As filed with the Securities and Exchange Commission on February 8, 1999.
Registration No. 333-70361 and Registration No. 333-70361-01
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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RESOURCE BANKSHARES CORPORATION RESOURCE CAPITAL TRUST I
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Virginia Delaware
(State or other jurisdiction of incorporation or organization) (State or other jurisdiction of incorporation or organization)
54-1904386
(I.R.S. Employer Identification Number) (I.R.S. Employer Identification Number)
3720 Virginia Beach Boulevard c/o Resource Bankshares Corporation
Virginia Beach, VA 23452 3720 Virginia Beach Boulevard
(757) 463-2265 Virginia Beach, VA 23452
(757) 463-2265
(Address, including zip code, and telephone number, including (Address, including zip code, and telephone number, including
area code,of registrant's principal executive offices) area code,of registrant's principal executive offices)
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Lawrence N. Smith
3720 Virginia Beach Boulevard
Virginia Beach, VA 23452
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies of Communications to:
R. Brian Ball, Esquire
Wayne A. Whitham, Jr., Esquire
Williams, Mullen, Christian & Dobbins
1021 East Cary Street, 16th Floor
Richmond, VA 23219
(804) 643-1991
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|_________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|__________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Subject to Completion - February __, 1999
Prospectus
________ __, 1999
Resource Capital Trust I
320,000 $___ Capital Securities
(Due ________ 15, 2029)
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The Trust: The Offering:
o The trust's only assets will be the __% junior o The trust is offering 320,000 capital securities,
subordinated debt securities of Resource Bankshares which will represent preferred interests in its
Corporation, which mature on assets.
________ 15, 2029.
o Best efforts offering: The underwriter is not
o Resource Bankshares Corporation will own all of required to sell any specific number or dollar
the trust's common securities, which will represent amount of capital securities, but will use its best
common interests in the trust's assets. efforts to sell the capital securities offered.
o Resource Bankshares Corporation owns and o No public market exists for the capital securities.
operates Resourse Bank.
o The trust plans to use the proceeds from this
o Resource Capital Trust I offering to purchase the __% junior subordinated
c/o Resource Bankshares Corporation debt securities of Resource Bankshares
3720 Virginia Beach Boulevard Corporation.
Virginia Beach, Virginia 23452
(757) 463-2265 o Cash distributions of $_____ per year will be paid
quarterly on the capital securities each year
beginning on ________ 15, 1999.
Proposed Symbol and Market
o Closing: March __, 1999
o RBKVP / OTCBB
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Per Share Total
---------------------------------
Public offering price: $25.00 $8,000,000
Underwriting discounts: -- --
Proceeds to the trust: $25.00 $8,000,000
This investment involves risk. See "Risk Factors" beginning on Page 12.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
These securities are not deposits or other obligations of a bank and
are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency.
McKinnon & Company, Inc.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Resource Bankshares Corporation, which we will refer to as we, us or
our, is subject to the information requirements of the Securities Exchange Act
of 1934, as amended, and we file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any document that we file at the Commission's public
reference room facility located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's regional offices at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661. Please call the Commission at
1-800-SEC-0330 for further information on the public reference room. The
Commission maintains an Internet site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers, including Resource Bankshares Corporation, that file documents with the
Commission electronically through the Commission's electronic data gathering,
analysis and retrieval system known as EDGAR. Our common stock is traded on the
American Stock Exchange under the symbol "RBV." Our reports, proxy and
information statements may also be reviewed at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington D.C.
20006.
This prospectus is part of a registration statement filed by Resource
Capital Trust I and Resource Bankshares Corporation with the Commission. Because
the rules and regulations of the Commission allow us to omit certain portions of
the registration statement from this prospectus, this prospectus does not
contain all the information set forth in the registration statement. You may
review the registration statement and the exhibits filed with such registration
statement for further information regarding us, the trust and the capital
securities being sold by this prospectus. The registration statement and its
exhibits may be inspected at the public reference facilities of the Commission
at the addresses set forth above.
INCORPORATION OF INFORMATION THAT WE FILE WITH THE SEC
The Commission allows us to "incorporate by reference" information we
have filed with the Commission. This means:
o incorporated documents are considered part of this prospectus;
o we can disclose important information to you by referring you to
those documents.
