$100,000,000
SOVEREIGN CAPITAL TRUST I
_________
OFFER TO EXCHANGE ITS
9.00% EXCHANGE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000
PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
FOR ANY AND
ALL OF ITS OUTSTANDING
9.00% ORIGINAL CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000
PER ORIGINAL CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
SOVEREIGN BANCORP, INC.
_______________________________
PROSPECTUS
_______________________________
October 16, 1997
PROSPECTUS
SOVEREIGN CAPITAL TRUST I
Offer to exchange its
9.00% Exchange Subordinated Capital Income Securities
(Liquidation Amount $1,000 per Exchange Capital Security)
Which Have Been Registered Under The Securities Act Of 1933
For Any And All Of Its Outstanding
9.00% Original Subordinated Capital Income Securities
(Liquidation Amount $1,000 per Original Capital Security)
fully and unconditionally guaranteed, as described herein, by
SOVEREIGN BANCORP, INC.
The Exchange Offer and Withdrawal Rights will
expire at 5:00 p.m., New York City time,
on November 25, 1997, unless extended
Sovereign Capital Trust I, a trust formed under the laws of the
state of Delaware (the "Trust"), hereby offers, upon the terms and
subject to the conditions set forth in this prospectus (as the same may
be amended or supplemented from time to time, the "Prospectus") and in
the accompanying letter of transmittal (which together constitute the
"Exchange Offer"), to exchange up to $100,000,000 aggregate liquidation
amount of its 9.00% Exchange Subordinated Capital Income Securities
(the "Exchange Capital Securities") which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a registration statement (as defined herein) of which this
Prospectus constitutes a part, for a like liquidation amount of its
outstanding 9.00% Subordinated Capital Income Securities (the "Original
Capital Securities"), of which $100,000,000 aggregate liquidation
amount is outstanding. Pursuant to the exchange offer, Sovereign
Bancorp, Inc., a Pennsylvania corporation (the "Corporation" or
"Sovereign"), is also offering to exchange (i) its guarantee of
payments of cash distributions and payments on liquidation of the trust
or redemption of the Original Capital Securities (the "Original
Guarantee") for a like guarantee in respect of the Exchange Capital
Securities (the "Exchange Guarantee") and (ii) $100,000,000 aggregate
principal amount of its 9.00% Junior Subordinated Deferrable Interest
Debentures due April 1, 2027 (the "Original Junior Subordinated
Debentures") for a like aggregate principal amount of its 9.00%
Exchange Junior Subordinated Deferrable Interest Debentures due
April 1, 2027 (the "Echange Junior Subordinated Debentures"), which
Exchange Guarantee and Exchange Junior Subordinated Debentures also
have been registered under the Securities Act. The Original Capital
Securities, the Original Guarantee and the Original Junior Subordinated
Debentures are collectively referred to herein as the "Original
Securities" and the Exchange Capital Securities, the Exchange Guarantee
and the Exchange Junior Subordinated Debentures are collectively
referred to herein as the "Exchange Securities."
The terms of the Exchange Securities are identical in all
material respects to the respective terms of the Original Securities,
except that (1) the Exchange Securities have been registered under the
securities act and therefore will not be subject to certain
restrictions on transfer applicable to the Original Securities, (2) the
Exchange Capital Securities will not provide for any increase in the
distribution rate thereon and (3) the Exchange Junior Subordinated
Debentures will not provide for any liquidated damages thereon. See
"Description of Exchange Securities" and "Description of Original
Securities." the Exchange Capital Securities are being offered for
exchange in order to satisfy certain obligations of the Corporation and
the Trust under the Registration Rights Agreement dated as of
March 24, 1997 (the "Registration Agreement") among the Corporation,
the Trust and the Initial Purchasers (as defined herein). In the event
that the Exchange Offer is consummated, any Original Capital Securities
which remain outstanding after consummation of the Exchange Offer and
the Exchange Capital Securities issued in the Exchange Offer will vote
together as a single class for purposes of determining whether holders
of the requisite percentage in outstanding liquidation amount thereof
have taken certain actions or exercised certain rights under the
declaration. (Continued on the following page)
This Prospectus and the Letter of Transmittal are first being
mailed to all holders of Original Capital Securities on October 24,
1997.
______________________
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER
ORIGINAL CAPITAL SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is October 16, 1997.
(Continued from the previous page)
The Exchange Capital Securities and the Original Capital
Securities (collectively, the "Capital Securities") represent
beneficial interests in the assets of the Trust. The Corporation is
the owner of all of the beneficial interests represented by common
securities of the Trust (the "Common Securities," and together with
the Capital Securities, the "Trust Securities"). The Bank of New
York is the Property Trustee of the Trust. The Trust exists for the
sole purpose of issuing the Trust Securities and investing the
proceeds thereof in the Junior Subordinated Debentures (as defined
herein). The Junior Subordinated Debentures mature on April 1, 2027
(the "Stated Maturity"). The Capital Securities will have a
preference over the Common Securities under certain circumstances
with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of Exchange
Securities--escription of Exchange Capital Securities--Subordination
of Common Securities."
As used herein, (i) the "Indenture" means the Indenture, dated
as of March 1, 1997, as amended and supplemented, between the
Corporation and The Bank of New York, as Debenture Trustee (the
"Debenture Trustee"), and (ii) the "Declaration" means the Amended
and Restated Declaration of Trust relating to the Trust among the
Corporation, as Sponsor, The Bank of New York as Property Trustee
(the "Property Trustee"), The Bank of New York (Delaware) as Delaware
Trustee (the "Delaware Trustee"), and the Administrative Trustees
named therein (collectively, with the Property Trustee and Delaware
Trustee, the "Issuer Trustees"). In addition, as the context may
require, (i) the term "Junior Subordinated Debentures" includes the
Original Junior Subordinated Debentures and the Exchange Junior
Subordinated Debentures and (ii) the term "Guarantee" includes the
Original Guarantee and the Exchange Guarantee.
Holders of the Trust Securities will be entitled to receive
cumulative cash distributions arising from the payment of interest on
the Junior Subordinated Debentures accruing from March 24, 1997 and
payable semi-annually in arrears on the 1st day of April and October
of each year, commencing October 1, 1997, at the annual rate of 9.00%
of the Liquidation Amount of $1,000 per Exchange Capital Security and
at the annual rate of 9.00% of the Liquidation Amount of $1,000 per
Common Security ("Distributions"). Subject to certain exceptions,
the Corporation has the right to defer payments of interest on the
Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods with respect
to each deferral period (each, an "Extension Period"); provided,
however, that no Extension Period may 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 rate of 9.00%,
compounded semi-annually, to the extent permitted by applicable law),
the Corporation may elect to begin a new Extension Period, subject to
the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, during any Extension
Period, Distributions on the Trust Securities will also be deferred
and the Corporation will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions
with respect to the Corporation s capital stock (which includes
common and preferred stock) or to make any payment with respect to
debt securities of the Corporation that rank pari passu in all
respects with or junior to the Junior Subordinated Debentures.
During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions
to which holders of the Trust Securities are entitled will
accumulate) at the rate of 9.00% per annum, compounded semi-annually,
and holders of Trust Securities will be required to accrue interest
income for United States federal income tax purposes. See
"Description of Exchange Securities Description of Exchange Junior
Subordinated Debentures Option to Extend Interest Payment Date" and
"Certain United States Federal Income Tax Consequences Interest
Income and Original Issue Discount."
The Corporation has, through the Guarantee, the Declaration,
the Junior Subordinated Debentures and the Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally
guaranteed, as described herein, all of the Trust s obligations under
the Capital Securities. See "Relationship Among the Exchange Capital
Securities, the Exchange Junior Subordinated Debentures and the
Exchange Guarantee Full and Unconditional Guarantee." Pursuant to the
Exchange Guarantee, the Corporation will guarantee the payment of
Distributions and payments on liquidation or redemption of the
Exchange Capital Securities, but only in each case to the extent of
funds held by the Trust, as described herein. See "Description of
Exchange Securities--Descripion of Exchange Guarantee." If the
Corporation does not make interest payments on the Junior
Subordinated Debentures held by the Trust, the Trust will have
insufficient funds to pay Distributions on the Capital Securities.
The Guarantee does not cover the payment of Distributions when the
Trust does not have sufficient funds to pay such Distributions. In
such event, a holder of Capital Securities may institute a legal
proceeding directly against the Corporation for enforcement of
payment to such holder of the principal of or interest on Junior
Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Capital Securities held by such
holder (a "Direct Action"). See "Description of Exchange
Securities--Description of Exchange Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Exchange
Capital Securities." The obligations of the Corporation under the
Guarantee and the Junior Subordinated Debentures are subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Exchange Securities--Description of Exchange Junior
Subordinated Debentures--Subordination") of the Corporation. In
addition, because the Corporation is a holding company, the Junior
Subordinated Debentures and the Guarantee are effectively
subordinated to all existing and future liabilities of the
Corporation s subsidiaries, including deposits.
The Trust Securities will be subject to mandatory redemption
(i) in whole, but not in part, at the Stated Maturity of the Junior
Subordinated Debentures upon the redemption thereof at a redemption
price equal to the principal amount of, plus accrued interest on, the
Junior Subordinated Debentures (the "Maturity Redemption Price"),
(ii) in whole, but not in part, at any time prior to April 1, 2007,
contemporaneously with the optional redemption of the Junior
Subordinated Debentures, upon the occurrence and continuation of a
Special Event (as defined herein) at a redemption price equal to the
Special Event Prepayment Price (as defined herein) (the "Special
Event Redemption Price"), and (iii) in whole or in part on or after
April 1, 2007 contemporaneously with any optional redemption by the
Corporation of Junior Subordinated Debentures at a redemption price
(the "Optional Redemption Price") equal to the Optional Prepayment
Price (as defined below). Any of the Maturity Redemption Price, the
Special Event Redemption Price or the Optional Redemption Price may
be referred to herein as the "Redemption Price." See "Description of
Exchange Securities--Description of Exchange Capital
Securities--Mandatory Redemption." Subject to the Corporation having
received any required regulatory approval to do so, the Junior
Subordinated Debentures are redeemable prior to the Stated Maturity
(i) at the option of the Corporation on or after April 1, 2007, in
whole or in part at any time at a redemption price (the "Optional
Prepayment Price") equal to 103.8750% of the principal amount thereof
on April 1, 2007 declining ratably on each April 1 thereafter to 100%
on or after April 1, 2017, plus accrued and unpaid interest thereon
to the date of redemption or (ii) at any time prior to April 1, 2007,
in whole but not in part, upon the occurrence and continuation of a
Special Event, at a redemption price (the "Special Event Prepayment
Price" equal to the greater of (a) 100% of the principal amount
thereof or (b) the sum, as determined by a Quotation Agent (as
defined herein), of the present values of the principal amount and
premium payable as part of the prepayment price with respect to an
optional redemption of such Junior Subordinated Debentures on
April 1, 2007, together with scheduled payments of interest accruing
from the redemption date to April 1, 2007, in each case, discounted
to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury
Rate (as defined herein), plus accrued but unpaid interest thereon to
the date of redemption. See "Description of Exchange
Securities--Description of Exchange Junior Subordinated
Debentures--Optional Redemption" and "--Special Event Prepayment."
The Corpration, as the holder of the outstanding Common
Securities, has the right at any time (including, without limitation,
upon the occurrence of a Tax Event (as defined herein)) to terminate
the Trust and cause a Like Amount (as defined herein) of the Junior
Subordinated Debentures to be distributed to the holders of the Trust
Securities upon liquidation of the Trust, subject to (i) the
Corporation having received an opinion of counsel to the effect that
such distribution will not be a taxable event to holders of Capital
Securities and (ii) any required regulatory approval. In the event
of such termination of the Trust, after satisfaction of liabilities
to creditors of the Trust as required by applicable law, the holders
of the Capital Securities generally will be entitled to receive a
Liquidation Amount of $1,000 per Capital Security plus accumulated
and unpaid Distributions thereon to the date of payment, which shall
be in the form of a distribution of a Like Amount of Junior
Subordinated Debentures, subject to certain exceptions. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Liquidation of the Trust and Distribution of Junior
Subordinated Debentures."
The Capital Securities, including the Exchange Capital
Securities when issued, may be transferred only in blocks having a
Liquidation Value of not less than $100,000 (100 Capital Securities)
The Trust is making the Exchange Offer of the Exchange Capital
Securities in reliance on the position of the staff of the Division
of Corporation Finance of the Securities and Exchange Commission (the
"Commission") as set forth in certain interpretive letters addressed
to third parties in other transactions. However, neither the
Corporation nor the Trust has sought its own interpretive letter and
there can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance
of the Commission, and subject to the two immediately following
sentences, the Corporation and the Trust believe that Exchange
Capital Securities issued pursuant to this Exchange Offer in exchange
for Original Capital Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is
a broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that
such Exchange Capital Securities are acquired in the ordinary course
of such holder s business and that such holder is not participating,
and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Capital Securities. However, any holder of
Original Capital Securities who is an "affiliate" of the Corporation
or the Trust or who intends to participate in the Exchange Offer for
the purpose of distributing Exchange Capital Securities, or any
broker-dealer who purchased Original Capital Securities from the
Trust to resell pursuant to Rule 144A under the Securities Act
("Rule 144A") or any other available exemption under the Securities
Act, (a) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted
or entitled to tender such Original Capital Securities in the
Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with any sale or other transfer of such Original Capital Securities
unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer
holds Original Capital Securities acquired for its own account as a
result of market-making or other trading activities and exchanges
such Original Capital Securities for Exchange Capital Securities,
then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of
such Exchange Capital Secuities.
Each holder of Original Capital Securities who wishes to
exchange Original Capital Securities for Exchange Capital Securities
in the Exchange Offer will be required to represent that (i) it is
not an "affiliate" of the Corporation or the Trust, (ii) any Exchange
Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Capital
Securities, and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities Act) of such
Exchange Capital Securities. In addition, the Corporation and the
Trust may require such holder, as a condition to such holder s
eligibility to participate in the Exchange Offer, to furnish to the
Corporation and the Trust (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) on behalf of whom such holder holds the Capital Securities
to be exchanged in the Exchange Offer. Each broker-dealer that
receives Exchange Capital Securities for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Original
Capital Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Capital Securities.
The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters
referred to above, the Corporation and the Trust believe that
broker-dealers who acquired Original Capital Securities for their own
accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their
prospectus delivery requirements with respect to the Exchange Capital
Securities received upon exchange of such Original Capital Securities
(other than Original Capital Securities which represent an unsold
allotment from the initial sale of the Original Capital Securities)
with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as
it contains a description of the plan of distribution with respect to
the resale of such Exchange Capital Securities. Each broker-dealer
that receives Exchange Capital Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Capital
Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an underwriter within the meaning
of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Capital Securities received in
exchange for Original Capital Securities acquired by such
broker-dealer as a result of market-making activities or other
trading activities. The Trust and the Corporation have agreed that,
ending on the close of business on the 180th day following the
Expiration Date (as described herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with
the resale of Exchange Capital Securities received in exchange for
Original Capital Securities pursuant to the Exchange Offer must
notify the Corporation or the Trust, or cause the Corporation or the
Trust to be notified, on or prior to the Expiration Date, that it is
a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Lette of Transmittal or may be
delivered to the Exchange Agent at one of the addresses set forth
herein under "The Exchange Offer Exchange Agent." Any Participating
Broker-Dealer who is an "affiliate" of the Corporation or the Trust
may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. See "The Exchange
Offer--Resales of Exchange Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders
Original Capital Securities pursuant to the Exchange Offer will be
deemed to have agreed, by execution of the Letter of Transmittal,
that upon receipt of notice from the Corporation or the Trust of the
occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in this Prospectus
untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of
the circumstances under which they were made, not misleading or of
the occurrence of certain other events specified in the Registration
Agreement, such Participating Broker-Dealer will suspend the sale of
Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Corporation or the Trust has amended or
supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to
such Participating Broker-Dealer, or the Corporation or the Trust has
given notice that the sale of the Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be. If the Corporation
or the Trust gives such notice to suspend the sale of the Exchange
Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable), it shall extend the 180-day
period referred to above during which Participating Broker-Dealers
are entitled to use this Prospectus in connection with the resale of
Exchange Capital Securities by the number of days during the period
from and including the date of the giving of such notice to and
including the date when Participating Broker-Dealers shall have
received copies of the amended or supplemented Prospectus necessary
to permit resales of theExchange Capital Securities or to and
including the date on which the Corporation or the Trust has given
notice that the sale of Exchange Capital Securities (or the Exchange
Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited
secondary market and no public market for the Original Capital
Securities. The Exchange Capital Securities will be a new issue of
securities for which there currently is no market. Although the
Initial Purchasers have informed the Corporation and the Trust that
they each currently intend to make a market in the Exchange Capital
Securities, they are not obligated to do so, and any such market
making may be discontinued at any time without notice. Accordingly,
there can be no assurance as to the development or liquidity of any
market for the Exchange Capital Securities. The Corporation and the
Trust currently do not intend to apply for listing of the Exchange
Capital Securities on any securities exchange or for quotation
through the National Association of Securities Dealers Automated
Quotation System.
Any Original Capital Securities not tendered and accepted in
the Exchange Offer will remain outstanding and will be entitled to
all the same rights and will be subject to the same limitations
applicable thereto under the Declaration (except for those rights
which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Original Capital
Securities will continue to be subject to all of the existing
restrictions upon transfer thereof, and neither the Corporation nor
the Trust will have any further obligation to such holdes (other than
under certain limited circumstances) to provide for registration
under the Securities Act of the Original Capital Securities held by
them. To the extent that Original Capital Securities are tendered
and accepted in the Exchange Offer, a holder s ability to sell
untendered Original Capital Securities could be adversely affected.
See "Risk Factors--Consequences of a Failure to Exchange Original
Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES ARE
URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL
CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR ORIGINAL CAPITAL
SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Original Capital Securities may be tendered for exchange on or
prior to 5:00 p.m., New York City time, on November 25, 1997 (such
time on such date being hereinafter called the "Expiration Date"),
unless the Exchange Offer is extended by the Corporation or the Trust
(in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended). Tenders of
Original Capital Securities may be withdrawn at any time on or prior
to the Expiration Date. The Exchange Offer is not conditioned upon
any minimum Liquidation Amount of Original Capital Securities being
tendered for exchange. However, the Exchange Offer is subject to
certain events and conditions which may be waived by the Corporation
or the Trust and to the terms and provisions of the Registration
Agreement. Original Capital Securities may be tendered in whole or
in part having an aggregate Liquidation Amount of not less than
$100,000 (100 Capital Securities) or any integral multiple of $1,000
Liquidation Amount (one Capital Security) in excess thereof. The
Corporation, as Issuer of the Junior Subordinated Debentures, has
agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer--Fees and Expenses." Holders of the Original Capital
Securities whose Original Capital Securities are accepted for
exchange will not receive Distributions on such Original Capital
Securities and will be deemed to have waived the right to receive any
Distributions on such Original Capital Securities accumulated from
and after October 1, 1997. See "The Exchange Offer Distributions on
Exchange Capital Securities."
