferred Securities. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Company, the subordination
provisions of the Junior Subordinated Indenture provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. See "Description of Junior Subordinated Debentures --
Subordination."
Limited Purpose of Issuer Trust
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and the Issuer Trust exists for the
sole purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of a Preferred Security and a holder
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company payments on Junior
Subordinated Debentures held, while a holder of Preferred Securities is entitled
to receive Distributions or other amounts distributable with respect to the
Preferred Securities from the Issuer Trust (or from the Company under the
Guarantee) only if and to the extent the Issuer Trust has funds available for
the payment of such Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the Issuer Trust,
other than any such dissolution involving the distribution of the Junior
Subordinated Debentures, after satisfaction of liabilities to creditors of the
Issuer Trust as required by applicable law, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Issuer Trust,
the Liquidation Distribution in cash. See "Description of Preferred Securities
- -- Liquidation Distribution Upon Dissolution." Upon any voluntary or involuntary
liquidation or bankruptcy of the Company, the Issuer Trust, as registered holder
of the Junior Subordinated Debentures, would be a subordinated creditor of the
Company, subordinated and junior in right of payment to all Senior Indebtedness
as set forth in the Junior Subordinated Indenture, but entitled to receive
payment in full of all amounts payable with respect to the Junior Subordinated
Debentures before any stockholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed under the Junior Subordinated Indenture to pay for all costs, expenses
and liabilities of the Issuer Trust (other than the Issuer Trust's obligations
to the holders of the Trust Securities), the positions of a holder of the
Preferred Securities and a holder of such Junior Subordinated Debentures
relative to other creditors and to stockholders of the Company in the event of
liquidation or bankruptcy of the Company are expected to be substantially the
same.
60
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
In the opinion of Malizia, Spidi, Sloane & Fisch, P.C., Washington,
D.C., in its capacity as special tax counsel to the Company ("Tax Counsel"), the
following discussion summarizes the material United States federal income tax
consequences of the purchase, ownership and disposition of the Preferred
Securities.
This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions of Tax Counsel
are not binding on the Internal Revenue Service (the "IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought from the IRS with respect to the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with the Preferred
Securities held as a capital asset by a holder who or which (i) purchased the
Preferred Securities upon original issuance at their original offering price and
(ii) is a US Holder (as defined below). This summary does not address all the
tax consequences that may be relevant to a US Holder, nor does it address the
tax consequences, except as stated below, to holders that are not US Holders
("Non-US Holders") or to holders that may be subject to special tax treatment
(such as banks, thrift institutions, real estate investment trusts, regulated
investment companies, insurance companies, brokers and dealers in securities or
currencies, certain securities traders, other financial institutions, tax-exempt
organizations, persons holding the Preferred Securities as a position in a
"straddle," or as part of a "synthetic security," "hedging," as part of a
"conversion" or other integrated investment, persons having a functional
currency other than the U.S. Dollar and certain United States expatriates).
Further, this summary does not address (a) the income tax consequences to
shareholders in, or partners or beneficiaries of, a holder of the Preferred
Securities, (b) the United States federal alternative minimum tax consequences
of the purchase, ownership or disposition of the Preferred Securities, or (c)
any state, local or foreign tax consequences of the purchase, ownership and
disposition of Preferred Securities.
A "US Holder" is a holder of the Preferred Securities who or which is
(i) a citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States persons have the authority to control all substantial
decisions of the trust.
HOLDERS 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 OR OTHER
TAX LAWS.
61
<PAGE>
US Holders
Characterization of the Issuer Trust. In connection with the issuance
of the Preferred Securities, Tax Counsel will render its opinion generally to
effect that, under then current law and based on the representations, facts and
assumptions set forth in this Prospectus, and assuming full compliance with the
terms of the Trust Agreement (and other relevant documents), and based on
certain assumptions and qualifications referenced in the opinion, the Issuer
Trust will be characterized for United States federal income tax purposes as a
grantor trust and will not be characterized as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of the Preferred Securities generally will be considered the owner of an
undivided interest in the Junior Subordinated Debentures owned by the Issuer
Trust, and each US Holder will be required to include all income or gain
recognized for United States federal income tax purposes with respect to its
allocable share of the Junior Subordinated Debentures on its own income tax
return.