We incorporate by reference the documents listed below:
o Annual Report on Form 10-KSB for the year ended December 31,
1997 of Resource Bank, our predecessor.
o Quarterly report on Form 10-QSB of Resource Bank for the three
months ended March 31, 1998 and quarterly reports on Form 10-QSB
of Resource Bankshares Corporation for the three month periods
ended June 30, 1998 and September 30, 1998.
Copies of the annual report on Form 10-KSB for the year ended December
31, 1997, the quarterly report on Form 10-QSB for the quarter ended September
30, 1998 and Resource Bank's proxy statement for the 1998 annual meeting of
shareholders are being delivered to you with this prospectus.
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You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us orally or in writing at the following
address:
Lu Ann Klevecz
Assistant Vice President
Resource Bank
3720 Virginia Beach Blvd.
Virginia Beach, Virginia 23452
(757) 463-2265
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. Neither Resource Bankshares
Corporation nor the trust is making an offer of the capital securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents because our financial
condition and results may have changed since that date.
Please refer to page __ for an index of significant terms used in this
prospectus.
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Prospectus Summary
This summary is qualified by the more detailed information appearing
elsewhere in this prospectus and in the documents we have incorporated by
reference.
Resource Bankshares Corporation
Resource Bankshares Corporation, a Virginia corporation, was formed in
1998 and is headquartered in Virginia Beach, Virginia. We own Resource Bank, a
Virginia-chartered commercial bank. We conduct virtually all of our business
through Resource Bank. Resource Bank opened for business in September, 1988. In
December, 1992, after four years of losses, a new management team headed by
Lawrence N. Smith and a new board took control of Resource Bank. Resource Bank
operates a banking office in Virginia Beach, Virginia and one each in the towns
of Herndon and Reston, which are in Fairfax County, Virginia. Virginia Beach,
and Fairfax County are among the highest per capita income, largest and fastest
growing areas of Virginia. Resource Bank's mortgage division currently has two
offices in Richmond, Virginia, one each in Chesapeake, Reston and Virginia
Beach, Virginia and one in Bowie, Maryland.
On December 1, 1997, Resource Bank acquired Eastern American Bank, FSB.
All of the issued and outstanding shares of Eastern American Bank were converted
into shares of Resource Bank common stock, amounting to a purchase price of $5.0
million. As a result of the acquisition, Resource Bank acquired $66.5 million in
assets (including the Herndon and Reston branch offices), $48.1 million in net
loans, and assumed $52.8 million in deposit liabilities. The fair value of the
assets we acquired exceeded the sum of the liabilities we assumed and the
purchase price by $547,000.
At September 30, 1998, we had total assets of $231.5 million, total
deposits of $201.2 million, and stockholders' equity of $17.4 million.
We employ a seasoned management team, hiring experienced lenders and
credit officers with a strong commercial loan following from large regional
banks. Since 1992 we have hired ten senior loan and credit officers each with at
least ten years of experience at large regional banks. Resource Bank recently
hired T. A. Grell, Jr., as President. For the past 14 years Mr. Grell served as
the senior loan and credit officer in eastern Virginia with a state-wide bank
that was acquired by a large regional bank in late 1997. In the six years since
the current management team assumed control, this strategy and the Eastern
American Bank acquisition have helped us achieve compound annual growth rates in
assets, loans and deposits of over 50%. Net income increased from $351,000 in
1993 to $1.8 million in 1997. For the first nine months of 1998, net income was
$2.3 million. Our return on average equity was 18.58% in the nine months ended
September 30, 1998 and was 18.59%, 20.46 % and 17.93% in 1997, 1996 and 1995,
respectively. Our net overhead ratio was 1.46% in the first nine months of 1998,
and 1.55%, 1.68% and 1.74% in 1997, 1996 and 1995, respectively.
Despite our high growth rate in assets, loans and deposits, we have
experienced a relatively low level of net charge-offs. Twice since 1992 we have
significantly reduced our ratio of non-performing assets to loans and foreclosed
properties. From December 31, 1992 to year-end 1993, the first year under new
management, the ratio declined from 5.6% to 0.66%. At year-end 1997,
non-performing assets
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increased significantly as a result of the Eastern American Bank acquisition.