Neither the Corporation nor the Trust will receive any cash
proceeds from the issuance of the Exchange Capital Securities offered
hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THIS EXCHANGE OFFER AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE CORPORATION OR THE TRUST. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
Page
Availale Information 7
Incorporation of Certain Documents by Reference 8
Summary 9
Risk Factors 15
Ratios of Earnings to Fixed Charges 20
Sovereign Capital Trust I 21
Sovereign 22
Selected Historical Financial Information 23
Capitalization 25
Accounting Treatment 25
The Exchange Offer 26
Description of Exchange Securities 35
Description of Original Securities 57
Relationship Among the Exchange Capital Securities, the
Exchange Junior Subordinated Debentures and the
Exchange Guarantee 58
Certain United States Federal Income Tax Consequences 59
ERISA Considerations 63
Plan of Distribution 63
Validity of Exchange Securities 64
Experts 64
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith, files reports, proxy statements and
other information with the 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 information may also be
accessed electronically by means of the Commission s home page on the
Internet (http://www.sec.gov.). The Corporation s common stock is
traded on the NASDAQ National Market. Such reports, proxy statements
and other information concerning the Corporation 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 Trust have been
included herein. The Corporation and the Trust do not consider that
such financial statements would be material to holders of the Capital
Securities because the 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 "Sovereign Capital Trust I" and
"Description of Exchange Securities." In addition, the Corporation
does not expect that the Trust will file reports under the Exchange
Act with the Commission.
This Prospectus constitutes a part of a registration statement
on Form S-4 (the "Registration Statement") filed by the Corporation
and the Trust with the Commission under the Securities Act. This
Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the
Corporation, the Trust and the Exchange Securities. Any statements
contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the
Comission are incorporated into this Prospectus by reference:
1. The Corporation s Annual Report on Form 10-K for the year ended
December 31, 1996 (as amended on July 10, 1997);
2. The Corporation s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (as amended on July 10, 1997);
3. The Corporation s Current Reports on Form 8-K dated February 5,
1997, February 6, 1997, February 13, 1997, March 18, 1997, June 17,
1997, and September 12, 1997.
Each document or report subsequently filed by the Corporation
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date hereof and prior to the termination of the offering of
the Exchange Securities offered hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any
statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference
herein modifies 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.
As used herein, the terms "Prospectus" and "herein" mean this
Prospectus including the documents incorporated or deemed to be
incorporated herein by reference, as the same may be amended,
supplemented or otherwise modified from time to time. Statements
contained in this Prospectus as to the contents of any contract or
other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract
or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other
document. The Corporation will provide without charge to any person
to whom this Prospectus is delivered, on the written or oral request
of such person, a copy of any or all of the foregoing documents
incorporated by reference herein (other than exhibits not
specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to:
Sovereign Bancorp, Inc., 1130 Berkshire Boulevard, Wyomissing,
Pennsylvania 19610, Attention: Linda Hagginbothom. Telephone
requests may be directed to Ms. Hagginbothom at (610) 320-8498.
SUMMARY
The following is a summary of certain information contained
elsewhere in this Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information and
financial statements, including the notes thereto, contained
elsewhere in this Prospectus and in documents incorporated by
reference hereto.
SOVEREIGN CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware
law pursuant to (i) the Declaration and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on
March 11, 1997. The Trust s business and affairs are conducted by
the Issuer Trustees: The Bank of New York, as Property Trustee, The
Bank of New York (Delaware), as Delaware Trustee, and four individual
Administrative Trustees who are employees or officers of or
affiliated with the Corpration. The 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 issued by the Corporation and
(iii) engaging in only those other activities necessary, advisable or
incidental thereto (such as registering the transfer of the Capital
Securities). The Junior Subordinated Debentures will be the sole
assets of the Trust, and payments under the Junior Subordinated
Debentures will be the sole revenues of the Trust. All of the Common
Securities will be owned directly or indirectly by the Corporation.
SOVEREIGN BANCORP, INC.
General
The Corporation is the holding company for Sovereign Bank, a
federal savings bank (the "Bank"). At March 31, 1997, the
Corporation and its subsidiaries had total consolidated assets,
deposits and shareholders equity of approximately $10.3 billion,
$5.7 billion and $510 million, respectively. The primary operating
entity of the Corporation is Sovereign Bank. Sovereign Bank s
primary business consists of attracting deposits from its network of
134 community banking offices, and originating residential mortgage
loans and home equity lines of credit in the communities served by
those offices. Those offices are located largely in the Pennsylvania
counties of Berks, Lancaster, Bucks, Montgomery, Philadelphia, Lehigh
and Northampton, the New Jersey counties of Essex, Mercer, Morris,
Ocean, Monmouth, Sussex and Union, and New Castle County in Delaware.
The principal executive offices of the Corporation are located
at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610, and its
telephone number is (610) 320-8400.
Acquisitions
The Corporation completed its acquisition of Bankers Corp.
("Bankers"), a New Jersey corporation and the holding company for
Bankers Savings, a New Jersey savings bank ("Bankers Savings") on
August 29, 1997. On that date, Bankers merged with and into the
Corporation, with the Corporation surviving the merger, and Bankers
Savings merged with and into the Bank. On the effective date of the
merger, each outstanding share of Bankers common stock was
automatically converted into 1.854 shares of common stock of the
Corporation. The merger was treated as a pooling of interest for
financial accounting purposes.
On June 30, 1997, Bankers had total unaudited consolidated assets,
deposits, and stockholders equity of approximately $2.6 billion,
$1.7 billion, and $204 million, respectively. Bankers Savings
operated 15 branches located in Middlesex, Monmouth and Ocean
Counties, New Jersey. In connection with the transaction, the
Corporation recorded a one-time merger related charge of $19.6
million, after-tax, in the third quarter of 1997.
On September 19, 1997, the Bank completed the acquisition of certain
assets of the former Automobile Finance Division (the "Division") of
Fleet Financial Group, Inc. These assets consist principally of
approximately $1.7 billion of indirect auto loans, dealer floor plan
loans, and loans to automobile leasing companies. The Division has
business relationships with over 2,000 automotive dealerships and
serves approximately 225,000 customers throughout New Jersey, New
York, and several New England states.
The transaction was treated as a purchase for financial accounting
purposes.
The Corporation is a legal entity separate and distinct from
its subsidiaries. The ability of holders of debt and equity
securities of the Corporation to benefit from the distribution of
assets of any subsidiary upon the liquidation or reorganization of
such subsidiary is subordinate to prior claims of creditors of the
subsidiary (including depositors in the case of banking subsidiaries)
except to the extent that a claim of the Corporation as a creditor
may be recognized.
In addition, there are regulatory limitations on the payment of
dividends directly or indirectly to the Corporation from its existing
banking subsidiaries. Under applicable banking statutes, at
March 31, 1997, the Corporation s banking subsidiaries could have
declared additional dividends of approximately $113 million.
However, Federal and state regulatory agencies also have the
authority to limit further the Corporation s banking subsidiaries
payment of dividends based on other factors, such as the maintenance
of adequate capital for such subsidiary bank, which could reduce the
amount of dividends otherwise payable.
THE EXCHANGE OFFER
The Exchange Offer Up to $100,000,000 aggregate Liquidation Amount of
Exchange
Capital
Securities are being offered in exchange for a like aggregate
Liquidation Amount of Original Capital Securities. Original Capital
Securities may be tendered for exchange in whole or in part in a
Liquidation Amount of $100,000 (100 Capital Securities) or any
integral multiple of $1,000 (one Capital Security) in excess thereof.
The Corporation and the Trust are making the Exchange Offer in order
to satisfy their obligations under the Registration Agreement
relating to the Original Capital Securities. For a description of
the procedures for tendering Original Capital Securities, see "The
Exchange Offer--Procedures for Tendering Original Capital
Securities."
Expiration Date 5:00 p.m., New York City time, on November 25, 1997,
unless
the Exchange Offer is extended by the Corporation or the Trust (in
which case the Expiration Date will be the latest date and time to
which the Exchange Offer is extended). See "The Exchange Offer Terms
of the Exchange Offer."
Conditions to the Exchange Offer The Exchange Offer is subject to certain
conditions, which
may be waived by the Corporation and the Trust in their sole
discretion. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Original Capital Securities being tendered.
See "The Exchange Offer--Conditions to the Exchange Offer."
Terms of the Exchange Offer
The Corporation and the Trust reserve the right in their
sole and absolute discretion, subject to applicable law, at any time
and from time to time, (i) to delay the acceptance of the Original
Capital Securities for exchange, (ii) to terminate the Exchange Offer
if certain specified conditions have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer and retain all
Original Capital Securities tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Original Capital
Securities to withdraw their tendered Original Capital Securities, or
(iv) to waive any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange Offer Terms of the
Exchange Offer."
Withdrawal Rights
Tenders of Original Capital Securities may be withdrawn at
any time on or prior to the Expiration Date by delivering a written
notice of such withdrawal to the Exchange Agent in conformity with
certain procedures set forth below under "The Exchange
Offer Withdrawal Rights."
Procedures for Tendering Original Capital Securities Tendering holders of
Original Capital Securities must
complete and sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same by mail,
facsimile or hand delivery, together with any other required
documents, to the Exchange Agent, either with the Original Capital
Securities to be tendered or in compliance with the specified
procedures for guaranteed delivery of Original Capital Securities.
Certain brokers, dealers, commercial banks, trust companies and other
nominees may also effect tenders by book-entry transfer. Holders of
Original Capital Securities registered in the name of a broker,
dealer, commercial bank, trust company or other nominee are urged to
contact such person promptly if they wish to tender Original Capital
Securities pursuant to the Exchange Offer. See "The Exchange Offer
Procedures for Tendering Original Capital Securities."
Letters of Transmittal and certificates representing Original Capital
Securities should not be sent to the Corporation or the Trust. Such
documents should only be sent to the Exchange Agent.
Resales of Exchange Capital Securities The Corporation and the Trust are
making the Exchange Offer
in reliance on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in certain
interpretive letters addressed to third parties in other
transactions. However, neither the Corporation nor the Trust has
sought its own interpretive letter and there can be no assurance that
the staff of the Division of Corporation Finance of the Commission
would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on
these interpretations by the staff of the Division of Corporation
Finance of the Commission, and subject to the two immediately
following sentences, the Corporation and the Trust believe that
Exchange Capital Securities issued pursuant to this Exchange Offer in
exchange for Original Capital Securities may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities
Act, provided that such Exchange Capital Securities are acquired in
the ordinary course of such holder s business and that such holder is
not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the
Securities Act) of such Exchange Capital Securities. However, any
holder of Original Capital Securities who is an "affiliate" of the
Corporation or the Trust or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Capital
Seurities, or any broker-dealer who purchased the Original Capital
Securities from the Trust to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (a) will not be
able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Original Capital Securities in the Exchange
Offer and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
sale or other transfer of such Original Capital Securities unless
such sale is made pursuant to an exemption from such requirements.
In addition, as described below, if any broker-dealer holds Original
Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Original
Capital Securities for Exchange Capital Securities, then such
broker-dealer must deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales of such Exchange
Capital Securities.
Each holder of Original Capital Securities who wishes to exchange
Original Capital Securities for Exchange Capital Securities in the
Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Corporation or the Trust, (ii) any Exchange
Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Capital
Securities, and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities Act) of such
Exchange Capital Securities. Each broker-dealer that receives
Exchange Capital Securities for its own account in exchange for
Original Capital Securities, where such Original Capital Securities
were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Capital Securities.
The Letter of Transmittal states that, by so acknowledging and by
delivering such a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive
letters referred to above, the Corporation and the Trust believe that
Participating Broker-Dealers who acquired Original Capital Securities
for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery
requirements with respect to the Exchange Capital Securities received
upon exchange of such Original Capital Securities (other than
Original Capital Securities which represent an unsold allotment from
the initial sale of the Original Capital Securities) with a
prospectus meeting the requirements of the Securities Act, which may
be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to
the resale of such Exchange Capital Securities. Accordingly, this
Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with
resales of Exchange Capital Securities received in exchange for
Original Capital Securities where such Original Capital Securities
were acquired by such Participating Broker-Dealer for its own account
as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Agreement and to the
limitations described below under "The Exchange Offer Resales of
Exchange Capital Securities," the Corporation and the Trust have
agreed that this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such Exchange Capital ecurities for a
period ending 180 days after the Expiration Date (subject to
extension under certain limited circumstances) or, if earlier, when
all such Exchange Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Corporation
or the Trust may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. See
"The Exchange Offer Resales of Exchange Capital Securities."
Exchange Agent The exchange agent with respect to the Exchange Offer is
The Bank of New York (the "Exchange Agent"). The addresses, and
telephone and facsimile numbers, of the Exchange Agent are set forth
in "The Exchange Offer Exchange Agent" and in the Letter of
Transmittal.
Use of Proceeds
Neither the Corporation nor the Trust will receive any cash
proceeds from the issuance of the Exchange Capital Securities offered
hereby.
Certain United States Federal Income Tax Consequences; ERISA
Considerations Holders of Original Capital Securities should review the
information set forth under "Certain United States Federal Income Tax
Consequences" and "ERISA Considerations" prior to tendering Original
Capital Securities in the Exchange Offer.
THE EXCHANGE CAPITAL SECURITIES
Securities Offered Up to $100,000,000 aggregate Liquidation Amount of the
Trust s Exchange Capital Securities have been registered under the
Securities Act (Liquidation Amount $1,000 per Exchange Capital
Security). The Exchange Capital Securities will be issued and the
Original Capital Securities were issued under the Declaration. The
Exchange Capital Securities and any Original Capital Securities which
remain outstanding after consummation of the Exchange Offer will vote
together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised certain rights under
the Declaration. See "Description of Exchange Securities Description
of Exchange Capital Securities Voting Rights; Amendment of the
Declaration." The terms of the Exchange Capital Securities are
identical in all material respects to the terms of the Original
Capital Securities, except that the Exchange Capital Securities have
been registered under the Securities Act, will not be subject to
certain restrictions on transfer applicable to the Original Capital
Securities and will not provide for any increase in the Distribution
rate thereon. See "The Exchange Offer Purpose of the Exchange
Offer," "Description of Exchange Securities" and "Description of
Original Securities."
Distribution Dates April 1 and October 1 of each year, commencing April 1,
1998.
Extension Periods Distributions on the Exchange Capital Securities will be
deferred for the duration of
any Extension Period elected by the Corporation with respect to the
payment of interest on the Exchange Junior Subordinated Debentures.
No Extension Period will exceed 10 consecutive semi-annual period or
extend beyond the Stated Maturity of the Junior Subordinated
Debentures. See "Description of Exchange Securities Description of
Exchange Junior Subordinated Debentures Option to Extend Interest
Payment Date" and "Certain United States Federal Income Tax
Consequences Interest Income and Original Issue Discount."
Ranking
The Exchange Capital Securities will rank pari passu, and
payments thereon will be made pro rata, with the Original Capital
Securities and the Common Securities except as described under
"Description of Exchange Securities Description of Exchange Capital
Securities Subordination of Common Securities." The Exchange Junior
Subordinated Debentures will rank pari passu with the Original Junior
Subordinated Debentures and all other junior subordinated debt
securities to be issued by the Corporation pursuant to the Indenture
with substantially similar subordination terms ("Other Debentures"),
and which will be issued and sold to other trusts to be established
by the Corporation in each case similar to the Trust ("Other
Trusts"), and will be unsecured and subordinate and junior in right
of payment to the extent and in the manner set forth in the Indenture
to all Senior Debt of the Corporation. See "Description of Exchange
Securities Description of Exchange Junior Subordinated Debentures."
The Exchange Guarantee will rank pari passu with the Original
Guarantee and all other guarantees to be issued by the Corporation
with respect to capital securities to be issued by Other Trusts
("Other Guarantees"), and will constitute an unsecured obligation of
the Corporation and will rank subordinate and junior in right of
payment to the extent and in the manner set forth in the Guarantee to
all Senior Debt. See "Description of Exchange Securities Description
of Exchange Guarantee." In addition, because the Corporation is a
holding company, the Junior Subordinated Debentures and the Guarantee
are effectively subordinated to all existing and future liabilities
of the Corporation s subsidiaries, including deposits.
Redemption
The Trust Securities are subject to mandatory redemption
(i) in whole, but not in part, at the Stated Maturity of the Junior
Subordinated Debentures upon the redemption thereof, (ii) in whole,
but not in part, at any time prior to April 1, 2007,
contemporaneously with the optional redemption of the Junior
Subordinated Debentures upon the occurrence and continuation of a
Special Event (as defined herein), and (iii) in whole or in part at
any time on or after April 1, 2007 contemporaneously with any
optional redemption by the Corporation of Junior Subordinated
Debentures, in each case at the applicable Redemption Price. See
"Description of Exchange Securities Description of Exchange Capital
Securities Mandatory Redemption."
Rating
The Exchange Capital Securities are expected to be rated
"BB" by Standard & Poor s Ratings Services and "BB+" by Fitch
Investors Service. A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or withdrawal
at any time by the assigning rating organization.
Transfer Restrictions The Exchange Capital Securities will be issued, and may be
transferred, only in blocks having a Liquidation Amount of not less
than $100,000 (100 Capital Securities).
ERISA Considerations Prospective purchasers must carefully consider the
restrictions on purchase set forth under "ERISA Considerations."
Absence of Market for the Exchange Capital Securities The Exchange Capital
Securities will be a new issue of
securities for which there currently is no market. Although ehman
Brothers Inc., Montgomery Securities, Smith Barney Inc., and Ryan,
Beck & Co., the initial purchasers of the Original Capital Securities
(the "Initial Purchasers"), have informed the Corporation and the
Trust that they each currently intend to make a market in the
Exchange Capital Securities, they are not obligated to do so, and any
such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Capital Securities. The
Trust and the Corporation do not intend to apply for listing of the
Exchange Capital Securities on any securities exchange or for
quotation through the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). See "Plan of Distribution."
Risk Factors
Prospective investors should carefully consider the matters
set forth under "Risk Factors."
RISK FACTORS
Prospective investors should consider carefully, in addition to
the other information contained in this Prospectus, the following
factors in connection with the Exchange Offer and the Exchange
Capital Securities offered hereby. This Prospectus contains certain
forward-looking statements and information relating to the
Corporation that are based on the beliefs of management as well as
assumptions made by and information currently available to
management. The words "anticipate," "believe," "estimate," "expect,"
"intends" and similar expressions, as they relate to the Corporation
or the Corporation s management, are intended to identify
forward-looking statements. Such statements reflect the current
views of the Corporation with respect to future events and are
subject to certain risks,uncertainties and assumptions, including the
risk factors described in this Prospectus. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated or
expected. The Corporation does not intend to update these
forward-looking statements.