Characterization of the Junior Subordinated Debentures. The Company
intends to take the position that, under current law, the Junior Subordinated
Debentures constitute indebtedness for United States federal income tax
purposes. The Company, the Issuer Trust and the holders of the Preferred
Securities (by acceptance of a beneficial interest in a Preferred Security)
agree to treat the Junior Subordinated Debentures as indebtedness of the Company
and the Preferred Securities as evidence of a beneficial ownership interest in
the Issuer Trust. No assurance can be given, however, that such position will
not be challenged by the IRS or, if challenged, that such a challenge will not
be successful. The remainder of this discussion assumes that the Junior
Subordinated Debentures will be classified as indebtedness of the Company for
United States federal income tax purposes.
Interest Income and Original Issue Discount. Under the terms of the
Junior Subordinated Debentures, the Company has the ability to defer payments of
interest from time to time by extending the interest payment period for a period
not exceeding 20 consecutive quarterly periods, but not beyond the maturity of
the Junior Subordinated Debentures. Treasury regulations under Section 1273 of
the Code provide that debt instruments like the Junior Subordinated Debentures
will not be considered issued with original issue discount ("OID") by reason of
the Company's ability to defer payments of interest if the likelihood of such
deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the
date of this Prospectus, the likelihood of deferring payments of interest under
the terms of the Junior Subordinated Debentures is "remote" within the meaning
of the applicable Treasury regulations, in part because exercising that option
would prevent the Company from declaring dividends on its stock and would
prevent the Company from making any payments with respect to debt securities
that rank pari passu with or junior to the Junior Subordinated Debentures.
Therefore, the Junior Subordinated Debentures should not be treated as issued
with OID by reason of the Company's deferral option. Rather, stated interest on
the Junior Subordinated Debentures will generally be taxable to a US Holder as
ordinary income when paid or accrued in accordance with that holder's method of
accounting for income tax purposes. It should be noted, however, that the
Treasury regulations under Section 1273 of the Code have not yet been
interpreted in any published rulings or any other published authorities of the
IRS. Accordingly, it is possible that the IRS could take a position contrary to
the interpretation described herein.
In the event the Company exercises its option to defer payments of
interest, the Junior Subordinated Debentures would be treated as redeemed and
reissued for OID purposes and the sum of the remaining interest payments (and
any de minimis OID) on the Junior Subordinated Debentures would thereafter be
treated as OID, which would accrue, and be includible in a US Holder's taxable
income, on an economic accrual basis (regardless of the US Holder's method of
accounting for income tax
62
<PAGE>
purposes) over the remaining term of the Junior Subordinated Debentures
(including any period of interest deferral), without regard to the timing of
payments under the Junior Subordinated Debentures. (Subsequent distributions of
interest on the Junior Subordinated Debentures generally would not be taxable.)
The amount of OID that would accrue in any period would generally equal the
amount of interest that accrued on the Junior Subordinated Debentures in that
period at the stated interest rate. Consequently, during any period of interest
deferral, US Holders will include OID in gross income in advance of the receipt
of cash, and a US Holder which disposes of a Preferred Security prior to the
record date for payment of distributions on the Junior Subordinated Debentures
following that period will be subject to income tax on OID accrued through the
date of disposition (and not previously included in income), but will not
receive cash from the Issuer Trust with respect to the OID.
If the possibility of the Company's exercise of its option to defer
payments of interest is not remote, the Junior Subordinated Debentures would be
treated as initially issued with OID in an amount equal to the aggregate stated
interest (plus any de minimis OID) over the term of the Junior Subordinated
Debentures. That OID would generally be includible in a US Holder's taxable
income, over the term of the Junior Subordinated Debentures, on an economic
accrual basis.
Characterization of Income. Because the income underlying the Preferred
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Preferred Securities.