However, the ratio of non-performing assets to loans and foreclosed properties,
which was 3.36% at December 31, 1997 had declined to 1.36% at September 30,
1998. Net charge-offs to average loans have ranged from 0.02% to 0.31% since
1993 and were 0.11% in the first nine months of 1998.
We expect to open two to four loan production offices during 1999, each
staffed with two or three senior commercial loan and credit officers who gained
their experience with large banks and who each has the potential to bring a
portfolio of commercial loans and small business loans of $10.0 million to us.
Resource Bank's mortgage division made loans of approximately $290
million in 1997 and $501 million in the first nine months of 1998. Business
loans and construction loans make up approximately 50% of Resource Bank's total
loan portfolio. Resource Bank makes loans guaranteed by the Small Business
Administration in the Richmond and Washington, D.C. markets. It also makes loans
secured by customers' accounts receivable in eastern and northern Virginia.
We are a legal entity separate and distinct from Resource Bank. Our
right, and thus your right, to receive any of the assets of Resource Bank is
subject to the claims of creditors of Resource Bank. Our principal source of
revenues is dividends from Resource Bank.
Because we own a bank, Resource Bank, we are known as a bank holding
company. As a bank holding company, we are registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956, as amended. Our executive offices are located at 3720 Virginia Beach
Boulevard, Virginia Beach, Virginia 23452. Our mailing address is P.O. Box
61009, Virginia Beach, Virginia 23466 and our telephone number is (757)
463-2265.
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Resource Capital Trust I
We formed the trust under Delaware law on December 23, 1998. We and the
trustees of the trust will sign an agreement, which will contain the terms and
conditions for the trust to issue and sell its capital securities, as well as
its common securities. This agreement is called the amended and restated
declaration of trust and it also governs the duties of the trustees.
The trust exists solely to:
o sell the capital securities and the common securities;
o use the money it receives from the sale of the capital
securities and common securities to purchase our junior
subordinated debt securities, which will be the only assets of
the trust; and
o engage in other activities that are related to these purposes.
We will purchase all of the common securities of the trust. The common
securities will entitle us to receive 3% of the trust's cash distributions. The
capital securities will entitle you and the other owners to the remaining 97% of
the trust's cash distributions. If we default on the junior subordinated debt
securities, we will not receive cash distributions on the common securities
until you have received your cash distributions on the capital securities.
The trust has a term of approximately 40 years, but may be dissolved
earlier if the capital securities are paid off. We have appointed the following
trustees to conduct the trust's business and affairs:
o Wilmington Trust Company is the property trustee and the
Delaware trustee;
o Two individuals who are employees and officers of Resource
Bankshares Corporation, T. A. Grell, Jr. and Harvard R. Birdsong
are the administrative trustees.
As the sole holder of the common securities, we can replace or remove
any of the trustees, unless we default on the junior subordinated debt
securities. A default, for example, would include failing to make required
payments on the junior subordinated debt securities. If we default and do not
cure our default, the property trustee and the Delaware trustee can only be
replaced and removed by the holders of at least a majority of the capital
securities. As owner of all of the trust's common securities, only we can remove
or replace the administrative trustees.
The trust has no separate financial statements. The statements would
not be meaningful to you because the trust has no independent operations. The
trust exists solely for the reasons summarized above.
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<PAGE>
The Offering
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Securities Offered............. The trust is offering for sale 320,000 capital securities. The trust has the
right to increase the number of capital securities offered for sale to 368,000.
Offering Price................. The offering price is $25.00 for each Capital Security.
Distributions.................. You will be entitled to receive cash distributions of $_____ per year on each
capital security. Distributions will be payable quarterly on the 15th day of
January, April, July and October of each year, beginning on ___________ 15,
1999. Your first cash distribution will be less than the regular quarterly
amount because you are buying your capital securities after January 15, 1999.
Interest Payments
Could be Deferred.............. We have the right to defer interest payments on the junior subordinated debt
securities for up to 20 consecutive quarters. If we pay all deferred interest
at the end of an interest deferral period, we can begin a new interest deferral
period at any time. No interest deferral period may last beyond ________,
2029. We may not defer interest payments if we have defaulted on the junior
subordinated debt securities. However, electing to defer interest payments, by
itself, is not a default.