Ranking of Obligations Under the Guarantee and the Junior
Subordinated Debentures
The obligations of the Corporation under the Guarantee issued
by the Corporation for the benefit of the holders of Capital
Securities and under the Junior Subordinated Debentures are unsecured
and rank subordinate and junior in right of payment to all Senior
Debt of the Corporation. At March 31, 1997, the aggregate
outstanding Senior Debt of the Corporation (which, as defined,
includes all outstanding subordinated debt of the Corporation) was
approximately $166.8 million. Because the Corporation is a bank
holding company, the right of the Corporation to participate in any
distribution of assets of any subsidiary, including the Bank, upon
such subsidiary s liquidation or reorganization or otherwise (and
thus the ability of holders of the Capital Securities to benefit
indirectly from such distribution), is subject to the prior claims of
creditors of such subsidiary, except to the extent that the
Corporation may itself be recognized as a creditor of such
subsidiary. Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of
the Corporation s subsidiaries, and holders of Junior Subordinated
Debetures should look only to the assets of the Corporation for
payments on the Junior Subordinated Debentures. Because the
Corporation is a holding company with limited assets and liabilities,
a substantial portion of the consolidated liabilities of the
Corporation are liabilities of its subsidiaries. The Guarantee will
constitute an unsecured obligation of the Corporation and will rank
subordinate and junior in right of payment to all Senior Debt in the
same manner as the Junior Subordinated Debentures. See "Sovereign."
None of the Indenture, the Guarantee or the Declaration places any
limitation on the amount of secured or unsecured debt, including
Senior Debt, that may be incurred by the Corporation or any
subsidiary. See "Description of Exchange Securities Description of
Exchange Junior Subordinated Debentures Subordination" and
" Description of Exchange Guarantee Status of the Guarantee."
The ability of the Trust to pay amounts due on the Capital
Securities is solely dependent upon the Corporation making payments
on the Junior Subordinated Debentures as and when required.
In addition, there are regulatory limitations on the payment of
dividends directly or indirectly to the Corporation from the Bank.
Under applicable banking statutes at March 31, 1997, the Bank could
have declared additional dividends of $113 million.
Option to Extend Interest Payment Date; Tax Consequences; Market
Price Consequences
So long as no Debenture Event of Default (as defined herein)
has occurred and is continuing, the Corporation has the right under
the 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 10 consecutive semi-annual periods with respect to each
Extension Period; provided, however, that no Extension Period shall
end on a date other than an Interest Payment Date or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, semi-annual Distributions on the
Trust Securities by the Trust will also be deferred (and the amount
of Distributions to which holders of the Trust Securities are
entitled will accumulate additional Distributions thereon at the rate
of 9.00% per annum, compounded semi-annually, but not exceeding the
interest rate then accruing on the Junior Subordinated Debentures)
from the relevant payment date for such Distributions during any such
Extension Period.
Prior to the termination of any Extension Period, the
Corporation may further extend such Extension Period; provided,
however, that such extension does not cause such Extension Period to
exceed 10 consecutive semi-annual periods or to extend beyond the
Stated Maturity. Upon the termination of any Extension Period and
the payment of all interest then accrued and unpaid on the Junior
Subordinated Debentures (together with interest thereon at the annual
rate of 9.00%, compounded semi-annually, to the extent permitted by
applicable law), the Corporation may elect to begin a new Extension
Period, subject to the above requirements. There is no limitation on
the number of times that the Corporation may elect to begin an
Extension Period. See "Description of Exchange
Securities Description of Exchange Capital Securities Distributions"
and " Description of Exchange Junior Subordinated Debentures Option
to Extend Interest Payment Date."
During any Extension Period, the Corporation 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 Corporation s capital stock (which includes common and
preferred stock), (ii) make any payment of principal, interest or
premium, if any, on, or repay, repurchase or redeem any debt
securities of the Corporation (including Other Debentures) that rank
pari passu with or junior in right of payment to, the Junior
Subordinated Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Corporation of the debt securities of
any subsidiary of the Corporation (including Other Guarantees) if
such guarantee ranks pari passu with or junior in right of payment to
the Junior Suordinated Debentures (other than (a) dividends or
distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation,
(b) any declaration of a dividend in connection with the
implementation of a stockholders rights plan, or the issuance of
stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under
the Guarantee, (d) purchases of shares of the Corporation s common
stock related to the issuance of common stock or rights under any of
the Corporation s benefit plans for its directors, officers or
employees or any of the Corporation s dividend reinvestment plans,
(e) as a result of a reclassification of the Corporation s capital
stock or the exchange or conversion of one class or series of the
Corporation s capital stock for another class or series of the
Corporation s capital stock or (f) the purchase of fractional
interests in shares of the Corporation s capital stock pursuant to
the conversion or exchange provisions of such capital stock or the
security being converted or exchanged).
Because the Corporation believes that the likelihood of its
exercising its option to defer payments of interest is remote, the
Junior Subordinated Debentures will be treated under Treasury
regulations as issued without original issue discount ("OID") for
United States federal income tax purposes. As a result, holders of
Capital Securities generally will include their allocable share of
the interest on the Junior Subordinated Debentures in taxable income
under their own methods of tax accounting (i.e., cash or accrual).
Under the Treasury regulations, however, if the Corporation exercises
its right to defer payments of interest, the Junior Subordinated
Debentures will become OID instruments. Consequently, holders of
Capital Securities will be required to include their pro rata share
of OID in gross income as it accrues for United States federal income
tax purposes in advance of the receipt of cash attributable to such
interest income and such holders will not receive the cash related to
such income if they dispose of the Capital Securities prior to the
record date for payment of distributions thereafter. See "Certain
United States Federal Income Tax Consequences Interest Income and
Original Issue Discount" and " Sales of Capital Securities."
Should the Corporation elect to exercise its right to defer
payments of interest on the Junior Subordinated Debentures in the
future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of its Capital Securities during an
Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Capital Securities.
In addition, merely as a result of the existence of the Corporation s
right to defer interest payments on the Junior Subordinated
Debentures, the market price of the Capital Securities (which
represent an undivided beneficial ownership interest in the Junior
Subordinated Debentures) may be more volatile than the market prices
of other securities that are not subject to such deferrals.
Special Event Redemption; Possible Tax Law Changes Affecting the
Capital Securities
Upon the occurrence and continuation of a Special Event prior
to April 1, 2007, the Corporation may, at its option and subject to
receipt of any required regulatory approval, prepay the Junior
Subordinated Debentures in whole, but not in part, at the Special
Event Prepayment Price (as defined herein) within 90 days following
the occurrence of such Special Event. In such event, the Trust will
redeem the Trust Securities on a pro rata basis to the same extent as
the Junior Subordinated Debentures are prepaid by the Corporation.
See "Description of Exchange Securities Description of Exchange
Junior Subordinated Debentures Special Event Prepayment",
" Description of Exchange Capital Securities Mandatory Redemption"
and " Description of Exchange Capital Securities Liquidation of the
Trust and Distribution of Junior Subordinated Debentures."
A "Special Event" means a Tax Event or a Regulatory Cpital
Event, as the case may be.
A "Tax Event" means the receipt by the Corporation and the
Trust of an opinion of counsel experienced in such matters to the
effect that, as a result of any amendment to, or change (including
any announced prospective change) in, the laws or any regulations
thereunder of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is
effective or such pronouncement or decision is announced on or after
March 19, 1997 (the "Issue Date"), there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days
of the date of such opinion, subject to United States federal income
tax with respect to income received or accrued on the Junior
Subordinated Debentures, (ii) interest payable by the Corporation on
the Junior Subordinated Debentures is not, or within 90 days of the
date of such opinion will not be, deductible by the Corporation, in
whole or in part, for United States federal income tax purposes, or
(iii) the Trust is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges.
A "Regulatory Capital Event" means that the Corporation shall
have become, or pursuant to law or regulation will become within 180
days, subject to capital requirements under which, in the written
opinion of independent bank regulatory counsel experienced in such
matters, the Capital Securities would not constitute Tier 1 capital
applied as if the Corporation (or its successor) were a bank holding
company (as that concept is used in the guidelines or regulations
issued by the Board of Governors of the Federal Reserve System as of
March 19, 1997) or its then equivalent ("Tier I Capital").
Liquidation Distribution of Junior Subordinated Debentures
The Corporation has the right at any time to distribute the
Junior Subordinated Debentures to holders of the Trust Securities.
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust
would not be a taxable event to holders of the Capital Securities.
If, however, the Trust is characterized for United States federal
income tax purposes as an association taxable as a corporation at the
time of dissolution of the Trust, the distribution of the Junior
Subordinated Debentures may constitute a taxable event to holders of
Capital Securities. Moreover, upon occurrence of a Special Event, a
dissolution of the Trust in which holders of the Capital Securities
receive cash would be a taxable event to such holders. See "Certain
United States Federal Income Taxation Consequences Distribution of
Junior Subordinated Debentures or Cash Upon Liquidation of the
Trust."
There can be no assurance as to the market prices for Capital
Securities or Junior Subordinated Debentures that may be distributed
in exchange for Capital Securities if a liquidation of the Trust
occurs. Accordingly, the Capital Securities or the Junior
Subordinated Debentures may trade at a discount to the price that the
investor paid to purchase the Capital Securities offered hereby.
Because holders of Capital Securities may receive Junior Subordinated
Debentures on termination of the Trust and because Distributions are
otherwise limited to payments on the Junior Subordinated Debentures,
prospective purchasers of Exchange Capital Securities are also making
an investment decision with regard to the Exchange Junior
Subordinated Debentures and should carefully review all the
information regarding the Exchange Junior Subordinated Debentures
contained herein. See "Description of Exchange
Securities Description of Exchange Capital Securities Description of
Liquidation of the Trust and Distribution of Junior Subordinated
Debentures" and " Description of Exchange Junior Subordinated
Debentures General."
Rights Under the Guarantee
The Guarantee guarantees to the holders of the Capital
Securities the following payments, to the extent not paid by or on
behlf of the Trust: (i) any accumulated and unpaid Distributions
required to be paid on the Capital Securities, to the extent that the
Trust has funds on hand available therefor at such time, (ii) the
applicable Redemption Price with respect to any Capital Securities
called for redemption, to the extent that the Trust has funds on hand
available therefor at such time, and (iii) upon a voluntary or
involuntary termination and liquidation of the Trust (unless the
Junior Subordinated Debentures are distributed to holders of the
Capital Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to
the date of payment, to the extent that the Trust has funds on hand
available therefor at such time, and (b) the amount of assets of the
Trust remaining available for distribution to holders of the Capital
Securities upon a termination and liquidation of the Trust.
The holders of a majority in aggregate Liquidation Amount of
the Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the
Guarantee Trustee (as defined herein) in respect of the Guarantee or
to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of the Capital
Securities may institute a legal proceeding directly against the
Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity. If the Corporation defaults
on its obligation to pay amounts payable under the Junior
Subordinated Debentures, the Trust will not have funds for the
payment of Distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in such event, holders of the
Capital Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event a Debenture Event of
Default shall have occurred and be continuing and such event is
attributable to the failure of the Corporation to pay principal of
(or premium, if any) or interest on the Junior Subordinated
Debentures on the applicable payment date, then a holder of Capital
Securities may institute a Direct Action. Notwithstanding any
payments made to a holder of Capital Securities by the Corporation in
connection with a Direct Action, the Corporation shall remain
obligated to pay the principal of (and premium, if any) and interest
on the Junior Subordinated Debentures, and the Corporation shall be
subrogated to the rights of the holder of such Capital Securities
with respect to payments on the Capital Securities to the extent of
any payments made by the Corporation to such holder in any Direct
Action. Except as described herein, holders of Capital Securities
will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or assert directly
any ther rights in respect of the Junior Subordinated Debentures.
See "Description of Exchange Securities Description of Exchange
Junior Subordinated Debentures Enforcement of Certain Rights by
Holders of Exchange Capital Securities," " Description of Exchange
Junior Subordinated Debentures Debenture Events of Default" and
" Description of Exchange Guarantee." The Declaration provides that
each holder of Capital Securities by acceptance thereof agrees to the
provisions of the Guarantee and the Indenture. The Bank of New York
will act as Guarantee Trustee under the Exchange Guarantee and will
hold the Guarantee for the benefit of the holders of the Capital
Securities. The Bank of New York will also act as Property Trustee
under the Declaration and as Debenture Trustee under the Indenture.
Limited Voting Rights
Holders of Capital Securities will generally have limited
voting rights relating only to the modification of the Capital
Securities, the termination or liquidation of the Trust, and the
exercise of the Trust s rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to
vote to appoint, remove or replace the Property Trustee or the
Delaware Trustee, and such voting rights are vested exclusively in
the holder of the Cmmon Securities except upon the occurrence of
certain events described herein. The Property Trustee, the
Administrative Trustees and the Corporation may amend the Declaration
without the consent of holders of Capital Securities to ensure that
the Trust will be classified for United States Federal income tax
purposes as a grantor trust, even if such action adversely affects
the interests of such holders. See "Description of Exchange
Securities Description of Exchange Capital Securities Removal of
Issuer Trustees" and " Voting Rights; Amendment of the Declaration."
Consequences of a Failure to Exchange Original Capital Securities
The Original Capital Securities have not been registered under
the Securities Act or any state securities laws and therefore may not
be offered, sold or otherwise transferred except in compliance with
the registration requirements of the Securities Act and any other
applicable securities laws, or pursuant to an exemption therefrom or
in a transaction not subject thereto, and in each case in compliance
with certain other conditions and restrictions. Original Capital
Securities which remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such
restrictions on transfer. In addition, upon consummation of the
Exchange Offer, holders of Original Capital Securities which remain
outstanding will not be entitled to any rights to have such Original
Capital Securities registered under the Securities Act or to any
similar rights under the Registration Agreement (subject to certain
limited exceptions). The Corporation and the Trust do not intend to
register under the Securities Act any Original Capital Securities
which remain outstanding after consummation of the Exchange Offer
(subject to such limited exceptions, if applicable). To the extent
that Original Capital Securities are tendered and accepted in the
Exchange Offer, a holder s ability to sell untendered Original
Capital Securities could be adversely affected.
The Exchange Capital Securities and any Original Capital
Securities which remain outstanding after consummation of the
Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or
exercised certain rights under the Declaration. See "Description of
Exchange Securities Description of Exchange Capital Securities Voting
Rights; Amendment of the Declaration."
The Original Capital Securities provide, among other things,
that, if a registration statement relating to the Exchange Offer has
not been filed by August 16, 1997 or has not been declared effective
by September 15, 1997, then the Distribution rate borne by the
Original Capital Securities, commencing on the day after the
registration statement was required to be filed or become effective
as the case may be, will increase by 0.25% per annum until the
Exchange Offer is consummated. Upon consummation of the Exchange
Offer, holders of Original Capital Securities will not be entitled to
any increase in the Distribution rate thereon or any further
registration rights under the Registration Agreement, except under
limited circumstances. See "Description of Original Securities."
Absence of Public Market
The Original Capital Securities were issued to, and the
Corporation believes such securities are currently owned by, a
relatively small number of beneficial owners. The Original Capital
Securities have not been registered under the Securities Act and will
be subject to restrictions on transferability if they are not
exchanged for the Exchange Capital Securities. Although the Exchange
Capital Securities may be resold or otherwise transferred by the
holders (who are not affiliates of the Corporation or the Trust)
without compliance with the registration requirements under the
Securities Act, they will constitute a new issue of securities with
no established trading market. Capital Securities may be transferred
by the holders thereof only in blocks having a Liquidation Amount of
not less than $100,000 (100 Capital Securities).
The Corporation and the Trust have been advised by Lehma
Brothers Inc, Montgomery Securities, Smith Barney Inc., and Ryan,
Beck & Co., Inc., (the "Initial Purchasers") that the Initial
Purchasers presently intend to make a market in the Exchange Capital
Securities. However, the Initial Purchasers are not obligated to do
so and any market-making activity with respect to the Exchange
Capital Securities may be discontinued at any time without notice.
In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be
limited during the Exchange Offer. Accordingly, no assurance can be
given that an active public or other market will develop for the
Exchange Capital Securities or the Original Capital Securities, or as
to the liquidity of or the trading market for the Exchange Capital
Securities or the Original Capital Securities. If an active public
market does not develop, the market price and liquidity of the
Exchange Capital Securities may be adversely affected.
If a public trading market develops for the Exchange Capital
Securities, future trading prices will depend on many factors,
including, among other things, prevailing interest rates, the
financial condition of the Corporation and the market for similar
securities. Depending on these and other factors, the Exchange
Capital Securities may trade at a discount to the purchase price paid
by the holder.
Notwithstanding the registration of the Exchange Capital
Securities in the Exchange Offer, holders who are "affiliates" (as
defined under Rule 405 of the Securities Act) of the Corporation or
the Trust may publicly offer for sale or resell the Exchange Capital
Securities only in compliance with the provisions of Rule 144 under
the Securities Act.
Each broker-dealer that receives Exchange Capital Securities
for its own account in exchange for Original Capital Securities,
where such Original Capital Securities were acquired by such
broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Capital
Securities. See "Plan of Distribution."
Exchange Offer Procedures
Except with respect to holders tendering Original Capital
Securities through the Automated Tender Offer Program of DTC
("ATOP"), issuance of the Exchange Capital Securities in exchange for
Original Capital Securities pursuant to the Exchange Offer will be
made only after a timely receipt by the Trust of such Original
Capital Securities, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of
the Original Capital Securities desiring to tender such Original
Capital Securities in exchange for Exchange Capital Securities should
allow sufficient time to ensure timely delivery. Neither the
Corporation nor the Trust is under any duty to give notification of
defects or irregularities with respect to the tenders of Original
Capital Securities for exchange.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed
charges of the Corporation for the respective periods indicated.
Three Months
Ended Years Ended December 31,
March 31,
1997 1996 1995 1994 1993 1992
Ratios of Earnings
to Fixed Charges:
Excluding interest
on deposits 128.27% 138.04% 183.06% 203.16% 234.19% 258.44%
Including interest
on deposits 114.33% 117.88% 126.74% 137.57% 136.56% 125.53%
For purposes of computing the ratios of earnings to fixed
charges, earnings represent net income (loss) before extraordinary
items and cumulative effect of changes in accounting principles plus
applicable income taxes and fixed charges. Fixed charges, excluding
interest on deposits, include gross interest expense (other than on
deposits) and the proportion deemed representative of the interest
factor of rent expense, net of income from subleases. Fixed charges,
including gross interest on deposits, include all interest expense
and the proportion deemed representative of the interest factor of
rent expense, net of income from subleases.