Market Discount and Bond Premium. Under certain circumstances, Holders
of the Preferred Securities may be considered to have acquired their undivided
interests in the Junior Subordinated Debentures with market discount or
acquisition premium (as each phrase is defined for United States federal income
tax purposes).
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
the Issuer Trust. Under certain circumstances described herein (See "Description
of the Preferred Securities -- Liquidation Distribution Upon Dissolution"), the
Issuer Trust may distribute the Junior Subordinated Debentures to holders in
exchange for the Preferred Securities and in liquidation of the Issuer Trust.
Except as discussed below, such a distribution would not be a taxable event for
United States federal income tax purposes, and each US Holder would have an
aggregate adjusted basis in its Junior Subordinated Debentures for United States
federal income tax purposes equal to such holder's aggregate adjusted basis in
its Preferred Securities. For United States federal income tax purposes, a US
Holder's holding period in the Junior Subordinated Debentures received in such a
liquidation of the Issuer Trust would include the period during which the
Preferred Securities were held by the holder. If, however, the relevant event is
a Tax Event which results in the Issuer Trust being treated as an association
taxable as a corporation, the distribution would likely constitute a taxable
event to US Holders of the Preferred Securities for United States federal income
tax purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Such a redemption would be taxable for United States
federal income tax purposes, and a US Holder would recognize gain or loss as if
it had sold the Preferred Securities for cash. See "-- Sales of Preferred
Securities" below.
Sales of Preferred Securities. A US Holder that sells Preferred
Securities will recognize gain or loss equal to the difference between its
adjusted basis in the Preferred Securities and the amount realized on the sale
of such Preferred Securities. A US Holder's adjusted basis in the Preferred
Securities
63
<PAGE>
generally will be its initial purchase price, increased by OID previously
included (or currently includible) in such holder's gross income to the date of
disposition, and decreased by payments received on the Preferred Securities
(other than any interest received with respect to the period prior to the
effective date of the Company's first exercise of its option to defer payments
of interest). Any such gain or loss generally will be capital gain or loss, and
generally will be a long-term capital gain or loss if the Preferred Securities
have been held for more than one year prior to the date of disposition.
A holder who disposes of his Preferred Securities between record dates
for payments of distributions thereon will be required to include accrued but
unpaid interest (or OID) on the Junior Subordinated Debentures through the date
of disposition in its taxable income for United States federal income tax
purposes (notwithstanding that the holder may receive a separate payment from
the purchaser with respect to accrued interest), and to deduct that amount from
the sales proceeds received (including the separate payment, if any, with
respect to accrued interest) for the Preferred Securities (or as to OID only, to
add such amount to such holder's adjusted tax basis in its Preferred
Securities). To the extent the selling price is less than the holder's adjusted
tax basis (which will include accrued but unpaid OID, if any), 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.
Pending Tax Litigation Affecting the Preferred Securities
Recently, a taxpayer filed a petition in the United States Tax Court
contesting the IRS' disallowance of interest deductions that taxpayer claimed in
respect of securities issued in 1993 and 1994 that are, in some respects,
similar to the Preferred Securities. (Enron Corp. v. Commissioner, Docket No.
6149-98, filed April 1, 1998). It is possible that an adverse decision by the
Tax Court concerning the deductibility of such interest could give rise to a Tax
Event. Such a Tax Event would give the Company the right to redeem the Junior
Subordinated Debentures. See "Description of Junior Subordinated Debentures --
Redemption" and "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
Non-US Holders
The following discussion applies to a Non-US Holder.
Payments to a holder of a Preferred Security which is a Non-US Holder
will generally not be subject to withholding of income tax, provided that (a)
the beneficial owner of the Preferred Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Preferred Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Preferred Securities certifies to the Issuer Trust or
its agent, under penalties of perjury, that it is a Non-US Holder and provides
its name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Preferred
Security in such capacity, certifies to the Issuer Trust or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or by another Financial Institution between it and the
beneficial owner in the chain of ownership, and furnishes the Issuer Trust or
its agent with a copy thereof.