Cash Distributions
Could be Deferred.............. If we defer interest payments on the junior subordinated debt securities, the
trust will also defer cash distributions on your capital securities. During any
period when cash distributions are deferred, your right to receive cash
distributions will accumulate. You also will accumulate the right to receive
additional distributions at __% per year, compounded quarterly, on any deferred
distributions. You will also be required to pay income taxes on deferred distributions,
even if you are a cash basis taxpayer.
Our Obligations................ We are unconditionally obligated to pay distributions and all other amounts on
the capital securities. However, this does not mean that we may not exercise
our right, as described above, to defer interest payments on the junior
subordinated debt securities.
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Ranking of Capital
Securities..................... If we default, payments to you on the capital securities will be made before any
payments to us on the common securities. Otherwise, payments on the capital
securities and common securities will be made pro rata.
Ranking of Junior
Subordinated Debt
Securities..................... The junior subordinated debt securities will be unsecured and subordinate to all
our senior debt. This means that there will be no collateral for our
obligations to you. It also means that if we default, all of our senior debt
will be paid before you are paid. Although we currently have no senior debt,
any debts we incur in the future are likely to be senior debt. There is no
limit on the amount of senior debt that we may incur. We will guarantee that
you will receive cash distributions if the trust has the funds available to pay
you. Our guarantee also will be unsecured and subordinate to all senior debt.
In addition, , the junior subordinated debt securities and the guarantee will be
subordinate to all existing and future liabilities of our subsidiaries,
including Resource Bank's deposit liabilities.
Repayment of
Capital Securities............. The trust must pay you $25.00 per capital security, plus accrued distributions,
when the junior subordinated debt securities are paid-off at or before
maturity. The stated maturity of the junior subordinated debt securities is
________ 15, 2029.
We have the right at any time on or after _______ 15, 2004 to pay-off the
junior subordinated debt securities. We also have the right at any time before
_______ 15, 2004 to pay-off the junior subordinated debt securities if any of
three things happen. We can pay-off the junior subordinated debt securities
before _______ 15, 2004 if tax law changes prevent us from deducting
interest payments or if changes in banking regulations prevent us from
counting the trust's assets as capital. A change in the Investment Company
Act of 1940 that requires the trust to register under that law also would permit
us to pay-off the junior subordinated debt securities before _____ 15, 2004.
We must pay a premium to the trust if we pay-off the junior subordinated debt
securities before _____ 15, 2014. As a holder of capital securities, you will
receive your share of any premium we pay to the trust.
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Limited Voting Rights.......... You will have no voting rights, except in limited circumstances.
No Rating...................... We do not expect the capital securities to be rated by any rating service. None
of the other securities that we issue are so rated.
ERISA Considerations........... Please carefully consider the information set forth in "ERISA Considerations",
which begins on page __.
Use of Proceeds................ The trust will use all of the proceeds from the sale of the common securities
and capital securities to purchase the junior subordinated debt securities from
us. We intend to use the net proceeds from the sale of the junior subordinated
debt securities for general corporate purposes, including making advances to
Resource Bank to support its continued growth. Pending any such application by
us, we may invest the net proceeds in interest-bearing assets.
Proposed Nasdaq OTC
Bulletin Board Symbol.......... We have applied to have the capital securities approved for quotation on the
Nasdaq OTC bulletin board under the symbol "RBKVP".
Risk Factors................... An investment in the capital securities involves a number of risks. Some of
these risks relate to the capital securities and other risks relate to us. We
urge you to carefully consider the information contained in "Risk Factors" set
forth on page __ of this prospectus, as well as the other information contained
in this prospectus and in the documents which are incorporated by reference in
this prospectus, before you buy any capital securities.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of earnings to
fixed charges for each of the years in the five-year period ended December 31,
1997 and for the nine months ended September 30, 1998. For purposes of computing
these ratios, earnings represent net income, plus total taxes based on income,
plus fixed charges. Fixed charges include interest expense, the estimated
interest component of net rental expense and amortization of debt expense.