SOVEREIGN CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware
law pursuant to (i) the original declaration of trust executed by the
Corporation, as Sponsor, The Bank of New York (Delaware), as Delaware
Trustee, and the Administrative Trustees named therein, which
original declaration of trust was amended and restated and executed
by the Corporation, as Sponsor, The Bank of New York, as Property
Trustee, The Bank of New York (Delaware), as Delaware Trustee, and
the Administrative Trustees named therein (the "Declaration"), and
(ii) the filing of a certificate of trust with the Delaware Secretary
of State on March 11, 1997. The 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, advisable or incidental thereto (such as
registering the transfer of the Capital Securities). Accordingly,
the Junior Subordinated Debentures are the sole assets of the Trust,
and payments under the Junior Subordinated Debentures are the sole
revenues of the Trust. All of the Common Securities are owned
directly or indirectly by the Corporation. The Common Securities
will rank pari passu, and payments are and will be made thereon pro
rata, with the Capital Securities, except that upon the occurrence
and continuance of an Event of Default under the Declaration
resulting from a Debenture Event of Default, the rights of the
Corporation as holder of the Common Securities to payment in respect
of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the
Capital Securities. See "Description of Exchange
Securities Description of Exchange Capital Securities Subordination
of Common Securities." The Corporation has acquired Common Securities
in an aggregate Liquidation Amount equal to 3% of the total capital
of the Trust. The Trust has a term of 31 years, but may terminate
earlier as provided in the Declaration. The Trust s business and
affairs are conducted by its trustees, each appointed by the
Corporation as holder of the Common Securities. The trustees for the
Trust will be The Bank of New York, as the Property Trustee, The Bank
of New York (Delaware), as the Delaware Trustee, and four individual
trustees as Administrative Trustees who are employees or officers of
or affiliated with the Corporation (collectively, the "Issuer
Trustees"). The Bank ofNew York, as Property Trustee, currently acts
as sole indenture trustee under the Declaration. The Bank of New
York also acts as trustee under the Exchange Guarantee and the
Indenture. See " Description of Exchange Junior Subordinated
Debentures" and " Description of Exchange Guarantee." The holder of
the Common Securities of the Trust, or the holders of a majority in
Liquidation Amount of the Capital Securities if an Event of Default
under the Declaration resulting from a Debenture Event of Default has
occurred and is continuing, is entitled to appoint, remove or replace
the Property Trustee and/or Delaware Trustee. In no event do the
holders of the Capital Securities have the right to vote to appoint,
remove or replace the Administrative Trustees; such voting rights are
vested exclusively in the holder of the Common Securities. The
duties and obligations of each Issuer Trustee are governed by the
Declaration. Pursuant to the expense provisions under the Indenture,
the Corporation, as issuer of the Junior Subordinated Debentures, has
and will continue to pay all fees and expenses related to the Trust
and the offering of the Capital Securities and has and will continue
to pay, directly or indirectly, all ongoing costs, expenses and
liabilities of the Trust. See " Description of Exchange Capital
Securities Expenses and Taxes." The principal executive office of the
Trust is Sovereign Bancorp, Inc., 1130 Berkshire Boulevard,
Wyomissing, Pennsylvania 19610. Telephone inquiries may be directed
to Linda Hagginbothom at (610) 320-8400.
SOVEREIGN
General
The Corporation is the holding company for Sovereign Bank, a
federal savings bank (the "Bank"). At March 31, 1997, the
Corporation and its subsidiaries had total consolidated assets,
deposits and shareholders equity of approximately $10.3 billion,
$5.7 billion and $510 million, respectively. The primary operating
entity of the Corporation is Sovereign Bank. Sovereign Bank s
primary business consists of attracting deposits from its network of
134 community banking offices, and originating residential mortgage
loans and home equity lines of credit in the communities served by
those offices. Those offices are located largely in the Pennsylvania
counties of Berks, Lancaster, Bucks, Montgomery, Philadelphia, Lehigh
and Northampton, the New Jersey counties of Essex, Mercer, Morris,
Ocean, Monmouth, Sussex and Union, and New Castle County in Delaware.
The principal executive offices of the Corporation are located
at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610, and its
telephone number is (610) 320-8400.
Acquisitions
The Corporation completed its acquisition of Bankers Corp.
("Bankers"), a New Jersey corporation and the holding company for
Bankers Savings, a New Jersey savings bank ("Bankers Savings") on
August 29, 1997. On that date, Bankers merged with and into the
Corporation, with the Corporation surviving the merger, and Bankers
Savings merged with and into the Bank. On the effective date of the
merger, each outstanding share of Bankers common stock was
automatically converted into 1.854 shares of common stock of the
Corporation. The merger was treated as a pooling of interest for
financial accounting purposes.
On June 30, 1997, Bankers had total unaudited consolidated assets,
deposits, and stockholders equity of approximately $2.6 billion,
$1.7 billion, and $204 million, respectively. Bankers Savings
operated 15 branches located in Middlesex, Monmouth and Ocean
Counties, New Jersey. In connection with the transaction, the
Corporation recorded a one-time merger related charge of $19.6
million, after-tax, in the third quarter of 1997.
On September 19, 1997, the Bank completed the acqusition of certain
assets of the former Automobile Finance Division (the "Division") of
Fleet Financial Group, Inc. These assets consist principally of
approximately $1.7 billion of indirect auto loans, dealer floor plan
loans, and loans to automobile leasing companies. The Division has
business relationships with over 2,000 automotive dealerships and
serves approximately 225,000 customers throughout New Jersey, New
York, and several New England states. The transaction was treated as
a purchase for financial accounting purposes.
Sovereign is a legal entity separate and distinct from its
subsidiaries. The ability of holders of debt and equity securities
of Sovereign to benefit from the distribution of assets of any
subsidiary upon the liquidation or reorganization of such subsidiary
is subordinate to prior claims of creditors of the subsidiary
(including depositors in the case of banking subsidiaries) except to
the extent that a claim of Sovereign as a creditor may be recognized.
There are various statutory and regulatory limitations on the
extent to which present and future banking subsidiaries of Sovereign
can finance or otherwise transfer funds to Sovereign or its
nonbanking subsidiaries, whether in the form of loans, extensions of
credit, investments or asset purchases.
In addition, there are regulatory limitations on the payment of
dividends directly or indirectly to Sovereign from its existing
banking subsidiaries. Under applicable banking statutes, at
March 31, 1997, the Bank could have declared additional dividends of
approximately $113 million. However, Federal and state regulatory
agencies also have the authority to further limit further payment of
dividends by the Bank based on other factors, such as the maintenance
of adequate capital by the Bank, which could reduce the amount of
dividends otherwise payable.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following unaudited consolidated summary sets forth
selected financial data for Sovereign and its subsidiaries for the
quarters ended March 31, 1996 and 1997, and for each of the years in
the five-year period ending December 31, 1996. The following summary
should be read in conjunction with the financial information
incorporated herein by reference to other documents. See
"Incorporation of Certain Documents by Reference."
<TABLE>
Balance Sheet
Data
<CAPTION>
At or for the Three Months
Ended March 31, Year Ended December 31,
1997 1996 1996 1995 1994 1993 1992(2)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $10,284,394 $9,008,377 $10,041,359 $8,715,307 $7,117,565 $5,353,536 $4,169,604
Loans 6,563,7175,425,0656,649,537 5,142,1404,800,4843,271,623 2,691,166
Allowance for
possible loan
losses (50,537) (39,997) (46,093) (40,938) (42,640) (41,210) (33,561)
Investment and
mortgage-backed
securities
available-for-sale 559,599 394,075 494,997 901,308 104,767 0 0
Investment and
mortgage-backed
securities held-
to-maturity 2,756,1052,701,7202,487,615 2,117,0621,855,3601,743,472 1,065,384
Deposits 5,736,5795,503,1415,606,333 5,606,8534,506,4833,615,119 3,389,460
Borrowings 3,733,7182,770,2413,862,194 2,553,7612,194,3251,372,780 433,437
Corporation-obligated
mandatorily redeemable
capital securities
of subsidiary trust holding
solely junior subordinated
debentures of the
Corporation 97,574 0 0 0 0 0 0
Shareholders equity 510,286 481,463 508,839 468,617 341,873 293,300 251,909
</TABLE>
<TABLE>
<CAPTION>
Summary Statement of Operations
At or for the
Three Months
Ended March 31, Year Ended December 31,
1997 1996 1996 1995 1994 1993 1992(2)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $175,060 $151,769 $665,489 $537,380 $389,076 $317,414 $235,910
Total interest
expense 113,373 94,932 423,594 340,570 212,189 168,719 139,059
Net interest income 61,687 56,837 241,895 196,810 176,887 148,695 96,851
Provision for possible
loan losses 8,700 800 11,416 2,650 5,992 11,090 12,757
Net interest income after
provision for possible
loan losses 52,987 56,037 230,479 194,160 170,895 137,605 84,094
Other income 7,367 8,328 44,163 32,197 18,704 19,372 14,846
Other expenses 44,102 36,792 171,075 135,280 109,870 95,825 64,033
Non-recurring SAIF
assessment 0 0 27,818 0 0 0 0
Income before income taxes and
cumulative effect of change in
accounting principle 16,252 27,573 75,749 91,077 79,729 61,152 34,907
Income tax provision 7,045 10,387 29,935 30,671 29,830 23,013 14,553
Income before cumulative effect
of change in accounting
principle 9,207 17,186 45,814 60,406 49,899 38,139 20,354
Cumulative effect of change
in accounting principle 0 0 0 0 0 4,800 0
Net income $9,207 $17,186 $45,814 $60,406 $49,899 $42,939 $20,354
Net income applicable
to common stock $7,645 $15,624 $39,564 $55,717 $49,899 $42,939 $20,354
Share Data (3)
Common shares outstanding
at end of period
(in thousands) 65,761 63,123 65,417 60,253 60,321 55,296 54,486
Preferred shares outstanding at
end of period
(in thousands) 2,000 2,000 2,000 2,000 0 0 0
Earnings per common and common
equivalent share:
Before cumulative effect
of change in accounting
principle $0.12 $0.22 $0.59 $0.82 $0.74 $0.57 $0.40
After cumulative effect
of change in accounting
principle $0.12 $0.22 $0.59 $0.82 $0.74 $0.65 $0.40
Book value per common and common
equivalent share at end of
period(4) 6.56 6.41 6.57 6.49 5.67 5.30 4.62
Common share price at end of
period 12 9-5/16 10-15/16 8-1/16 5-7/8 9 5-1/8
Dividends paid per
common share 0.023 0.019 0.076 0.078 0.095 0.083 0.055
Dividend payout ratio 19.22% 8.67% 12.91% 9.53% 12.85% 14.54% 13.80%
Return on average assets 0.78 0.79 0.49 0.76 0.80 0.90 0.59
Return on average stockholders
equity 15.34 14.23 9.37 14.91 15.71 15.75 9.70
Equity to assets 4.96 5.34 5.07 5.38 4.80 5.48 6.04
<FN>
(1) The acquisitions of First State Financial Services, Inc. ("First State")
in February 1997, Valley Federal Savings ("Valley Federal") in November 1993, and
Charter Bancorp, Inc. ("Charter") in November 1994, were each accunted for as
pooling-of-interests and, accordingly, the consolidated financial statements have been
restated to include the accounts of First State, Valley Federal and Charter for all
periods presented.
(2) The acquisition of Harmonia Bancorp, Inc. ("Harmonia") was accounted for
as a purchase at the close of business on December 31, 1992. The Corporation s
consolidated balance sheet at December 31, 1992 includes Harmonia. Sovereign s 1992
consolidated results of operations do not include Harmonia s results.
(3) All per share data have been adjusted to reflect all stock dividends and
stock splits declared or effected through June 30, 1997.
(4) Book value is calculated using equity divided by common shares and
assuming conversion of all outstanding preferred shares.
</FN>
</TABLE>
CAPITALIZATION
The following table sets forth the consolidated
capitalization of Sovereign at March 31, 1997. The issuance of
the Exchange Capital Securities in the Exchange Offer will have no
effect on the capitalization of Sovereign. This table is based
on, and is qualified in its entirety by, the historical
consolidated financial statements of Sovereign, including the
related notes thereto, which are included in documents
incorporated by reference herein, and should be read in
conjunction therewith.
March 31, 1997
(in thousands)
Corporation
Historical
Long-term debt $946,867
Corporation-obligated mandatorily
redeemable capital securities of
subsidiary trust holding solely
junior subordinated debentures
of the Corporation(1) 97,574
Shareholders equity:
Preferred stock, 7,500,000 shares
authorized, 2,000,000 shares
issued and outstanding 96,446
Common stock, no par; 100,000,000
shares authorized; 69,492,593 shares
issued 299,161
Retained earnings 145,993
Net unrealized holding gain on
securities, net of deferred taxes 1,926
Treasury stock, at cost, 7,934 shares (149)
Unallocated common stock held by
ESOP, at cost (33,091)
Total Shareholders equity 510,286
Total capitalization $1,554,727
==========
________________
(1) Reflects the issuance of the Original Capital Securities. As
described herein, the sole assets of the Trust will be approximately $103.1
million of Junior Subordinated Debentures
(including the amounts attributable to the
issuance of the Common Securities of the Trust), which will mature
on April 1, 2027. The Corporation owns all
of the Common Securities of the Trust. It is anticipated that the
Trust will not be subject to the reporting
requirements under the Securities Exchange Act of 1934.
ACCOUNTING TREATMENT
The financial statements of the Trust are consolidated into
the Corporation s consolidated financial statements, with the
Capital Securities treated as minority interest and shown in the
Corporation s consolidated balance sheet as "Corporation-Obligated
Mandatorily Redeemable Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures of the Corporation." The
financial statement footnotes in the Quarterly Report of the
Corporation for the quarter ended March 31, 1997 reflect that the
sole asset of the Trust is approximately $103.1 million principal
amount of the Junior Subordinated Debentures, bearing interest at
9.00% and maturing on April 1, 2027. All future reports filed by
the Corporation under the Exchange Act will present information
regarding the Trust and other similar trusts in the manner
described above.
THE EXCHANGE OFFER
Purpose of the Exchange Offer
In connection with the sale of the Original Capital
Securities, the Corporation and the Trust entered into the
Registration Agreement with the Initial Purchasers, pursuant to
which the Corporation and the Trust agreed to file and to use
their reasonable efforts to cause to become effective with the
Commission a registration statement with respect to the exchange
of the Original Capital Securities for capital securities with
terms identical in all material respects to the terms of the
Original Capital Securities. A copy of the Registration Agreement
has been filed as an Exhibit to the Registration Statement of
which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual
obligations of the Corporation and the Trust under the
Registration Agreement. The form and terms of the Exchange
Capital Securities are the same as the form and terms of the
Original Capital Securities except that the Exchange Capital
Securities have been registered under the Securities Act and will
not be subject to certain restrictions on transfer applicable to
the Original Capital Securities, and will not provide for any
increase in the Distribution rate thereon. In that regard, the
Original Capital Securities provide, among other things, that, if
a registration statement relating to the Exchange Offer has not
been filed by August 16, 1997 or has not been declared effective
by September 15, 1997, then the Distribution rate borne by the
Original Capital Securities, commencing on the day after the
registration statement was required to be filed or become
effective as the case may be, will increase by 0.25% per annum
until the Exchange Offer is consummated. Upon consummation of the
Exchange Offer, holders of Original Capital Securities will not be
entitled to any increase in the Distribution rate thereon or any
further registration rights under the Registration Agreement,
except under limited circumstances. See "Risk
Factors Consequences of a Failure to Exchange Original Capital
Securities" and "Description of Original Secuities."
The Exchange Offer is not being made to, nor will the Trust
accept tenders for exchange from, holders of Original Capital
Securities in any jurisdiction in which the Exchange Offer or the
acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder"
with respect to the Exchange Offer means any person in whose name
the Original Capital Securities are registered on the books of the
Trust or any other person who has obtained a properly completed
bond power from the registered holder, or any person whose
Original Capital Securities are held of record by The Depository
Trust Company ("DTC") who desires to deliver such Original Capital
Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will
exchange as soon as practicable after the date hereof the Original
Guarantee for the Exchange Guarantee and the Original Junior
Subordinated Debentures, in an amount corresponding to the
Original Capital Securities accepted for exchange, for a like
aggregate principal amount of the Exchange Junior Subordinated
Debentures. The Exchange Guarantee and Exchange Junior
Subordinated Debentures have been registered under the Securities
Act.
Terms of the Exchange Offer
The Trust hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal, to exchange up to $100,000,000 aggregate
Liquidation Amount of Exchange Capital Securities for a like
aggregate Liquidation Amount of Original Capital Securities
properly tendered on or prior to the Expiration Date and not
properly withdrawn in accordance with the procedures described
below. The Trust will issue, promptly after the Expiration Date,
an aggregate Liquidation Amount of up to $100,000,000 of Exchange
Capital Securities in exchange for a like principal amount of
outstanding Original Capital Securities tendered and accepted in
connection with the Exchange Offer. Holders may tender their
Original Capital Securities in whole or in part in a Liquidation
Amount of not less than $100,000 (100 Capital Securities) or any
integral multiple of $1,000 Liquidation Amount (one Capital
Security) in excess thereof.
The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Original Capital Securities being tendered.
As of the date of this Prospectus, $100,000,000 aggregate
Liquidation Amount of the Original Capital Securities is
outstanding.
Holders of Original Capital Securities do not have any
appraisal or dissenters rights in connection with the Exchange
Offer. Original Capital Securities which are not tendered for or
are tendered but not accepted in connection with the Exchange
Offer will remain outstanding and be entitled to the benefits of
the Declaration, but will not be entitled to any further
registration rights under the Registration Agreement, except under
limited circumstances. See "Risk Factors Consequences of a
Failure to Exchange Original Capital Securities" and "Description
of Original Securities."
If any tendered Original Capital Securities are not accepted
for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, certificates
for any such unaccepted Original Capital Securities will be
returned, without expense, to the tendering holder thereof
promptly after the Expiration Date.
Holders who tender Original Capital Securities in connection
with the Exchange Offer will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of
Original Capital Securities in connection with the Exchange Offer.
The Corporation will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the
Exchange Offer. See " Fees and Expenses."
NEITHER THE CORPORATION, THE BOARD OF DIRECTORS OF THE
CORPORATION NOR ANY ISSUER TRUSTEE OF THE TRUST MAKES ANY
RECOMMENDATION TO HOLDERS OF ORIGINAL CAPITAL SECURITIES AS TO
WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL ORANY PORTION OF
THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES MUST MAKE
THEIR OWN DECISIONS WHETHER TO TENDER PURSUANT TO THE EXCHANGE
OFFER AND, IF SO, THE AGGREGATE AMOUNT OF ORIGINAL CAPITAL
SECURITIES TO TENDER BASED ON SUCH HOLDERS OWN FINANCIAL
POSITIONS AND REQUIREMENTS.
Expiration Date; Extensions; Amendments.