As discussed above, changes in the law affecting the income tax
consequences of the Junior Subordinated Debentures are possible, and could
adversely affect the ability of the Company to deduct interest payable on the
Junior Subordinated Debentures. Such changes could also cause the Junior
64
<PAGE>
Subordinated Debentures to be classified as equity (rather than indebtedness) of
the Company for United States federal income tax purposes and, thus, might cause
the income derived from the Junior Subordinated Debentures to be characterized
as dividends, generally subject to a 30% income tax (on a withholding basis)
when paid to a Non-US Holder, rather than as interest which, as discussed above,
is generally exempt from income tax in the hands of a Non-US Holder.
A Non-US Holder of a Preferred Security will generally not be subject
to withholding of income tax on any gain realized upon the sale or other
disposition of a Preferred Security.
A Non-US Holder which holds the Preferred Securities in connection with
the active conduct of a United States trade or business will be subject to
income tax on all income and gains recognized with respect to its proportionate
share of the Junior Subordinated Debentures.
Information Reporting
In general, information reporting requirements will apply to payments
made on, and proceeds from the sale of, the Preferred Securities held by a
noncorporate US Holder within the United States. In addition, payments made on,
and payments of the proceeds from the sale of, the Preferred Securities to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-United States status
or otherwise establishes an exemption from information reporting and backup
withholding. See "--Backup Withholding." Taxable income on the Preferred
Securities for a calendar year should be reported to US Holders on the
appropriate forms by the following January 31st.
Backup Withholding
Payments made on, and proceeds from the sale of, the Preferred
Securities may be subject to a "backup" withholding tax of 31% unless the holder
complies with certain identification or exemption requirements. Any amounts so
withheld will be allowed as a credit against the holder's income tax liability,
or refunded, provided the required information is provided to the IRS.
The preceding discussion is only a summary and does not address the
consequences to a particular holder of the purchase, ownership and disposition
of the Preferred Securities. Potential holders of the Preferred Securities are
urged to contact their own tax advisors to determine their particular tax
consequences.
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be
considered a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a "disqualified person"
within the meaning of Section 4975 of the Code with respect to many employee
benefit plans ("Plans") that are subject to ERISA. The purchase of the Preferred
Securities by a Plan that is subject to the fiduciary responsibility provisions
of ERISA or the prohibited transaction provisions of Section 4975(e)(1) of the
Code and with respect to which the Company, or any affiliate of the Company is a
service provider (or otherwise is a party in interest or a disqualified person)
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless the Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption. Any pension or other employee benefit
plan proposing to acquire any Preferred Securities should consult with its
counsel.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated October 26, 1998, among the Company, the Issuer
Trust and Advest, Inc. and Janney Montgomery Scott Inc., as representatives (the
"Representatives") of the Underwriters, the Issuer Trust has agreed to sell to
the Underwriters, and the Underwriters have severally agreed to purchase from
the Issuer Trust, the following respective aggregate Liquidation Amount of
Preferred Securities at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
Liquidation Amount of
---------------------
Underwriter: Preferred Securities
- ------------ --------------------
Advest, Inc............................. $14,160,000
Janney Montgomery Scott Inc............. 9,440,000
Robert W. Baird & Co. Incorporated...... 400,000
Everen Securities, Inc.................. 400,000
First Albany Corporation................ 400,000
Friedman, Billings, Ramsey & Co., Inc... 400,000
Stifel, Nicolaus & Company, Incorporated 400,000
Wheat First Union....................... 400,000
-----------
Total .................................. $26,000,000
==========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Preferred Securities offered hereby if any
of such Preferred Securities are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $0.20 per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per Preferred Security to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Underwriters. In addition, the Company has agreed to pay a financial advisory
fee to Advest, Inc. of $25,000 in connection with the Offering and $75,000 in
connection with the potential underwritten public offering of Common Shares
described in "Beneficial Acquisition" above.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of the Underwriting Agreement, to purchase up
to an additional $3,900,000 aggregate Liquidation Amount of the Preferred
Securities at the public offering price. To the extent that the Underwriters
exercise such option, the Company will be obligated, pursuant to the option, to
sell such Preferred Securities to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the Preferred Securities offered hereby. If purchased, the Underwriters
will offer such additional Preferred Securities on the same terms as those on
which the $26,000,000 aggregate Liquidation Amount of the Preferred Securities
are being offered.