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Nine
Months
Ended
Sept. 30 Years Ended December 31
--------- -----------------------------------------------------
1998 1997 1996 1995 1994 1993
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Ratio of Earnings to Fixed Charges
Excluding interest on deposits 5.01x 10.32x 17.52x 4.16x 5.57x 25.33x
Including interest on deposits 1.41x 1.46x 1.34x 1.30x 1.25x 1.19x
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SUMMARY FINANCIAL INFORMATION
The following consolidated summary sets forth selected financial data
for Resource Bankshares Corporation and its subsidiaries for the periods and at
the dates indicated. You should also read the detailed information and the
financial statements included in the documents that we have incorporated by
reference. All per share figures have been adjusted to reflect a two-for-one
stock split on July 1, 1998.
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Nine Months Ended Sept. 30 Years Ended December 31
-------------------------- -----------------------------------------------------------
(unaudited)
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Income Statement Data: (Dollars in thousands, except per share data)
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Gross interest income............... $15,002 $7,592 $10,937 $8,295 $6,046 $3,988 $2,471
Gross interest expense.............. 8,660 4,133 5,983 4,690 3,500 1,905 1,145
Net interest income................. 6,342 3,459 4,954 3,605 2,546 2,083 1,326
Provision for possible loan losses.. 150 113 155 290 512 50 286
Net interest income after
provision for loan losses......... 6,192 3,346 4,799 3,315 2,034 2,033 1,040
Non-interest income................. 6,349 3,049 4,520 2,755 2,012 1,341 1,293
Non-interest expense................ 9,002 4,419 6,533 4,451 3,285 2,904 2,114
Income before income taxes.......... 3,539 1,976 2,786 1,619 761 471 219
Income taxes........................ 1,239 672 965 153 (144) (180) (132)
Net income.......................... 2,300 1,304 1,821 1,466 905 651 351
Per Share Data:
Net income, basic................... $0.93 $0.67 $0.92 $0.79 $0.54 $0.39 $0.21
Net Income, diluted 0.85 0.61 0.84 0.76 0.54 0.39 0.21
Cash dividends...................... 0.18 0.125 0.125 0.05 - - -
Book value at period end............ 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Tangible book value at period end... 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Period-End Balance Sheet Data:
Total assets........................ $231,474 $142,935 $209,330 $115,836 $87,352 $63,735 $51,475
Total loans (net of unearned income) 176,790 93,411 150,590 81,975 58,464 41,034 31,166
Total deposits...................... 201,176 117,218 169,508 99,179 80,905 54,918 47,024
Long-term debt...................... 7,300 5,000 7,300 - - - -
Shareholders' equity................ 17,351 9,909 15,602 8,655 5,810 4,525 4,208
Performance Ratios:
Return on average assets............ 1.27% 1.44% 1.40% 1.45% 1.24% 1.18% 0.93%
Return on average shareholders'
equity............................ 18.58% 18.94% 18.59% 20.46% 17.93% 14.38% 8.33%
Average shareholders' equity to
average total assets.............. 6.80% 7.61% 7.54% 7.10% 6.90% 8.16% 5.91%
Net Overhead Ratio.................. 1.46% 1.33% 1.55% 1.68% 1.74% 2.84% 2.18%
Net interest margin................. 3.60% 3.95% 3.90% 3.70% 3.62% 4.00% 3.81%
Asset Quality Ratios
Net charge-offs to average loans.... 0.11% 0.01% 0.02% 0.15% 0.31% 0.20% 0.72%
Allowance to period-end loans....... 1.44% 1.22% 1.71% 1.27% 1.46% 1.20% 1.64%
Allowance to nonperforming loans.... 132.65% 138.55% 58.50% 247.03% 1220.00% 793.55% 441.38%
Nonaccrual loans to loans........... 0.40% 0.36% 2.03% 0.06% 0.10% 0.13% 0.36%
Nonperforming assets to loans and
foreclosed properties............. 1.36% 0.94% 3.36% 0.57% 0.24% 0.37% 0.66%
Capital Ratios:
Risk-based capital ratios
Tier 1 capital.................... 8.24% 8.79% 9.69% 10.22% 9.61% 10.23% 10.88%
Total capital..................... 9.45% 9.83% 10.93% 11.45% 10.86% 11.28% 12.13%
Leverage capital ratio.............. 7.12% 7.44% 9.67% 7.04% 6.25% 7.22% 7.60%
Total equity to total assets........ 7.50% 6.93% 7.45% 7.47% 6.65% 7.10% 8.17%
____________________
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Risk Factors
An investment in the capital securities involves a number of risks. Some of
these risks relate to the capital securities and others relate to us. Please
carefully consider the following information, together with the other
information in this prospectus and in the documents that are incorporated by
reference in this prospectus before you buy any capital securities.