The term "Expiration Date" means 5:00 p.m., New York City
time, on November 25, 1997 unless the Exchange Offer is extended
by the Corporation or the Trust (in which case the term
"Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Corporation and the Trust expressly reserve the right in
their sole and absolute discretion, subject to applicable law, at
any time and from time to time, (i) to delay the acceptance of the
Original Capital Securities for exchange, (ii) to terminate the
Exchange Offer (whether or not any Original Capital Securities
have theretofore been accepted for exchange) if the Trust
determines, in its sole and absolute discretion, that any of the
events or conditions referred to under " Conditions to the
Exchange Offer" have occurred or exist or have not been satisfied,
(iii) to extend the Expiration Date of the Exchange Offer and
retain all Original Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of
Original Capital Securities to withdraw their tendered Original
Capital Securities as described under " Withdrawal Rights," and
(iv) to waive any condition or otherwise amend the terms of the
Exchange Offer in any respect. If the Exchange Offer is amended
in a manner determined by the Corporation and the Trust to
constitute a material change, or if the Corporation and the Trust
waive a material condition of the Exchange Offer, the Corporation
and the Trust will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the holders of
the Original Capital Securities, and the Corporation and the Trust
will extend the Exchange Offer to the extent required by Rule
14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or
amendment will be followed promptly by oral or written notice
thereof to the Exchange Agent and by making a public announcement
thereof, and such announcement in the case of an extension will be
made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
Without limiting the manner in which the Corporation and the Trust
may choose to make any public announcement and subject to
applicable law, the Corporation and the Trust shall have no
obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an
appropriate news agency.
Acceptance for Exchange and Issuance of Exchange Capital
Securities
Upon the terms and subject to the conditions of the Exchange
Offer, the Trust will exchange, and will issue to the Exchange
Agent, promptly after the Expiration Date, Exchange Capital
Securities for Original Capital Securities validly tendered and
not withdrawn.
In all cases, delivery of Exchange Capital Securities in
exchange for Original Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) the book-entry
confirmation described below under "-- Procedures for Tendering
Original Capital Securities -- Book-Entry Transfer" or
(ii) certificates representing such Original Capital Securities,
the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature
guarantees, and any other documents required by the Letter of
Transmittal.
Subject to the terms and conditions of the Exchange Offer,
the Trust will be deemed to have accepted or exchange, and thereby
exchanged, Original Capital Securities validly tendered and not
withdrawn as, if and when the Trust gives oral or written notice
to the Exchange Agent of the Trust s acceptance of such Original
Capital Securities for exchange pursuant to the Exchange Offer.
The Exchange Agent will act as agent for the Trust for the purpose
of receiving tenders of book-entry confirmations or certificates
representing Original Capital Securities, Letters of Transmittal
and related documents, and as agent for tendering holders for the
purpose of receiving book-entry confirmations or certificates
representing Original Capital Securities, Letters of Transmittal
and related documents and transmitting Exchange Capital Securities
to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever,
acceptance for exchange or the exchange of any Original Capital
Securities tendered pursuant to the Exchange Offer is delayed
(whether before or after the Trust s acceptance for exchange of
Original Capital Securities) or the Trust extends the Exchange
Offer or is unable to accept for exchange or exchange Original
Capital Securities tendered pursuant to the Exchange Offer, then,
without prejudice to the Trust s rights set forth herein, the
Exchange Agent may, nevertheless, on behalf of the Trust and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered
Original Capital Securities and such Original Capital Securities
may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under " Withdrawal
Rights."
Pursuant to the Letter of Transmittal, a holder of Original
Capital Securities will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender,
exchange, sell, assign and transfer Original Capital Securities,
that the Trust will acquire good, marketable and unencumbered
title to the tendered Original Capital Securities, free and clear
of all liens, restrictions, charges and encumbrances, and the
Original Capital Securities tendered for exchange are not subject
to any adverse claims or proxies. The holder also will warrant
and agree that it will, upon request, execute and deliver any
additional documents deemed by the Trust or the Exchange Agent to
be necessary or desirable to complete the exchange, sale,
assignment, and transfer of the Original Capital Securities
tendered pursuant to the Exchange Offer. Tendering holders of
Original Capital Securities that use ATOP will, by so doing,
acknowledge that they are bound by the terms of the Letter of
Transmittal.
Procedures for Tendering Original Capital Securities
Book-Entry Transfer. For purposes of the Exchange Offer,
the Exchange Agent will establish an account with respect to the
Original Capital Securities at DTC within two business days after
the date of this Prospectus. Any tendering financial institution
that is a participant in DTC s book-entry transfer facility system
may make a book-entry delivery of the Original Capital Securities
by causing DTC to transfer such Original Capital Securities into
the Exchange Agent s account at DTC in accordance with DTC s ATOP
procedures for transfers. Such holder of Original Capital
Securities using ATOP should transmit its acceptance to DTC on or
prior to the Expiration Date (or comply with the guaranteed
delivery procedures set forth below). DTC will verify such
acceptance, execute a book-entry transfer of the tendered Original
Capital Securities into the Exchange Agent s account at DTC and
then send to the Exchange Agent confirmation of such book-entry
transfer, including an agent s message confirming that DTC has
received an express acknowledgement from such holder that such
holder has received and agrees to be bound by the Letter of
Transmittal and that the Trust and the Corporation may enforce the
Letter of Transmittal against such holder (a "book-entry
confirmation").
A beneficial owner of Original Capital Securities that are
held by or registered in the name of a broker, dealer, commercial
bank, trust company or other nominee or custodian is urged to
contact such entity promptly if such beneficial owner wishes to
paticipate in the Exchange Offer.
Certificates. If the tender is not made through ATOP,
certificates representing Original Capital Securities, as well as
the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature
guarantees, and any other documents required by the Letter of
Transmittal, must be received by the Exchange Agent at its address
set forth under "-- Exchange Agent" on or prior to the Expiration
Date in order for such tender to be effective (or the guaranteed
delivery procedures set forth below must be complied with).
If less than all of the Original Capital Securities are
tendered, a tendering holder should fill in the amount of Original
Capital Securities being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Original Capital
Securities delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
Signature Guarantees. Certificates for the Original Capital
Securities need not be endorsed and signature guarantees on the
Letter of Transmittal are unnecessary unless (a) a certificate for
the Original Capital Securities is registered in a name other than
that of the person surrendering the certificate or (b) such holder
completes the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the Letter of Transmittal. In
the case of (a) or (b) above, such certificates for Original
Capital Securities must be duly endorsed or accompanied by a
properly executed bond power, with the endorsement or signature on
the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange
Act as an "eligible guarantor institution," including (as such
terms are defined therein): (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities
Transfer Association (an "Eligible Institution"), unless
surrendered on behalf of such Eligible Institution. See
Instruction 1 to the Letter of Transmittal.
Delivery. The method of delivery of the book-entry
confirmation or certificates representing tendered Original
Capital Securities, the Letter of Transmittal, and all other
required documents is at the option and sole risk of the tendering
holder, and delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail,
registered mail, return receipt requested, properly insured, or an
overnight delivery service is recommended. In all cases,
sufficient time should be allowed to ensure timely delivery.
Notwithstanding any other provision hereof, the delivery of
Exchange Capital Securities in exchange for Original Capital
Securities tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt
by the Exchange Agent of (i) a book-entry confirmation with
respect to such Original Capital Securities or (ii) certificates
representing Original Capital Securities and a properly completed
and duly executed Letter of Transmittal (or facsimile thereof),
together with any required signature guarantees and any other
documents required by the Letter of Transmittal. Accordingly, the
delivery of Exchange Capital Securities might not be made to all
tendering holders at the same time, and will depend upon when
book-entry confirmations with respect to Original Capital
Securities or certificates representing Original Capital
Securities and other required documents are received by the
Exchange Agent.
Guaranteed Delivery. If a holder desires to tender Original
Capital Securities pursuant to the Exchange Offer and the
certificates for such Original Capital Securities are not
immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the
Expiration Date, or the procedure for book-entry transfer cannot
be completed on a timely basis, such Original Capital Securities
may nevertheless e tendered, provided that all of the following
guaranteed delivery procedures are complied with:
(1) such tenders are made by or through an Eligible
Institution;
(2) a properly completed and duly executed notice to the
Exchange Agent guaranteeing delivery to the Exchange Agent of
either certificates representing the Original Capital Securities
or a book-entry confirmation in compliance with the requirements
set forth herein (the "Notice of Guaranteed Delivery")
substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior
to the Expiration Date;
(3) (a) a book-entry confirmation or (b) the certificates
representing all tendered Original Capital Securities, in proper
form for transfer, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other documents required by
the Letter of Transmittal, are, in any case, received by the
Exchange Agent within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand,
or transmitted by facsimile or mail to the Exchange Agent and must
include a guarantee by an Eligible Institution in the form set
forth in such notice.
The Trust s acceptance for exchange of Original Capital
Securities tendered pursuant to any of the procedures described
above will constitute a binding agreement between the tendering
holder and the Trust upon the terms and subject to the conditions
of the Exchange Offer.
Determination of Validity. All questions as to the form of
documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tendered Original Capital
Securities will be determined by the Corporation and the Trust, in
their sole discretion, whose determination shall be final and
binding on all parties. The Corporation and the Trust reserve the
absolute right, in their sole and absolute discretion, to reject
any and all tenders determined by them not to be in proper form or
the acceptance of which, or exchange for, may, in the opinion of
counsel to the Corporation and the Trust, be unlawful. The
Corporation and the Trust also reserve the absolute right, subject
to applicable law, to waive any of the conditions of the Exchange
Offer as set forth under " Conditions to the Exchange Offer" or
any condition or irregularity in any tender of Original Capital
Securities of any particular holder whether or not similar
conditions or irregularities are waived in the case of other
holders.
The interpretation by the Corporation and the Trust of the
terms and conditions of the Exchange Offer (including the Letter
of Transmittal and the instructions thereto) will be final and
binding. No tender of Original Capital Securities will be deemed
to have been validly made until all irregularities with respect to
such tender have been cured or waived. Neither the Corporation,
the Trust, any affiliates or assigns of the Corporation or the
Trust, the Exchange Agent nor any other person shall be under any
duty to give any notification of any irregularities in tenders or
incur any liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power
of attorney, or any other document required by the Letter of
Transmittal is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the
Corporation and the Trust, proper evidence satisfactory to the
Corporation and the Trust, in their sole discretion, of such
person s authority to so act must be submitted.
Resales of Exchange Capital Securities
The Trust is making the Exchange Offer for the Exchange
Capital Securities in reliance on the position of the staff of the
Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other
transactions. However, neither the Corpoation nor the Trust
sought its own interpretive letter and there can be no assurance
that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to
the two immediately following sentences, the Corporation and the
Trust believe that Exchange Capital Securities issued pursuant to
this Exchange Offer in exchange for Original Capital Securities
may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such
Exchange Capital Securities are acquired in the ordinary course of
such holder s business and that such holder is not participating,
and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the
Securities Act) of such Exchange Capital Securities. However, any
holder of Original Capital Securities who is an "affiliate" of the
Corporation or the Trust or who intends to participate in the
Exchange Offer for the purpose of distributing Exchange Capital
Securities, or any broker-dealer who purchased Original Capital
Securities from the Trust to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (a) will not
be able to rely on the interpretations of the staff of the
Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Original Capital Securities in the
Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Original
Capital Securities unless such sale is made pursuant to an
exemption from such requirements. In addition, as described
below, if any broker-dealer holds Original Capital Securities
acquired for its own account as a result of market-making or other
trading activities and exchanges such Original Capital Securities
for Exchange Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales of such Exchange Capital
Securities.
Each holder of Original Capital Securities who wishes to
exchange Original Capital Securities for Exchange Capital
Securities in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Corporation or the Trust,
(ii) any Exchange Capital Securities to be received by it are
being acquired in the ordinary course of its business, (iii) it
has no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of
such Exchange Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend
to engage in, a distribution (within the meaning of the Securities
Act) of such Exchange Capital Securities. In addition, the
Corporation and the Trust may require such holder, as a condition
to such holder s eligibility to participate in the Exchange Offer,
to furnish to the Corporation and the Trust (or an agent thereof)
in writing information as to the number of "beneficial owners"
(within the meaning of Rule 13d-3 under the Exchange Act) on
behalf of whom such holder holds the Capital Securities to be
exchanged in the Exchange Offer. Each broker-dealer that receives
Exchange Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Original
Capital Securities for its own account as the result of
market-making activities or other trading activities and must
agree that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such
Exchange Capital Securities. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" withinthe meaning of the Securities Act. Based on
the position taken by the staff of the Division of Corporation
Finance of the Commission in the interpretive letters referred to
above, the Corporation and the Trust believe that Participating
Broker-Dealers who acquired Original Capital Securities for their
own accounts as a result of market-making activities or other
trading activities may fulfill their prospectus delivery
requirements with respect to the Exchange Capital Securities
received upon exchange of such Original Capital Securities (other
than Original Capital Securities which represent an unsold
allotment from the initial sale of the Original Capital
Securities) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Capital
Securities. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection
with resales of Exchange Capital Securities received in exchange
for Original Capital Securities where such Original Capital
Securities were acquired by such Participating Broker-Dealer for
its own account as a result of market-making or other trading
activities. Subject to certain provisions set forth in the
Registration Agreement, the Corporation and the Trust have agreed
that this Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in
connection with resales of such Exchange Capital Securities for a
period ending 180 days after the Expiration Date (subject to
extension under certain limited circumstances described below) or,
if earlier, when all such Exchange Capital Securities have been
disposed of by such Participating Broker-Dealer. See "Plan of
Distribution." However, a Participating Broker-Dealer who intends
to use this Prospectus in connection with the resale of Exchange
Capital Securities received in exchange for Original Capital
Securities pursuant to the Exchange Offer must notify the
Corporation or the Trust, or cause the Corporation or the Trust to
be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or
may be delivered to the Exchange Agent at one of the addresses set
forth herein under " Exchange Agent." Any Participating
Broker-Dealer who is an "affiliate" of the Corporation or the
Trust may not rely on such interpretive letters and must comply
with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who
surrenders Original Capital Securities pursuant to the Exchange
Offer will be deemed to have agreed, by execution of the Letter of
Transmittal, that upon receipt of notice from the Corporation or
the Trust of the occurrence of any event or the discovery of
(i) any fact which makes any statement contained or incorporated
by reference in this Prospectus untrue in any material respect or
(ii) any fact which causes this Prospectus to omit to state a
material fact necessary in order to make the statements contained
or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading, or (iii) of the
occurrence of certain other events specified in the Registration
Agreement, such Participating Broker-Dealer will suspend the sale
of Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) pursuant
to this Prospectus until the Corporation or the Trust has amended
or supplemented this Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented
Prospectus to such Participating Broker-Dealer, or the Corporation
or the Trust has given notice that the sale of the Exchange
Capital Securities (or the Exchange Guarantee or the Exchange
Junior Subordinated Debentures, as applicable) may be resumed, as
the case may be. If the Corporation or the Trust gives such notie
to suspend the sale of the Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated Debentures,
as applicable), it shall extend the 180-day period referred to
above during which Participating Broker-Dealers are entitled to
use this Prospectus in connection with the resale of Exchange
Capital Securities by the number of days during the period from
and including the date of the giving of such notice to and
including the date when Participating Broker-Dealers shall have
received copies of the amended or supplemented Prospectus
necessary to permit resales of the Exchange Capital Securities or
to and including the date on which the Corporation or the Trust
has given notice that the sale of Exchange Capital Securities (or
the Exchange Guarantee or the Exchange Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be.
Withdrawal Rights
Except as otherwise provided herein, tenders of Original
Capital Securities may be withdrawn at any time on or prior to the
Expiration Date.
In order for a withdrawal to be effective, a written,
telegraphic, telex or facsimile transmission of such notice of
withdrawal must be timely received by the Exchange Agent at one of
its addresses set forth under " Exchange Agent" on or prior to the
Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Original Capital Securities to
be withdrawn, the aggregate principal amount of Original Capital
Securities to be withdrawn, and (if certificates for such Original
Capital Securities have been tendered) the name of the registered
holder of the Original Capital Securities as set forth on the
Original Capital Securities, if different from that of the person
who tendered such Original Capital Securities. If certificates
representing Original Capital Securities have been delivered or
otherwise identified to the Exchange Agent, then prior to the
physical release of such certificates, the tendering holder must
submit the serial numbers shown on the particular Original Capital
Securities to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except
in the case of Original Capital Securities tendered for the
account of an Eligible Institution. If Original Capital
Securities have been tendered pursuant to the procedures for
book-entry transfer set forth in " Procedures for Tendering
Original Capital Securities -- Book-Entry Transfer," the notice of
withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of Original Capital Securities.
Withdrawals of tenders of Original Capital Securities may not be
rescinded. Original Capital Securities properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer,
but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above
under " Procedures for Tendering Original Capital Securities."
All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices will be
determined by the Trust, in its sole discretion, whose
determination shall be final and binding on all parties. Neither
the Corporation, the Trust, any affiliates or assigns of the
Corporation or the Trust, the Exchange Agent nor any other person
shall be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability
for failure to give any such notification. Any Original Capital
Securities which have been tendered but which are withdrawn will
be returned to the holder thereof promptly after withdrawal.
Distributions on Exchange Capital Securities
Holders of Original Capital Securities whose Original
Capital Securities are accepted for exchange will not receive
Distributions on such Original Capital Securities and will be
deemed to have waived the right to receive any Distributions on
such Original Capital Securities accumulated from and after
October 1, 1997. Accordingly, holders of Exchange Capital
Securities as of the record date for the payment of Distributions
on April 1, 1998 will be entitled to receive Distributios
accumulated from and after October 1, 1997.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer,
or any extension of the Exchange Offer, the Corporation and the
Trust will not be required to accept for exchange, or to exchange,
any Original Capital Securities for any Exchange Capital
Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Original Capital Securities have
theretofore been accepted for exchange) or may waive any
conditions to or amend the Exchange Offer, if any of the following
conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current
interpretation by the staff of the Commission which permits the
Exchange Capital Securities issued pursuant to the Exchange Offer
in exchange for Original Capital Securities to be offered for
resale, resold and otherwise transferred by holders thereof (other
than broker-dealers and any such holder which is an "affiliate" of
the Corporation or the Trust within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such Exchange Capital Securities are acquired in the ordinary
course of such holders business and such holders have no
arrangement or understanding with any person to participate in the
distribution of such Exchange Capital Securities; or
(b) any law, statute, rule or regulation shall have been
adopted or enacted which, in the judgment of the Corporation or
the Trust, would reasonably be expected to impair its ability to
proceed with the Exchange Offer; or
(c) a stop order shall have been issued by the Commission
or any state securities authority suspending the effectiveness of
the Registration Statement, or proceedings shall have been
initiated or, to the knowledge of the Corporation or the Trust,
threatened for that purpose, or any governmental approval has not
been obtained, which approval the Corporation or the Trust shall,
in its sole discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby, or
(d) the Corporation determines in good faith (i) that
there is a reasonable likelihood that, or a material uncertainty
exists as to whether, consummation of the Exchange Offer would
result in an adverse tax consequence to the Trust or the
Corporation and (ii) that such condition exists on the October 30,
1997.