In connection with this Offering, the Underwriters and any selling
group members and their respective affiliates may engage in transactions
effected in accordance with Rule 104 of the Securities and Exchange Commission's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the Preferred Securities. Such transactions may include
over-allotment transactions in
66
<PAGE>
which the Underwriters create a short position for their own account by selling
more Preferred Securities than they are committed to purchase from the Issuer
Trust. In such a case, to cover all or part of the short position, the
Underwriters may exercise the over-allotment option described above or may
purchase Preferred Securities in the open market following completion of the
initial offering of the Preferred Securities. The Underwriters also may engage
in stabilizing transactions in which they bid for, and purchase, shares of the
Preferred Securities at a level above that which might otherwise prevail in the
open market for the purpose of preventing or retarding a decline in the market
price of the Preferred Securities. The Underwriters also may reclaim any selling
concessions allowed to an Underwriter or dealer if the Underwriters repurchase
shares distributed by that Underwriter or dealer. Any of the foregoing
transactions may result in the maintenance of a price for the Preferred
Securities at a level above that which might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Preferred Securities.
The Underwriters are not required to engage in any of the foregoing transactions
and, if commenced, such transactions may be discontinued at any time without
notice.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriters' arranging the investment therein of such
proceeds an amount of $0.35 per Preferred Security (or $910,000 ($1,046,500 if
the over-allotment option is exercised in full) in the aggregate).
Because the National Association of Securities Dealers, Inc. ("NASD")
is expected to view the Preferred Securities as interests in a direct
participation program, this Offering is being made in compliance with the
applicable provisions of Rule 2810 of the NASD's Conduct Rules.
The Preferred Securities are a new issue of securities with no
established trading market. The Company and the Issuer Trust have been advised
by the Representatives that they intend to make a market in the Preferred
Securities. However, the Underwriters are not obligated to do so and such market
making may be interrupted or discontinued at any time without notice at the sole
discretion of each of the Underwriters. The Preferred Securities have been
approved for quotation on the Nasdaq National Market, but a requirement for
initial listing, and for continued listing, is the presence of three, and two,
market makers, respectively, for the Preferred Securities, and the presence of a
third market maker cannot be assured. Accordingly, no assurance can be given as
to the development or liquidity of any market for the Preferred Securities.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Representatives and certain of the other Underwriters have in the
past, and may in the future, perform various services for the Company, including
investment banking services, for which they have or may receive customary fees.
Advest, Inc. also served as managing underwriter in the Company's public
offerings of Common Shares and trust preferred securities in 1997, and advised
the Company in certain of its branch purchases. The Representatives are also
serving as underwriters of the potential underwritten public offering of Common
Shares described in "Beneficial Acquisition" above.
VALIDITY OF SECURITIES
The validity of the Guarantee and the Junior Subordinated Debentures
and certain tax matters will be passed upon for the Company by Malizia, Spidi,
Sloane & Fisch, P.C., Washington, D.C., special
67
<PAGE>
counsel to the Company, and certain legal matters will be passed upon for the
Underwriters by Arnold & Porter, Washington, D.C. and New York, New York.
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and the Issuer Trust. Malizia, Spidi, Sloane & Fisch,
P.C. and Arnold & Porter will rely as to certain matters of Delaware law on the
opinion of Richards, Layton & Finger.
EXPERTS
The consolidated financial statements incorporated in this Prospectus
by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
also may be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.
The Company has filed a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act in connection with the Offering. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement, including any
amendments, schedules and exhibits thereto, is available for inspection and
copying as set forth above. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein include all
material terms of such contracts or other documents but are not necessarily
complete, and in each instance reference is made to the copy of any such
contract or other document which may have been filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Common Shares are traded on the Nasdaq National Market under the
symbol "SNBC." Documents filed by the Company with the Commission also can be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
No separate financial statements of the Issuer Trust have been included
or incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"Sun Capital Trust II," "Description of Preferred Securities," "Description of
Junior Subordinated Debentures" and "Description of Guarantee." In addition, the
Company does not expect that the Issuer Trust will be filing reports under the
Exchange Act with the Commission.