Risks Related To The Capital Securities
Our Obligations Are Unsecured and Subordinated
General Concerns. Our obligations under the junior subordinated debt
securities and the guarantee are unsecured and subordinate to all of our present
and future senior debt. This means that there will be no collateral for our
obligations to you. It also means that if we default, all of our senior debt
will be paid before you are paid. As of September 30, 1998, we had no senior
debt. However, any debts we incur in the future are likely to be senior debt.
There is no limit to our ability or Resource Bank's ability to incur additional
debts, including senior debt. For additional information, please refer to
"Description of Junior Subordinated Debt Securities - What Does Subordination
Mean to You?", which begins on page __.
The ability of the trust to make payments on the capital securities
depends solely upon our making payments on the junior subordinated debt
securities as and when required. If we default on our obligation to make
required payments on the junior subordinated debt securities, the trust will not
have sufficient funds to make cash distributions to you. You will not be able to
rely upon the guarantee for payment of these amounts. Instead, you or the
property trustee may sue us directly for payment under the junior subordinated
debt securities.
Our right, and thus your right, to receive any assets of Resource Bank
is subject to the claims of Resource Bank's creditors, including depositors. At
September 30, 1998, Resource Bank, had total liabilities, including deposits, of
$214.1 million. Because the junior subordinated debt securities will be
subordinated to all existing and future liabilities of our subsidiaries,
including Resource Bank's deposit liabilities, you should look only to our
assets, and not assets of our subsidiaries, for payments on the junior
subordinated debt securities.
There are Limits on our Sources of Funds. Because we own Resource Bank,
we are regulated by the Board of Governors of the Federal Reserve System. The
Federal Reserve also regulates Resource Bank. Almost all of our consolidated
assets are owned by Resource Bank. We will rely almost entirely on dividends
from Resource Bank to satisfy our obligations to pay principal and interest on
the junior subordinated debt securities. There are legal limits on the amount of
dividends that a bank such as Resource Bank is permitted to pay. We cannot
assure you that Resource Bank will be able to pay dividends at past levels, or
at all, in the future. For additional information, please refer to "Description
of Guarantee - General", which begins on page ___.
The Deferral of Distributions Has Adverse Tax and Market Price
Consequences
General Concerns. As long as we do not default on the junior
subordinated debt securities, we have the right to defer interest payments on
the junior subordinated debt securities for up to 20 consecutive quarters. If we
pay all deferred interest at the end of an interest deferral period, we can
begin a new interest deferral period at any time. No interest deferral period
may last beyond _______ 15, 2029. If we defer interest payments on the junior
subordinated debt securities, the trust will defer cash distributions on the
capital securities until we resume interest payments. For additional
information, please refer to "Description of Capital Securities -
Distributions", which begins on page ___.
Some Possible Adverse Tax Consequences. If the trust defers
distributions on the capital securities, you will be required to pay income
taxes on the deferred distributions and accrue interest income, even if you are
a cash basis taxpayer. That is, you must include the deferred interest in your
gross income for U.S. federal income tax purposes regardless of whether you
receive cash distributions. You will not receive the cash related to any accrued
and unpaid interest from the trust if you sell your capital securities before
all deferred distributions have been brought current.
-11-
<PAGE>
Deferred distributions that are included in your gross income will increase your
tax basis in the capital securities. If you sell your capital securities before
all deferred distributions have been brought current, your increased tax basis
will decrease the amount of any capital gain or will create a capital loss or
increase the amount of any capital loss that you realize on the sale. A capital
loss, except in certain limited circumstances, cannot be applied to offset
ordinary income.