If the Corporation or the Trust determines in its sole and
absolute discretion that any of the foregoing events or conditions
has occurred or exists or has not been satisfied, it may, subject
to applicable law, terminate the Exchange Offer (whether or not
any Original Capital Securities have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the
terms of the Exchange Offer in any respect. If such waiver or
amendment constitutes a material change to the Exchange Offer, the
Corporation or the Trust will promptly disclose such waiver or
amendment by means of a prospectus supplement that will be
distributed to the registered holders of the Original Capital
Securities and will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Exchange Act.
Exchange Agent
The Bank of New York has been appointed as Exchange Agent
for the Exchange Offer. Delivery of the Letters of Transmittal
and any other required documents, questions, requests for
assistance, and requests for additional copies of this Prospectus
or of the Letter of Transmittal should be directed to the Exchange
Agent as follows:
BY REGISTERED OR CERTIFIED MAIL:
The Bank of New York
Floor 7E, 101 Barclay Street
New York, New York 10286
Attention: Odell Romeo, Reorganization Section
Confirm By Telephone:
(212) 815-6337
Facsimile Transmissions:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6639
Securities. Until such time, the Exchange Junior Subordinated
Debentures will be registered in the name of the Trust and held by
the Property Trustee. Should the Exchange Junior Subordinated
Debentures be distributed to holders of the Trust Securities,
beneficial interests in the Exchange Junior Subordinated
Debentures will be shown on, and transfers thereof will be
effected only through, records maintained by Participants in DTC.
A global security shall be exchangeable for Exchange Junior
Subordinated Debentures registered in the names of persons other
than Cede & Co. only if (i) DTC notifies the Corporation that it
is unwilling or unable to continue as a depositary for such global
security and no successor depositary shall have been appointed, or
if at any time DTC ceases to be a "clearing agency" registered
under the Exchange Act, at a time when DTC is required to be so
registered to act as such depositary, (ii) the Corporation in its
sole discretion determines that such global security shall be so
exchangeable, or (iii) there shall have occurred and be continuing
a Debenture Event of Default. Any global security that is
exchangeable pursuant to the preceding sentence shall be
exchangeable for certificates registered in such names as DTC
shall direct. It is expected that such instructions will be based
upon directions received by DTC from its Participants with respect
to ownership of beneficial interests in such global security. In
the event that Exchange Junior Subordinated Debentures are issued
in certificated form, such Exchange Junior Subordinated Debentures
will be in minimum denominations of $100,000 and integral
multiples of $1,000 in excess thereof and may be transferred or
exchanged only in such minimum denominations and in the manner and
at the offices described below.
Payments on Exchange Junior Subordinated Debentures
represented by a global security will be made to DTC, as the
depositary for the Exchange Junior Subordinated Debentures. In
the event Exchange Junior Subordinated Debentures are issued in
certificated form, principal and interest will be payable, the
transfer of the Exchange Junior Subordinated Debentures will be
registrable, and Exchange Junior Subordinated Debentures will be
exchangeable for Exchange Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the
corporate office of the Debenture Trustee in New York, New York,
or at the offices of any paying agent or transfer agent appointed
by the Corporation, provided that payment of interest may be made
at the option of the Corporation by check mailed to the address of
the persons entitled thereto or by wire transfer. In addition, if
the Exchange Junior Subordinated Debentures are issued in
certificated form, the record dates for payment of interest will
be the fifteenth day of the month preceding each Payment Date.
For a description of DTC and the terms of the depositary
arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Description
of Exchange Securities Description of Exchange Capital
Securities Form, Denomination, Book-Entry Procedures and
Transfer." If the Exchange Junior Subordinated Debentures are
distributed to the holders of the Trust Securities upon the
termination of the Trut, the form, denomination, book-entry and
transfer procedures with respect to the Capital Securities as
described under "Description of Exchange Securities Description of
Exchange Capital Securities Form, Denomination, Book-Entry
Procedures and Transfer," shall apply to the Exchange Junior
Subordinated Debentures.
Payment and Paying Agents. Payment of principal of (and premium,
if any) and any interest on Exchange Junior Subordinated
Debentures will be made at the office of the Debenture Trustee in
the City of New York or at the office of such Paying Agent or
Paying Agents as the Corporation may designate from time to time,
except that at the option of the Corporation payment of any
interest may be made (except in the case of Exchange Junior
Subordinated Debentures in global form), (i) by check mailed to
the address of the Person entitled thereto as such address shall
appear in the register for Exchange Junior Subordinated Debentures
or (ii) by transfer to an account maintained by the person
entitled thereto as specified in such register, provided that
proper transfer instructions have been received by the relevant
Record Date. Payment of any interest on any Exchange Junior
Subordinated Debenture will be made to the person in whose name
such Exchange Junior Subordinated Debenture is registered at the
close of business on the Record Date for such interest, except in
the case of defaulted interest. The Corporation may at any time
designate additional Paying Agents or rescind the designation of
any Paying Agent; however the Corporation will at all times be
required to maintain a Paying Agent in each Place of Payment for
the Exchange Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any
Paying Agent, or then held by the Corporation in trust, for the
payment of the principal of (and premium, if any) or interest on
any Exchange Junior Subordinated Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or
interest has become due and payable shall, at the request of the
Corporation, be repaid to the Corporation and the holder of such
Exchange Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to the Corporation for payment
thereof.
Option to Extend Interest Payment Date. So long as no Debenture
Event of Default has occurred and is continuing, the Corporation
has the right under the Indenture at any time or from to time
during the term of the Exchange Junior Subordinated Debentures to
defer the payment of interest for a period not exceeding
10 consecutive semi-annual periods with respect to each Extension
Period; provided, however, that no Extension Period shall end on a
date other than an Interest Payment Date or extend beyond the
Stated Maturity Date. At the end of an Extension Period, the
Corporation must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of 9.00%,
compounded semi-annually from the relevant Interest Payment Date,
to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Exchange
Junior Subordinated Debentures (and holders of the Exchange
Capital Securities while Exchange Capital Securities are
outstanding) will be required to accrue such deferred interest
income for United States federal income tax purposes prior to
receipt of the cash attributable to such income. See "Certain
United States Federal Income Tax Consequences Interest Income and
Original Issue Discount."
During any Extension Period, the Corporation 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 Corporation s capital stock (which includes common and
preferred stock), (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt
securities of the Corporation (including any Other Debentures)
that rank pari passu with or junior in right of payment to the
Exchange Junior Subordinated Debentures or (iii) make any
guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsiiary of the
Corporation (including any Other Guarantees) if such guarantee
ranks pari passu with or junior in right of payment to the
Exchange Junior Subordinated Debentures (other than (a) dividends
or distributions in shares of, or options, warrants, or rights to
subscribe for or purchase shares of, common stock of the
Corporation, (b) any declaration of a dividend in connection with
the implementation of a stockholders rights plan, or the issuance
of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under
the Guarantee, (d) purchases of common stock related to the
issuance of common stock or rights under any of the Corporation s
benefit plans for its directors, officers or employees or any of
the Corporation s dividend reinvestment plans, (e) as a result of
a reclassification of the Corporation s capital stock or the
exchange or conversion of one class or series of the Corporation s
capital stock for another class or series of the Corporation s
capital stock, and (f) the purchase of fractional interests in
shares of the Corporation s capital stock pursuant to the
conversion or exchange provisions of such capital stock or the
security being converted or exchanged).
Prior to the termination of any Extension Period, the
Corporation may further extend such Extension Period, provided
that such extension does not cause such Extension Period to exceed
10 consecutive semi-annual periods, end on a date other than an
Interest Payment Date or extend beyond the Stated Maturity Date.
Upon the termination of any Extension Period and the payment of
all amounts then due on any Interest Payment Date, the Corporation
may elect to begin a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Corporation must
give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of any Extension Period
(or an extension thereof) at least five Business Days prior to the
earlier of (i) the date the Distributions on the Trust Securities
would have been payable except for the election to begin or extend
such Extension Period or (ii) the date the Administrative Trustees
are required to give notice to any securities exchange or to
holders of Exchange Capital Securities of the Record Date for the
date such Distributions are payable, but in any event not less
than five Business Days prior to such Record Date. The Debenture
Trustee shall give notice of the Corporation s election to begin
or extend a new Extension Period to the holders of the Capital
Securities. There is no limitation on the number of times that
the Corporation may elect to begin an Extension Period.
Optional Prepayment. The Exchange Junior Subordinated Debentures
will be prepayable, in whole or in part, at the option of the
Corporation on or after April 1, 2007, subject to the Corporation
having received any required regulatory approval, at a prepayment
price (the "Optional Prepayment Price") equal to the percentage of
the outstanding principal amount of the Exchange Junior
Subordinated Debentures specified below, plus, in each case,
accrued interest thereon to but excluding the date fixed for
prepayment if redeemed during the 12-month period beginning
April 1 of the years listed below:
Year Percentage
2007 103.8750%
2008 103.4875%
2009 103.1000%
2010 102.7125%
2011 102.3250%
2012 101.9375%
2013 101.5500%
2014 100.1625%
2015 100.7750%
2016 100.3875%
2017 100.0000%
Special Event Prepayment. If, prior to April 1, 2007, a Special
Event shall occur and be continuing, the Corporation may, at its
option and subject to receipt of any required regulatory approval,
prepay the Exchange Junior Subordinated Debentures in whole (but
not in part) at any time within 90 days after the occurrence of
such Special Event, at a prepayment price (the "Special Event
Prepayment Price") equal to the greater of (i) 100% of the
principal amount of such Exchange Junior Subordinated Debentures
or (ii) the sum, as determined by a Quotation Agent, of the
present values of the principal amount and premium payable with
respect to an optional redemption of such Exchange Junior
Subordinated Debentures on April 1, 2007, together with scheduled
payments of interest on the Exchange Junior Subordinated
Debentures from the prepayment date to and including April 1,
2007, discounted to the prepayment date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at
the Adjusted Treasury Rate, plus, in each case, accrued but unpaid
interest thereon to the date of prepayment. See " Description of
Exchange Capital Securities Liquidation of the Trust and
Distribution of Junior Subordinated Debentures."
"Special Event" means a Tax Event or a Regulatory Capital
Event (as defined below), as the case may be.
"Tax Event" means the receipt by the Corporation and the
Trust of an opinion of counsel experienced in such matters to the
effect that, as a result of any amendment to, or change (including
any announced prospective change) in, the laws or any regulations
thereunder of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment
or change is effective or such pronouncement or decision is
announced on or after March 19, 1997, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90
days of the date of such opinion, subject to United States federal
income tax with respect to income received or accrued on the
Exchange Junior Subordinated Debentures, (ii) interest payable by
the Corporation on the Exchange Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion, will not be,
deductible by the Corporation, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is, or will
be within 90 days of the date of such opinion, subject to more
than a de minimis amount of other taxes, duties or other
governmental charges.
A "Regulatory Capital Event" means that the Corporation
shall have become, or pursuant to law or regulation will become
within 180 days, subject to capital requirements under which, in
the written opinion of independent bank regulatory counsel
experienced in such matters, the Capital Securities would not
constitute Tier 1 Capital applied as if the Corporation (or its
successor) were a bank holding company (as that concept is used in
the guidelines or regulations issued by the Board of Governors of
the Federal Reserve System as of March 19, 1997) or its then
equivalent ("Tier 1 Capital").
"Adjusted Treasury Rate" means, with respect to any
prepayment date, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for such prepayment date, plus (i) 1.85% if such
prepayment date occurs on or prior to April 1, 1998 and (ii) 0.50%
in all other cases.
"Comparable Treasury Issue" means the United States Treasury
security selected by the Quotation Agent as having a maturity
comparable to the remaining term of the Exchange Junior
ubordinated Debt Debentures to be prepaid that would be utilized,
at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the
Exchange Junior Subordinated Debentures.
"Quotation Agent" means the Reference Treasury Dealer
appointed by the Corporation. "Reference Treasury Dealer" means:
a nationally recognized U.S. Government Securities Dealer in New
York City selected by the Corporation.
"Comparable Treasury Price" means, with respect to any
prepayment date, (i) the average of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third Business Day
preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite
3:30 p.m. Quotations for U.S. Government Securities" or (ii) if
such release (or any successor release) is not published or does
not contain such prices on such Business Day, (A) the average of
Reference Treasury Dealer Quotations for such prepayment date,
after excluding the highest and lowest of such Reference Treasury
Dealer Quotations, or (B) if the Debenture Trustee obtains fewer
than three such Reference Treasury Dealer Quotations, the average
of all such quotations.
"Reference Treasury Dealer Quotations" means, with respect
to each Reference Treasury Dealer and any prepayment date, the
average, as determined by the Debenture Trustee, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to
the Debenture Trustee by such Reference Treasury Dealer at
5:00 p.m., New York City time, on the third Business Day preceding
such prepayment date.
"Additional Sums" means the additional amounts as may be
necessary in order that the amount of Distributions then due and
payable by the Trust on the outstanding Capital Securities and
Common Securities shall not be reduced as a result of any such
additional taxes, duties or other governmental charges to which
the Trust has become subject as a result of a Tax Event.
Notice of any prepayment will be mailed at least 30 days but
not more than 60 days before the redemption date to each holder of
Exchange Junior Subordinated Debentures to be prepaid at its
registered address. Unless the Corporation defaults in payment of
the prepayment price, on and after the prepayment date interest
ceases to accrue on such Exchange Junior Subordinated Debentures
called for prepayment.
If the Trust is required to pay any additional taxes, duties
or other governmental charges as a result of a Tax Event, the
Corporation will pay as additional amounts on the Exchange Junior
Subordinated Debentures the Additional Sums.
Restrictions on Certain Payments. The Corporation will also
covenant 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 Corporation s
capital stock (which includes common and preferred stock),
(ii) make any payment of principal, interest or premium, if any,
on or repay or repurchase or redeem any debt securities of the
Corporation (including Other Debentures) that rank pari passu with
or junior in right of payment to the Exchange Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to
any guarantee by the Corporation of the debt securities of any
subsidiary of the Corporation (including under Other Guarantees)
if such guarantee ranks pari passu with or junior in right of
payment to the Exchange Junior Subordinated Debentures (other than
(a) dividends or distributions in shares of, or options, warrants,
or rights to subscribe for or purchase shares of, common stock of
the Corporation, (b) any declaration of a dividend in connection
with the implementation of a stockholders rights plan, or the
issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee,(d) purchases of common stock
related to the issuance of common stock or rights under any of the
Corporation s benefit plans for its directors, officers, or
employees or any of the Corporation s dividend reinvestment plans,
(e) as a result of a reclassification of the Corporation s capital
stock or the exchange or conversion of one class or series of the
Corporation s capital stock for another class or series of the
Corporation s capital stock or (f) the purchase of fractional
interests in shares of the Corporation s capital stock pursuant to
the conversion or exchange provisions of such capital stock or the
security being converted or exchanged), if at such time (1) there
shall have occurred any event of which the Corporation has actual
knowledge that (a) is, or with the giving of notice or lapse of
time, or both, would be a Debenture Event of Default, and (b) in
respect of which the Corporation shall not have taken reasonable
steps to cure, (2) if such Exchange Junior Subordinated Debentures
are held by the Trust, the Corporation shall be in default with
respect to its payment of any obligations under the Exchange
Guarantee, or (3) the Corporation shall have given notice of its
election of an Extension Period as provided in the Indenture and
shall not have rescinded such notice, and such Extension Period,
or any extension thereof, shall be continuing.
For so long as the Trust Securities remain outstanding, the
Corporation will covenant (i) to directly or indirectly maintain
100% direct or indirect ownership of the Common Securities of the
Trust; provided, however, that any permitted successor of the
Corporation under the Indenture may succeed to the Corporation s
ownership of such Common Securities, (ii) not to cause, as Sponsor
of the Trust, or to permit, as holder of the Common Securities,
the dissolution, winding-up or termination of the Trust, except in
connection with a distribution of the Exchange Junior Subordinated
Debentures as provided in the Declaration and in connection with
certain mergers, consolidations or amalgamations and (iii) to use
its reasonable efforts to cause the Trust (a) to remain a business
trust, except in connection with the distribution of Exchange
Junior Subordinated Debentures to the holders of Trust Securities
in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (b) to
otherwise continue to be classified as a grantor trust for United
States federal income tax purposes.
Modification of Indenture. From time to time the Corporation and
the Debenture Trustee may, without the consent of the holders of
Exchange Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies
(provided that any such action does not materially adversely
affect the interest of the holders of Exchange Junior Subordinated
Debentures) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Corporation and the Debenture
Trustee, with the consent of the holders of a majority in
principal amount of Exchange Junior Subordinated Debentures, to
modify the Indenture in a manner affecting the rights of the
holders of Exchange Junior Subordinated Debentures; provided, that
no such modification may, without the consent of the holder of
each outstanding Exchange Junior Subordinated Debenture so
affected, (i) change the Stated Maturity, or reduce the principal
amount of the Exchange Junior Subordinated Debentures, or reduce
the rate or extend the time of payment of interest thereon except
pursuant to the Corporation s right under the Indenture to defer
the payment of interest as provided therein (see "--Option to
Extend Interest Payment Date") or (ii) reduce the percentage of
principal amount of Exchange Junior Subordinated Debentures, the
holders of which are required to consent to any such modification
of the Indenture.
In addition, the Corporation and the Debenture Trustee may
execute, without the consent of any holder of Exchange Junior
Subordinated Debentres, any supplemental Indenture for the purpose
of creating any Other Debentures.
Debenture Events of Default. The Indenture provides that any one
or more of the following described events with respect to the
Exchange Junior Subordinated Debentures that has occurred and is
continuing constitutes a "Debenture Event of Default" (whatever
the reason for such Debenture Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or
governmental body):
(i) failure for 30 days to pay any interest on the Exchange Junior
Subordinated Debentures or any Other Debentures when due (subject
to the deferral of any due date in the case of an Extension
Period); or
(ii) failure to pay any principal or premium, if any, on the Exchange
Junior Subordinated Debentures or any Other Debentures when due,
whether at maturity, upon redemption, by declaration of
acceleration of maturity or otherwise; or
(iii failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after
written notice to the Corporation from the Debenture Trustee or
the holders of at least 25% in aggregate outstanding principal
amount of the Exchange Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal
amount of the Exchange 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
outstanding principal amount of the Exchange Junior Subordinated
Debentures may declare the principal due and payable immediately
upon a Debenture Event of Default. The holders of a majority in
aggregate outstanding principal amount of the Exchange Junior
Subordinated Debentures may annul such declaration and waive the
default if the default (other than the non-payment of the
principal of the Exchange Junior Subordinated Debentures which has
become due solely by such acceleration) has been cured and a sum
sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited
with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal
amount of the Exchange Junior Subordinated Debentures affected
thereby may, on behalf of the holders of all the Exchange Junior
Subordinated Debentures, waive any past default, except a default
in the payment of principal of (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay
all matured installments of interest (and premium, if any) and
principal due otherwise than by acceleration has been deposited
with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Indenture cannot be modified or
amended without the consent of the holder of each outstanding
Exchange Junior Subordinated Debenture. The Corporation is
required to file annually with the Debenture Trustee a certificate
as to whether or not the Corporation is in compliance with all the
conditions and covenants applicable to it under the Indenture.