68
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission are hereby incorporated into this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(b) The Company's Quarterly Reports on Form 10-Q for the quarter
ended March 31, 1998 and the quarter ended June 30, 1998;
and
(c) The Company's Current Reports on Form 8-K filed with the
Commission on July 27, 1998, March 6, 1998, and February 26,
1998.
In addition, all subsequent documents filed with the Commission by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing such documents.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference herein or therein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or therein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modified or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents (excluding exhibits
unless specifically incorporated therein) are available without charge upon
written or oral request from the Secretary, Sun Bancorp, Inc., 226 Landis
Avenue, Vineland, New Jersey 08360, telephone (609) 691-7700.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus (including information included or incorporated by
reference herein) contains or may contain forward-looking statements with
respect to the financial condition, results of operations, plans, objectives,
future performance and business of the Company, including statements preceded
by, followed by or that include the words, "believes," "expects," "anticipates"
or similar expressions. These forward-looking statements involve certain risks
and uncertainties and may relate to future operating results of the Company.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) expected cost savings from the acquisitions not
being fully realized or realized within the expected time frame; (2) earnings
following the acquisitions being lower than expected; (3) a significant increase
in competitive pressures among depository and other financial institutions; (4)
costs or difficulties related to the integration of the acquired business being
greater than expected; (5) changes in the interest rate environment resulting in
reduced margins; (6) general economic or business conditions, either nationally
or in the states in which the Company will be doing business, being less
favorable than expected, resulting in, among other things, a deterioration in
credit quality or a reduced demand for credit; (7) legislative or regulatory
changes adversely affecting the businesses in which the Company will be engaged;
(8) changes in the securities markets; and (9) changes in the banking industry
including the effects of consolidation resulting from possible mergers of
financial institutions.
69
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
======================================================== ===================================================
No person has been authorized in connection
with the offering made hereby to give any
information or to make any representation
not contained in this prospectus and, if given
or made, such information or representation
must not be relied upon as having been
authorized by the company or any
underwriter. This prospectus does not
constitute an offer to sell or a solicitation of
any offer to buy any of the securities offered
hereby to any person or by anyone in any $26,000,000
jurisdiction in which it is unlawful to make
such offer or solicitation. Neither the
delivery of this prospectus nor any sale made [LOGO]
hereunder shall, under any circumstances,
create any implication that the information
contained herein is correct as of any date SUN CAPITAL TRUST II
subsequent to the date hereof.
----------------- 8.875% Preferred Securities
(Liquidation Amount $10 per
TABLE OF CONTENTS Preferred Security)
guaranteed, as described herein, by
Page
----
Prospectus Summary.............................. 5
Selected Consolidated Financial Data............ 11 SUN BANCORP, INC.
Risk Factors.................................... 12
Management's Discussion and Analysis of
Financial Condition and Recent Results
of Operations of the Company.................. 22
Use of Proceeds................................. 25 ___________________
Beneficial Acquisition.......................... 25
Pro Forma Statements of Financial Condition..... 26 PROSPECTUS
Capitalization.................................. 29 ___________________
Sun Capital Trust II............................ 31
Accounting Treatment............................ 31
Description of Preferred Securities............. 32
Description of Junior Subordinated
Debentures.................................... 46 Advest, Inc.
Description of Guarantee........................ 56
Relationship Among the Preferred Janney Montgomery Scott Inc.
Securities, the Junior Subordinated
Debentures and the Guarantee.................. 59
Certain Federal Income Tax
Consequences.................................. 61
Certain ERISA Considerations.................... 65
Underwriting.................................... 66
Validity of Securities.......................... 67 October 26, 1998
Experts......................................... 68
Available Information........................... 68
Incorporation of Certain Documents by
Reference..................................... 69
Cautionary Statement Concerning
Forward-Looking Information................... 69
======================================================== ===================================================
</TABLE>