Possible Market Price Decline. We have no current intention of
exercising our right to defer interest payments on the junior subordinated debt
securities. However, if we exercise this right in the future, the market price
of the capital securities is likely to be adversely affected. If you sell your
capital securities during a time when distributions have been deferred, you may
not receive the same return on your investment as someone else who continues to
hold the capital securities.
You Have Limited Rights Against Us
If we default on our obligation to pay principal or interest on the
junior subordinated debt securities, the trust will not have sufficient funds to
make payments on the capital securities. You would not be able to rely on the
guarantee for payment. Instead, if we default in the payment of the principal or
interest on the junior subordinated debt securities, then you may sue us
directly to enforce payment. Except as described in this prospectus, you will
not be able to exercise directly any other remedy available to holders of junior
subordinated debt securities. For additional information, please refer to
"Description of Junior Subordinated Debt Securities - Enforcement of Rights by
Holders of Capital Securities", which begins on page ___.
We May Cause an Early Redemption of the Capital Securities in Certain
Events
At any time that certain special events occur and are continuing, we
have the right to redeem the junior subordinated debt securities. Within 90 days
of a redemption of the junior subordinated debt securities, the capital
securities and the common securities also must be redeemed. For additional
information, please refer to "Description of Capital Securities - Events That
Will Cause A Redemption of Capital Securities", which begins on page __.
We Can Liquidate the Trust and Distribute the Junior Subordinated Debt
Securities to You
We will have the right at any time to terminate the trust and cause the
junior subordinated debt securities to be distributed to you. Under current
United States federal income tax law, a distribution of junior subordinated debt
securities would not be a taxable event to you. 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 debt securities may be a taxable event
to you. For additional information, please refer to a "Description of Capital
Securities - Liquidation of the Trust and Distribution of Junior Subordinated
Debt Securities", which begins on page ___.
We give no assurance about the market prices for capital securities or
junior subordinated debt securities that may be distributed in exchange for
capital securities if a liquidation of the trust occurs. Accordingly, the
capital securities or the junior subordinated debt securities may trade at a
discount to the price that you pay to purchase the capital securities. Because
you may receive junior subordinated debt securities on a termination of the
trust, you are also making an investment decision about the junior subordinated
debt securities and should carefully review all the information regarding the
junior subordinated debt securities in this prospectus.
You Have Limited Voting Rights
As a holder of capital securities, you will have limited voting rights.
These voting rights will relate only to the modification of the capital
securities, the termination of the trust, and the exercise of the trust's rights
as a holder of the junior subordinated debt securities. In general, only we can
replace or remove any of the trustees. We and the trustees may modify the
amended and restated declaration of trust without your consent in order to
ensure that the trust will not be classified as an association taxable as a
corporation or to enable the trust to qualify as a grantor trust, in each case
for federal income tax purposes, or to ensure that the trust will not be
required to register as an "investment company" under
-12-
<PAGE>
the Investment Company Act of 1940, as amended, even if such action adversely
affects your interests. You will have no voting rights on any matters submitted
to a vote of our stockholders. For additional information, please refer to
"Description of Capital Securities - Voting Rights of Capital Securities;
Amendment of the Declaration", which begins on page ___.
Absence of Public Market for the Capital Securities
There is no existing market for the capital securities. We can give no
assurance about the liquidity of any markets that may develop for the capital
securities, your ability to sell your capital securities or at what price you
will be able to sell your capital securities. Future trading prices of the
capital securities will depend on many factors including, among other things,
prevailing interest rates, our operating results and the market for similar
securities. The underwriter has informed us that it intends to make a market in
the capital securities. However, the underwriter is not obligated to do so and
any such market making activity may be terminated at any time without notice to
the holders of the capital securities.
Risks Related To Us
Risks of Rapid Growth
It is our intention to expand our asset base. In particular, we hope to
use the funds raised in this offering to support anticipated increases in our
deposits and loans. Additional capital also would increase our legal lending
limit under federal law, which in turn would allow us to compete more actively
in our market area for larger loans. Our ability to manage growth successfully
will depend on our ability to maintain cost controls and asset quality while
attracting additional loans and deposits, as well as on factors beyond our
control, such as economic conditions and interest rate trends. If we grow too
quickly and are not able to control costs and maintain asset quality, growth
could materially adversely affect our financial performance.