Enforcement of Certain Rights by Holders of Exchange Capital
Securities. If a Debenture Event of Default has occurred and is
continuing and such event is attribuable to the failure of the
Corporation to pay interest (or premium, if any) on or principal
of the Exchange Junior Subordinated Debentures on the due date, a
holder of Exchange Capital Securities may institute a Direct
Action. The Corporation may not amend the Indenture to remove the
foregoing right to bring a Direct Action without the prior written
consent of the holders of all of the Exchange Capital Securities.
Notwithstanding any payments made to a holder of Exchange Capital
Securities by the Corporation in connection with a Direct Action,
the Corporation shall remain obligated to pay the principal of (or
premium, if any) or interest on the Exchange Junior Subordinated
Debentures, and the Corporation shall be subrogated to the rights
of the holder of such Capital Securities with respect to payments
on the Exchange Capital Securities to the extent of any payments
made by the Corporation to such holder in any Direct Action.
The holders of the Exchange Capital Securities will not be
able to exercise directly any remedies, other than those set forth
in the preceding paragraph, available to the holders of the
Exchange Junior Subordinated Debentures unless there shall have
been an Event of Default under the Declaration. See " Description
of Exchange Capital Securities Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions. The
Indenture provides that the Corporation shall not consolidate with
or merge into any other Person or convey, transfer or lease its
properties and assets as an entirety or substantially as an
entirety to any Person, and no Person shall consolidate with or
merge into the Corporation or convey, transfer or lease its
properties and assets as an entirety or substantially as an
entirety to the Corporation, unless (i) in case the Corporation
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 Corporation s
obligations on the Exchange Junior Subordinated Debentures;
(ii) immediately after giving effect thereto, no Debenture Event
of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have
occurred and be continuing; and (iii) certain other conditions as
prescribed in the Indenture are met.
The general provisions of the Indenture do not afford
holders of the Exchange Junior Subordinated Debentures protection
in the event of a highly leveraged or other transaction involving
the Corporation that may adversely affect holders of the Exchange
Junior Subordinated Debentures.
Satisfaction and Discharge. The Indenture provides that when,
among other things, all Exchange Junior Subordinated Debentures
not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and
payable at maturity within one year, and the Corporation deposits
or causes to be deposited with the Debenture Trustee funds, in
trust, for the purpose and in an amount sufficient to pay and
discharge the entire indebtedness on the Exchange 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
Date, as the case may be, then the Indenture will cease to be of
further effect (except as to the Corporation s obligations to pay
all other sums due pursuant to the Indenture and to provide the
officers certificates and opinions of counsel described therein),
and the Corporation will be deemed to have satisfied and
discharged the Indenture.
Subordination. In the Indenture, the Corporation has covenanted
and agreed that any Exchange Junior Subordinated Debentures issued
thereunder shall be subordinate and junior in right of payment to
all Senior Indebtedness to the extent provided in the Indenture.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding-up, reorganization, assignment
for the benefit of creditors, marshalig of assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceeding of the
Corporation, the holders of Senior Indebtedness will first be
entitled to receive payment in full of all Allocable Amounts (as
defined below) in respect of such Senior Indebtedness before the
holders of Exchange Junior Subordinated Debentures will be
entitled to receive or retain any payment or distribution in
respect thereof.
In the event of the acceleration of the maturity of the
Exchange Junior Subordinated Debentures, the holders of all Senior
Indebtedness outstanding at the time of such acceleration will
first be entitled to receive payment in full of all Allocable
Amounts in respect of such Senior Indebtedness before the holders
of the Exchange Junior Subordinated Debentures will be entitled to
receive or retain any payment in respect of the Exchange Junior
Subordinated Debentures.
No payments on account of principal (or premium, if any) or
interest, if any, in respect of the Exchange Junior Subordinated
Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior
Indebtedness, or an event of default with respect to any Senior
Indebtedness resulting in the acceleration of the maturity
thereof, or if any judicial proceeding shall be pending with
respect to any such default.
"Senior Indebtedness" shall mean all Indebtedness for Money
Borrowed, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, except
Indebtedness Ranking on a Parity with the Exchange Junior
Subordinated Debentures or Indebtedness Ranking Junior to the
Exchange Junior Subordinated Debentures, and any deferrals,
renewals or extensions of such Senior Indebtedness.
"Allocable Amounts," when used with respect to any Senior
Indebtedness, means all amounts due or to become due on such
Senior Indebtedness less, if applicable, any amount which would
have been paid to, and retained by, the holders of such Senior
Indebtedness (whether as a result of the receipt of payments by
the holders of such Senior Indebtedness from the Corporation or
any other obligor thereon or from any holders of, or trustee in
respect of, other indebtedness that is subordinate and junior in
right of payment to such Senior Indebtedness pursuant to any
provision of such indebtedness for the payment over of amounts
received on account of such indebtedness to the holders of such
Senior Indebtedness or otherwise) but for the fact that such
Senior Indebtedness is subordinate or junior in right of payment
to (or subject to a requirement that amounts received on Senior
Indebtedness be paid over to obligees on) trade accounts payable
or accrued liabilities arising in the ordinary course of business.
"Indebtedness for Money Borrowed" shall mean any obligation
of, or any obligation guaranteed by, the Corporation for the
repayment of borrowed money, whether or not evidenced by bonds,
debentures, notes or other written instruments.
"Indebtedness Ranking on a Parity with the Exchange Junior
Subordinated Debentures" shall mean (i) Indebtedness for Money
Borrowed, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, which
specifically by its terms ranks equally with and not prior to the
Exchange Junior Subordinated Debentures in the right of payment
upon the happening of the dissolution or winding-up or liquidation
or reorganization of the Corporation and (ii) all other debt
securities, and guarantees in respect of those debt securities,
issued to any other trust, partnership or other entity affiliated
with the Corporation that is a financing vehicle of the
Corporation (a "financing entity") in connection with the issuance
by such financing entity of equity securities or other securities
guaranteed by the Corporation pursuant to an instrument that ranks
pari passu with our junior in right of payment to theGuarantee.
"Indebtedness Ranking Junior to the Exchange Junior
Subordinated Debentures" shall mean any Indebtedness for Money
Borrowed, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, which
specifically by its terms ranks junior to and not equally with or
prior to the Exchange Junior Subordinated Debentures (and any
other Indebtedness Ranking on a Parity with the Exchange Junior
Subordinated Debentures) in right of payment upon the happening of
the dissolution or winding-up or liquidation or reorganization of
the Corporation. The securing of any Indebtedness for Money
Borrowed, otherwise constituting Indebtedness Ranking on a Parity
with the Exchange Junior Subordinated Debentures or Indebtedness
Ranking Junior to the Exchange Junior Subordinated Debentures, as
the case may be, shall not be deemed to prevent such Indebtedness
for Money Borrowed from constituting Indebtedness Ranking on a
Parity with the Exchange Junior Subordinated Debentures or
Indebtedness Ranking Junior to the Exchange Junior Subordinated
Debentures, as the case may be.
The Corporation is a non-operating holding company and
almost all of the operating assets of the Corporation are owned by
the Corporation s subsidiaries. The Corporation relies primarily
on dividends from such subsidiaries to meet its obligations for
payment of principal and interest on its outstanding debt
obligations and corporate expenses. The Corporation is a legal
entity separate and distinct from its banking and non-banking
affiliates. The principal sources of the Corporation s income are
dividends, interest and fees from its banking and non-banking
affiliates. The Bank is subject to certain restrictions imposed
by federal law on any extensions of credit to, and certain other
transactions with, the Corporation and certain other affiliates,
and on investments in stock or other securities thereof. Such
restrictions prevent the Corporation and such other affiliates
from borrowing from the Bank unless the loans are secured by
various types of collateral. Further, such secured loans, other
transactions and investments by the Bank are generally limited in
amount as to the Corporation and as to each of such other
affiliates to 10% of such Bank s capital and surplus and as to the
Corporation and all of such other affiliates to an aggregate of
20% of such Bank s capital and surplus. In addition, payment of
dividends to the Corporation by the subsidiary banks is subject to
ongoing review by banking regulators and is subject to various
statutory limitations and in certain circumstances requires
approval by banking regulatory authorities. Accordingly, the
Exchange Junior Subordinated Dentures will be effectively
subordinated to all existing and future liabilities of the
Corporation s subsidiaries. Holders of Exchange Junior
Subordinated Debentures should look only to the assets of the
Corporation for payments of interest and principal and premium, if
any.
The Indenture places no limitation on the amount of Senior
Indebtedness that may be incurred by the Corporation. The
Corporation expects from time to time to incur additional
indebtedness constituting Senior Indebtedness. At March 31, 1997,
the aggregate outstanding Senior Indebtedness of the Corporation
was $166.8 million.
Restrictions on Transfer. The Exchange Junior Subordinated
Debentures will be issued, and may be transferred only, in blocks
having an aggregate principal amount of not less than $100,000
(100 Exchange Junior Subordinated Debentures). Any such transfer
of Exchange Junior Subordinated Debentures in a block having an
aggregate principal amount of less than $100,000 shall be deemed
to be void and of no legal effect whatsoever. Any such transferee
shall be deemed not to be the holder of such Exchange Junior
Subordinated Debentures for any purpose, including but not limited
to the receipt of payments on such Exchange Junior Subordinated
Debentures, and such transferee shall be deemed to have no
interest whatsoever in such Exchange Junior Subordinated
Debentures.
Governing Law. The Indenture and the Exchange Junior Subordinated
Debentures will be governed by and construed in accordance with
the laws of theState of New York.
Information Concerning the Debenture Trustee. Following the
Exchange Offer and the qualification of the Indenture under the
Trust Indenture Act, the Debenture Trustee shall have and be
subject to all the duties and responsibilities specified with
respect to an indenture trustee under the Trust Indenture Act.
Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Exchange Junior
Subordinated Debentures, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which
might be incurred thereby. The Debenture Trustee is not required
to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if the
Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Description of Exchange Guarantee
The Exchange Guarantee will be executed and delivered by the
Corporation concurrently with the issuance by the Trust of the
Exchange Capital Securities for the benefit of the holders from
time to time of such Exchange Capital Securities. The Bank of New
York will act as trustee (the "Guarantee Trustee") under the
Exchange Guarantee. The Exchange Guarantee has been qualified
under the Trust Indenture Act. This summary of certain provisions
of the Exchange Guarantee does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of
the provisions of the Exchange Guarantee, including the
definitions therein of certain terms, and the Trust Indenture Act.
The Guarantee Trustee will hold the Exchange Guarantee for the
benefit of the holders of the Exchange Capital Securities.
General. The Corporation will irrevocably agree to pay in full on
a subordinated basis, to the extent set forth herein, the
Guarantee Payments (as defined herein) to the holders of the
Exchange Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have
or assert other than the defense of payment. The following
payments with respect to the Exchange Capital Securities, to the
extent not paid by or on behalf of the Trust (the "Guarantee
Payments"), will be subject to the Exchange Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the
Exchange Capital Securities, to the extent that the Trust has
funds on hand legally available therefor at such time, (ii) the
applicable Redemption Price with respect to Exchange Capital
Securities called for redemption, to the extent that the Trust has
funds on hand legally available therefor at such time, and
(iii) upon a voluntary or involuntary termination and liquidation
of the Trust (other than in connection with the distribution of
Exchange Junior Subordinated Debentures to the holders of the
Exchange Capital Securities or the redemption of all of the
Exchange Capital Securities) the lesser of (a) the Liquidation
Distribution and (b) the amount of assets of the Trust remaining
available for distribution to holders of the Exchange Capital
Securities. The Corporation s obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts
by the Corporation to the holders of the Exchange Capital
Securities or by causing the Trust to pay such amounts to such
holders.
The Exchange Guarantee will rank subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided
therein. See " Status of the Exchange Guarantee." Because the
Corporation is a holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary upon
such subsidiary s liquidation or reorganization or otherwise, is
subject to the prior claims of creditors of such subsidiary,
except to the extent the Corporation may itself be recognized as a
creditor of that subsidiary. Accordingly, the Corporation s
obligations under the Exchange Guarantee will be effectively
subordinated to all existing and future liabilities of the
Corporation s subsidiaries, including deposits, and claimants
should look only to the assets of the Corporation for ayments
thereunder. See "Description of the Exchange Junior Subordinated
Debentures - General." The Guarantee does not limit the
incurrence or issuance of other secured or unsecured debt of the
Corporation, including Senior Indebtedness, whether under the
Indenture or any other indenture that the Corporation may enter
into in the future or otherwise.
The Corporation has, through the Exchange Guarantee, the
Declaration, the Exchange Junior Subordinated Debentures and the
Indenture, taken together, fully, irrevocably and unconditionally
guaranteed all of the Trust s obligations under the Exchange
Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Trust s
obligations under the Exchange Capital Securities. See
"Relationship Among the Exchange Capital Securities, the Exchange
Junior Subordinated Debentures and the Exchange Guarantee."
Status of the Exchange Guarantee. The Exchange Guarantee will
constitute an unsecured obligation of the Corporation and will
rank subordinate and junior in right of payment to all Senior
Indebtedness in the same manner as Exchange Junior Subordinated
Debentures, except in the case of a bankruptcy or insolvency
proceeding in respect of the Corporation, in which case the
Exchange Guarantee will rank subordinate and junior in right of
payment to all liabilities (other than Other Guarantees) of the
Corporation.
The Exchange Guarantee will rank pari passu with all Other
Guarantees issued by the Corporation. The Exchange Guarantee will
constitute a guarantee of payment and not of collection (i.e., the
guaranteed party may institute a legal proceeding directly against
the Corporation to enforce its rights under the Exchange Guarantee
without first instituting a legal proceeding against any other
person or entity). The Exchange Guarantee will be held for the
benefit of the holders of the Exchange Capital Securities. The
Exchange Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust or
upon distribution to the holders of the Exchange Capital
Securities of the Exchange Junior Subordinated Debentures. The
Guarantee does not place a limitation on the amount of additional
Senior Indebtedness that may be incurred by the Corporation. The
Corporation expects from time to time to incur additional
indebtedness constituting Senior Indebtedness.
Amendments and Assignment. Except with respect to any changes
which do not materially adversely affect the rights of holders of
the Exchange Capital Securities (in which case no vote will be
required), the Exchange Guarantee may not be amended without the
prior approval of the holders of a majority of the aggregate
Liquidation Amount of such outstanding Exchange Capital
Securities. The manner of obtaining any such approval will be as
set forth under " Description of Exchange Capital
Securities Voting Rights; Amendment of the Declaration." All
guarantees and agreements contained in the Exchange Guarantee
shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit
of the holders of the Exchange Capital Securities then
outstanding.
Events of Default. An event of default under the Exchange
Guarantee will occur upon the failure of the Corporation to
perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate Liquidation Amount of the
Exchange Capital Securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Exchange
Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Exchange Guarantee.
Any holder of the Exchange Capital Securities may institute
a legal proceeding directly against the Corporation to enforce its
rights under the Exchange Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trutee or any
other person or entity.
The Corporation, as guarantor, is required to file annually
with the Guarantee Trustee a certificate as to whether or not the
Corporation is in compliance with all the conditions and covenants
applicable to it under the Exchange Guarantee.
Information Concerning the Guarantee Trustee. The Guarantee
Trustee, other than during the occurrence and continuance of a
default by the Corporation in performance of the Guarantee, will
undertake to perform only such duties as are specifically set
forth in the Guarantee and, after default with respect to the
Guarantee, must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her
own affairs. Subject to this provision, the Guarantee Trustee
will be under no obligation to exercise any of the powers vested
in it by the Guarantee at the request of any holder of the Capital
Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
Termination of the Exchange Guarantee. The Exchange Guarantee
will terminate and be of no further force and effect upon full
payment of the applicable Redemption Price of the Exchange Capital
Securities, upon full payment of the Liquidation Amount payable
upon liquidation of the Trust or upon distribution of Exchange
Junior Subordinated Debentures to the holders of the Exchange
Capital Securities. The Exchange Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any
time any holder of the Exchange Capital Securities must restore
payment of any sums paid under the Exchange Capital Securities or
the Exchange Guarantee.
Governing Law. The Exchange Guarantee will be governed by and
construed in accordance with the laws of the State of New York.
DESCRIPTION OF ORIGINAL SECURITIES
The terms of the Original Securities are identical in all
materials respects to the Exchange Securities, except that (i) the
Original Securities have not been registered under the Securities
Act, are subject to certain restrictions on transfer and are
entitled to certain rights under the applicable Registration
Agreement (which rights will terminate upon consummation of the
Exchange Offer, except under limited circumstances), (ii) the
Exchange Capital Securities will not provide for any increase in
the Distribution rate thereon and (iii) the Exchange Junior
Subordinated Debentures will not provide for any liquidated
damages thereon. The Original Securities provide that, in the
event that a registration statement relating to the Exchange Offer
has not been filed by August 16, 1997 and been declared effective
by September 15, 1997, or, in certain limited circumstances, in
the event a shelf registration statement (the "Shelf Registration
Statement") with respect to the resale of the Original Capital
Securities is not declared effective by September 15, 1997, then
liquidated damages will accrue at the rate of 0.25% per annum on
the principal amount of the Original Junior Subordinated
Debentures and Distributions will accrue at the rate of 0.25% per
annum on the Liquidation Amount of the Original Capital
Securities, for the period from the occurrence of such event until
such time as such required Exchange Offer is consummated or any
required Shelf Registration Statement is effective. The Exchange
Securities are not, and upon consummation of the Exchange Offer
the Original Securities will not be, entitled to any such
additional interest or Distributions. Accordingly, holders of
Original Capital Securities should review the information set
forth under "Risk Factors Consequences of a Failure to Exchange
Original Capital Securities" and "Description of Exchange
Securities."
RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES,
THE EXCHANGE JUNIOR
SUBORDINATED DEBENTURES AND THE EXCHANGE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the
Exchange Capital Securities (to the extent the Trust has fundson
hand legally available for the payment of such Distributions) are
irrevocably guaranteed by the Corporation as and to the extent set
forth under " Description of Exchange Guarantee." Taken together,
the Corporation s obligations under the Exchange Junior
Subordinated Debentures, the Indenture, the Declaration and the
Exchange Guarantee provide, in the aggregate, a full, irrevocable
and unconditional guarantee of payments of Distributions and other
amounts due on the Exchange Capital Securities. No single
document standing alone or operating in conjunction with fewer
than all of the other documents constitutes such guarantee. It is
only the combined operation of these documents that has the effect
of a full, irrevocable and unconditional guarantee of the Trust s
obligations under the Exchange Capital Securities. If and to the
extent that the Corporation does not make payments on the Exchange
Junior Subordinated Debentures, the Trust will not have sufficient
funds to make the related payments, including Distributions, on
the Exchange Capital Securities. The Guarantee does not cover any
such payment when the Trust does not have sufficient funds on hand
legally available therefor. In such event, the remedy of a holder
of Exchange Capital Securities is to institute a Direct Action.
The obligations of the Corporation under the Exchange Guarantee
are subordinate and junior in right of payment to all Senior
Indebtedness.
Sufficiency of Payments
As long as payments of interest and other payments are made
when due on the Exchange Junior Subordinated Debentures, such
payments will be sufficient to cover Distributions and other
payments due on the Exchange Capital Securities, primarily because
(i) the aggregate principal amount or Prepayment Price of the
Exchange Junior Subordinated Debentures will be equal to the sum
of the aggregate Liquidation Amount or Redemption Price, as
applicable, of the Trust Securities; (ii) the interest rate and
interest and other payment dates on the Exchange Junior
Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities;
(iii) the Corporation, as Sponsor, shall pay for all costs,
expenses and liabilities of the Trust except the Trust s
obligations to holders of Trust Securities under such Trust
Securities; and (iv) the Declaration further provides that the
Trust is not authorized to engage in any activity that is not
consistent with the limited purposes thereof.
Enforcement Rights of Holders of Exchange Capital Securities
A holder of any Exchange Capital Security may institute a
legal proceeding directly against the Corporation to enforce its
rights under the Exchange Guarantee without first instituting a
legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior Indebtedness
would not constitute a default or Event of Default under the
Declaration. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness, the subordination provisions
of the Indenture provide that no payments may be made in respect
of the Exchange Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required
payments on Exchange Junior Subordinated Debentures would
constitute an Event of Default under the Declaration.
Limited Purpose of the Trust
The Capital Securities evidence a beneficial interest in the
Trust, and the Trust exists for the sole purpose of issuing and
selling the Trust Securities, using the proceeds from the sale of
the Trust Securities to acquire the Junior Subordinated
Debentures, and engaging in only those other activities necessary,
advisable or incidental thereto. A principal difference between
the rights of a holder of an Exchange Capital Security and a
holder of an Exchange Junior Subordinated Debenture is that a
holder of an Exchange Junior Subordinated Debenture will be
entitled to receive from the Corporation the principal amount (and
premium, if any) and interest on Exchange Junior Subordinated
Debentures held, while a holder of Exchange Capital Securitiesis
entitled to receive Distributions from the Trust (or, in certain
circumstances from the Corporation under the Guarantee) if and to
the extent the Trust has funds on hand legally available for the
payment of such Distributions.
Rights Upon Termination
Unless the Exchange Junior Subordinated Debentures are
distributed to holders of the Trust Securities, upon any voluntary
or involuntary termination and liquidation of the Trust, after
satisfaction of the liabilities of creditors of the Trust as
required by applicable law, the holders of the Trust Securities
will be entitled to receive, out of assets held by the Trust, the
Liquidation Distribution in cash. See "Description of Exchange
Securities Description of Exchange Capital Securities Liquidation
of the Trust and Distribution of Junior Subordinated Debentures."
Upon any voluntary or involuntary liquidation or bankruptcy of the
Corporation, the Property Trustee, as holder of the Exchange
Junior Subordinated Debentures, would be a subordinated creditor
of the Corporation, subordinated in right of payment to all Senior
Indebtedness as set forth in the Indenture, but entitled to
receive payment in full of principal (and premium, if any) and
interest, before any stockholders of the Corporation receive
payments or distributions. Since the Corporation is the guarantor
under the Exchange Guarantee and has agreed to pay for all costs,
expenses and liabilities of the Trust (other than the Trust s
obligations to the holders of its Trust Securities), the positions
of a holder of Exchange Capital Securities and a holder of
Exchange Junior Subordinated Debentures relative to other
creditors and to stockholders of the Corporation in the event of
liquidation or bankruptcy of the Corporation are expected to be
substantially the same.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of certain of the material United
States federal income tax consequences of the purchase, ownership
and disposition of Capital Securities held as capital assets
(generally, assets held for investment) by a holder who purchases
such Capital Securities upon original issuance. The tax treatment
of a holder of Capital Securities may vary depending upon his
particular situation. This summary does not address all of the
tax consequences that may be relevant to holders who may be
subject to special tax treatment such as, for example, banks,
thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, or, except to the extent
described below, foreign taxpayers. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations thereunder and the administrative and judicial
interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. Each investor
is urged to consult his tax advisor as to the particular tax
consequences of purchasing, owning and disposing of Capital
Securities, including the application and effect of United States
federal, state, local, foreign, and other tax laws.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER UNITED STATES FEDERAL, STATE, LOCAL, FOREIGN,
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE
POSSIBLE REDEMPTION OF THE CAPITAL SECURITIES UPON THE OCCURRENCE
OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF EXCHANGE
SECURITIES DESCRIPTION OF EXCHANGE CAPITAL SECURITIES LIQUIDATION
OF THE TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES."
Exchange of Capital Securities
The exchange of Original Securities for Exchange Securities
should not be a taxable event to holders for United States federal
income tax purposes. The exchange of Original Securities for
Exchange Securities pursuant to the Exchange Offer should not be
treated as an "exchange" for United States federal icome tax
purposes because the Exchange Securities should not be considered
to differ materially in kind or extent from the Original
Securities and because the exchange will occur by operation of the
terms of the Original Securities. Accordingly, the Exchange
Capital Securities should have the same issue price as the
Original Capital Securities, and a holder should have the same
adjusted tax basis and holding period in the Exchange Capital
Securities as the holder had in the Original Capital Securities
immediately before the exchange. Moreover, a holder which had
acquired Original Capital Securities with either market discount
or bond premium will be treated as holding Exchange Capital
Securities with the same amount of market discount or bond premium
and will be required to include such market discount in or deduct
such bond premium from their income in the same manner as on the
Original Capital Securities. Holders are urged to consult their
tax advisors regarding the applicability of the market discount
and bond premium rules.
Classification of the Junior Subordinated Debentures
The Corporation intends to take the position that the
Exchange Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the
Corporation under current law and, by acceptance of Capital
Securities, each holder covenants to treat the Exchange Junior
Subordinated Debentures as indebtedness and the Capital Securities
as evidence of an indirect beneficial ownership interest in the
Exchange Junior Subordinated Debentures. No assurance can be
given, however, that the IRS will not challenge such position or,
if challenged, that such a challenge will not be successful. The
remainder of this discussion assumes that the Exchange Junior
Subordinated Debentures will be treated as indebtedness of the
Corporation for United States federal income tax purposes.
Classification of the Trust
In connection with the issuance of the Capital Securities,
Stevens & Lee, P.C., special tax counsel to the Corporation and
the Trust ("Tax Counsel") is of the opinion that, under current
law and assuming full compliance with the terms of the
Declaration, the Indenture, and other documents, and based upon
certain facts and assumptions contained in such opinion, the Trust
will be classified as a grantor trust for United States federal
income tax purposes and not as an association taxable as a
corporation. Accordingly, for United States federal income tax
purposes, each holder of Capital Securities will generally be
treated as the owner of an undivided interest in the Junior
Subordinated Debentures and, as further discussed below, each
holder will be required to include in ordinary income his
allocable share of interest (or original issue discount ("OID"))
paid or accrued on the Junior Subordinated Debentures.
Interest Income and Original Issue Discount
Under recently issued Treasury regulations (the
"Regulations"), a debt instrument will be deemed to be issued with
OID if there is more than a "remote" contingency that periodic
stated interest payments due on the instrument will not be timely
paid. Because the exercise by the Corporation of its option to
defer the payment of stated interest on the Exchange Junior
Subordinated Debentures would prevent the Corporation from
declaring dividends on any class of equity, the Corporation
believes that the likelihood of its exercising the option is
"remote" within the meaning of such regulations. As a result, the
Corporation intends to take the position, based on the advice of
Tax Counsel, that the Junior Subordinated Debentures will not be
deemed to be issued with OID. Accordingly, based upon this
position, and except as set forth below, stated interest payments
on the Junior Subordinated Debentures generally will be includible
in the ordinary income of a holder of Capital Securities at the
time that such payments are paid or accrued in accordance with
such holder s regular method of accounting. Because the
Regulations have not yet been addressed in any published rulings
or other published interpretations issued by the Internal Revenue
Service, it is possible that the Internal Revenue Service could
take a psition contrary to the position taken by the Corporation.
Exercise of Deferral Option. If the Corporation were to
exercise its option to defer the payment of stated interest on the
Junior Subordinated Debentures, the Junior Subordinated Debentures
would be treated, solely for purposes of the OID rules, as being
"re-issued" at such time with OID. Under these rules, a holder of
the Junior Subordinated Debentures would be required to include
OID in ordinary income, on a current basis, over the period that
the instrument is held even though the Corporation would not be
making any actual cash payments during the extended interest
payment period. The amount of interest income includible in the
taxable income of a holder of the Junior Subordinated Debentures
would be determined on the basis of a constant yield method over
the remaining term of the instrument and the actual receipt of
future payments of stated interest on the Junior Subordinated
Debentures would no longer be separately reported as taxable
income. The amount of OID that would accrue, in the aggregate,
during the extended interest payment period would be approximately
equal to the amount of the cash payment due at the end of such
period. Any OID included in income would increase the holder s
adjusted tax basis in the Junior Subordinated Debentures and the
holder s actual receipt of interest payments would reduce such
basis.
Because income on the Capital Securities will constitute
interest for United States federal income tax purposes, corporate
holders of Capital Securities will not be entitled to a
dividends-received deduction in respect of such income.
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation
of the Trust
If the Corporation exercises its right to liquidate the
Trust and cause the Exchange Junior Subordinated Debentures to be
distributed to the holders of the Trust Securities, such
distribution would be treated as a nontaxable event to the holders
of Capital Securities. In such event, each holder of Capital
Securities would have an adjusted tax basis in the Exchange Junior
Subordinated Debentures, received in the liquidation, equal to
such holder s adjusted tax basis in his Capital Securities
surrendered therefor, and the holding period of the Exchange
Junior Subordinated Debentures would include the period during
which the holder had held the Capital Securities. If, however,
the Trust is characterized, for United States federal income tax
purposes, as an association taxable as a corporation at the time
of such liquidation, the distribution of the Exchange Junior
Subordinated Debentures would constitute a taxable event to
holders of Capital Securities.
If the Exchange Junior Subordinated Debentures are redeemed
for cash and the proceeds of such redemption are distributed to
holders in redemption of their Capital Securities, the redemption
would for United States federal income tax purposes be treated as
a sale of the Capital Securities, in which gain or loss would be
recognized, as described immediately below. See "--Sales of
Capital Securities."
Sales of Capital Securities
Upon the sale of Capital Securities (including a redemption
of Capital Securities) a holder will recognize gain or loss in an
amount equal to the difference between the amount realized by the
holder on the sale of the Capital Securities (except to the extent
that such amount realized is characterized as a payment in respect
of accrued but unpaid interest on such holder s allocable share of
the Junior Subordinated Debentures that the holder had not
included in gross income previously) and the holder s adjusted tax
basis in the Capital Securities sold or redeemed. A holder s
adjusted tax basis in the Capital Securities will generally be its
initial purchase price increased by OID (if any) previously
includible in such holder s gross income to the date of
disposition and decreased by payments (if any) received on the
Capital Securities in respect of OID. Such gain or loss generally
will be a capital gain or loss, and generally will be a long-term
capital gain or loss if the Capital Securities have been held for
more than one year. Under the Taxpayers Relief Act of 1997, for
no-corporate taxpayers, such gain is taxed at different rates,
which vary with the taxpayer s holding period for the capital
asset. Generally, for capital assets held for more than one year
but not more than eighteen months, the maximum rate is 28%. For
capital assets held for more than eighteen months, the maximum
rate is 20%. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United
States federal income tax purposes.
The Capital Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest (or
OID if the Junior Subordinated Debentures are treated as having
been issued, or reissued with OID) with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual
method of accounting for tax purposes (and a cash method holder,
if the Junior Subordinated Debentures are deemed to have been
issued with OID) who disposes of his Capital Securities will be
required to include in ordinary income (i) any portion of the
amount realized that is attributable to such accrued but unpaid
interest to the extent not previously included in income or
(ii) any OID, in either case that has accrued on his pro rata
share of the underlying Junior Subordinated Debentures during the
taxable year of sale through the date of disposition. Any such
income inclusion will increase the holder s adjusted tax basis in
his Capital Securities disposed of. To the extent the amount
realized in the sale is less than the holder s adjusted tax basis
a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States Alien
Holder" is any corporation, individual, partnership, estate or
trust that is not a U.S. Holder for United States federal income
tax purposes.
A "U.S. Holder" is a holder of Capital 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 federal
income tax purposes, (ii) a corporation or partnership created or
organized (or treated as created or organized for federal 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 federal income tax purposes
without regard to its source, or (iv) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons
have the authority to control all substantial decisions of the
trust.
Under present United States federal income tax laws:
(i) payments by the Trust or any of its paying agents to any
holder of a Capital Security who or which is a United States Alien
Holder will not be subject to United States federal withholding
tax; provided that, (a) the beneficial owner of the Capital
Security does not actually or constructively own 10 percent or
more of the total combined voting power of all classes of stock of
the Corporation entitled to vote, (b) the beneficial owner of the
Capital Security is not a controlled foreign corporation that is
related to the Corporation through stock ownership, and (c) either
(A) the beneficial owner of the Capital Security certifies to the
Trust or its agent, under penalties of perjury, that it is not a
United States holder and provides its name and address or (B) 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 Capital Security in such capacity, certifies to the
Trust or its agent, under penalties of perjury, that such
statement has been received from the beneficial owner by it or by
a Financial Institution between it and the beneficial owner and
furnishes the Trust or its agent with a copy thereof; and (ii) a
United States Alien Holder of a Capital Security will not be
subject to United States federal withholding tax on any gain
realized upon the sale or other dispositionof a Capital Security.
Information Reporting to Holders
Generally, income on the Capital Securities will be reported
to holders on Forms 1099, which forms should be mailed to holders
of Capital Securities by January 31 following each calendar year.
Backup Withholding
Payments made on, and proceeds from the sale of, the Capital
Securities may be subject to a "backup" withholding tax of 31
percent unless the holder complies with certain identification
requirements. Any withheld amounts will be allowed as a credit
against the holder s United States federal income tax, provided
the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH
ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDER S PARTICULAR SITUATION.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS
OF CHANGE IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Corporation, the obligor with respect to the Junior
Subordinated Debentures held by the Trust, and its affiliates and
the Property Trustee may 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. Any
purchaser proposing to acquire Capital Securities with assets of
any Plan should consult with its counsel. The purchase and/or
holding of Capital Securities by a Plan that is subject to the
fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975 of the Code (including
individual retirement arrangements and other plans described in
Section 4975(e)(1) of the Code) and with respect to which the
Corporation, the Property Trustee or any affiliate 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 such Capital Securities
are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE")
84-14 (an exemption for certain transactions determined by an
independent qualified professional asset manager), PTCE 91-38 (an
exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate
accounts), PTCE 95-60 (an exemption for certain transactions
involving certain insurance company general accounts) or PTCE
96-23 (an exemption for certain transactions determined by an
in-house asset manager). In addition, a Plan fiduciary
considering the purchase of Capital Securities should be aware
that the assets of the Trust may be considered "plan assets" for
ERISA purposes. Therefore, to avoid certain prohibited
transactions under ERISA and the Code that could thereby result,
each investing Plan, by purchasing the Capital Securities, will be
deemed to have directed the Trust to invest in the Junior
Subordinated Debentures and to have appointed the Property
Trustee.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Capital Securities
for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Capital Securities. This Prospectus,
as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange
Capital Securities received in exchange for Capital Securities
where such Capital Securities were acquired by such broker-dealer
as a result of market-making activities or other trading
activities. The Trust an the Corporation have agreed that,
starting on the Expiration Date and ending on the close of
business on the 180th day following the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In
addition, until January 5, 1998, all dealers effecting
transactions in the Exchange Securities may be required to deliver
a prospectus.
The Trust and the Corporation will not receive any proceeds
from any sale of Exchange Capital Securities by broker-dealers.
Exchange Capital Securities received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time
to time in one or more transactions, in the over-the-counter
market, in negotiated transactions, through the writing of options
on the Exchange Capital Securities or a combination of such
methods of resale, at market prices prevailing at the time of
resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange
Capital Securities. Any broker-dealer that resells Exchange
Capital Securities that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Capital Securities
may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of Exchange
Capital Securities and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the
Trust and the Corporation will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus
to any broker-dealer that requests such documents in the Letter of
Transmittal. The Trust and the Corporation have agreed to pay all
expenses incident to the Exchange Offer (including the expenses of
one counsel for the holders of the Capital Securities) other than
commissions or concessions of any brokers or dealers and will
indemnify the holders of the Capital Securities (including any
broker-dealers) against certain liabilities, including liabilities
under the Securities Act.
VALIDITY OF EXCHANGE SECURITIES
The validity of the Exchange Guarantee and the Exchange
Junior Subordinated Debentures will be passed upon for the
Corporation by Stevens & Lee, P.C., Reading, Pennsylvania.
Certain matters relating to United States federal income tax
consequences will be passed upon for the Corporation by Stevens &
Lee, P.C., Reading, Pennsylvania. Joseph E. Lewis, a director of
Sovereign Bank, is a principal of the firm of Stevens & Lee.
Stevens & Lee and its attorneys own an aggregate of approximately
215,000 shares of common stock of the Corporation, including
shares issuable upon the exercise of options owned by Mr. Lewis.
Certain matters of Delaware law relating to the validity of
the Exchange Capital Securities will be passed upon on behalf of
the Trust by Skadden, Arps, Slate, Meagher & Flom (Delaware),
special Delaware counsel to the Trust.
EXPERTS
The consolidated financial statements of Sovereign, at
December 31, 1996 and for each of the three years in the period
ended December 31, 1996, included in Sovereign s Annual Report on
Form 10-K for the year ended December 31, 1996, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are included in
reliance upon such reports given upon the authority of suh firm as
experts in accounting and auditing.
The supplemental consolidated financial statements of
Sovereign at December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 appearing in
Sovereign s Current Report on Form 8-K, dated June 17, 1997, and
incorporated by reference in this Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon incorporated herein by reference, which is
based in part on the report of KPMG Peat Marwick LLP, independent
auditors. The consolidated financial statements referred to above
are incorporated herein by reference in reliance upon such reports
given upon the authority of such firms as experts in accounting
and auditing.
The consolidated financial statements of First State
Financial Services, Inc. as of September 30, 1996 and 1995 and for
each of the years in the three-year period ended September 30,
1996, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
NO DEALER, SALESMAN OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THIS EXCHANGE OFFER AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE CORPORATION OR THE TRUST. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