Our Dependence on Senior Management
Our future performance will depend largely on the contributions of a
few senior executive officers of Resource Bank, including Lawrence N. Smith, the
chief executive officer, T.A. Grell, Jr., the President, and chief operating
officer and Resource Bank's four senior lending officers. The loss of the
services of one or more of those individuals could have a material adverse
effect on our business and development.
The Credit Risks of Being a Lender
There are certain risks inherent in making all loans, including risks
of interest rate changes over the time period in which loans may be repaid,
risks resulting from changes in economic and industry conditions, risks inherent
in dealing with individual borrowers, and, in the case of a loan backed by
collateral, risks resulting from uncertainties about the future value of the
collateral. Resource Bank maintains an allowance for loan losses based on, among
other things, historical experience, an evaluation of economic conditions, and
regular reviews of delinquencies and loan portfolio quality. We cannot assure
you that charge-offs in future periods will not exceed the allowance for loan
losses or that additional increases in the allowance for loan losses will not be
required. Additions to the allowance for loan losses would result in a decrease
in our net income and, possibly, our capital.
-13-
<PAGE>
Potential Adverse Impact of Changes in Interest Rates
Our profitability depends to a large extent on our net interest income.
Net interest income is the difference between interest income on our loans and
other interest-earning assets and interest expense on our deposits and other
interest-bearing liabilities. Our net interest income will tend to decrease in a
climate of declining interest rates. Conversely, our mortgage banking revenue
will tend to decline in a climate of rising interest rates. We, like most
financial institution holding companies, will continue to be affected by changes
in general interest rate levels and other economic factors beyond our control.
We are Subject to Strict Regulatory Capital Requirements
We and Resource Bank are subject to regulatory capital requirements. At
September 30, 1998, we and Resource Bank satisfied applicable regulatory capital
requirements. If we or Resource Bank falls below the minimum capital
requirements, bank regulatory agencies are likely to take regulatory action
against us or Resource Bank. Such actions could prohibit principal and interest
payments on the junior subordinated debt securities. We give no assurance that
either we or Resource Bank will continue to be able to meet our respective
minimum capital requirements.
Our Concerns About Year 2000 Compliance
The ability of our computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year after 1999 is commonly referred to as the "Year 2000" compliance
issue. The Year 2000 issue is the result of computer programs and equipment
which are dependent on "embedded chip technology" using two digits rather than
four to define the applicable year. Any of our computer programs or equipment
that are date dependent may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, or a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
We began the process of assessing and preparing our computer systems
and applications to be functional on January 1, 2000 in July 1996. We have also
been communicating with third parties, such as customers, counter parties,
payment systems, vendors and others to determine whether they will be functional
on or before January 1, 2000.
We have provided compliance certification questionnaires to our
customers in order to determine their ability to be Year 2000 compliant. If a
customer does not respond to the questionnaire or if its response does not
provide us with adequate assurance that such customer's failure to be Year 2000
compliant would not have a material adverse effect on us, we are entitled to
take steps to terminate our relationship with the customer before December 31,
1999.
While we believe we are taking all necessary measures to be Year 2000
compliant, if we failed to modify all of our mission critical applications or if
a number of our customers defaulted on their obligations to us as a result of
their Year 2000 problems, this could have a material adverse effect on our
business and results.
USE OF PROCEEDS
The trust will use all of the proceeds from the sale of the common
securities and capital securities to purchase the junior subordinated debt
securities. We intend to apply the net proceeds from the sale of the junior
subordinated debt securities to our general funds to be used for general
corporate purposes, including, from time to time, making advances to Resource
Bank to support its continued growth. Pending any such application by us, the
net proceeds may be invested in interest-bearing assets.
-14-
<PAGE>
RESOURCE CAPITAL TRUST I
We formed the trust under Delaware law on December 23, 1998. Wilmington
Trust Company is the Delaware trustee and the property trustee. T. A. Grell, Jr.
and Harvard R. Birdsong, officers of Resource Bankshares Corporation, are the
administrative trustees.
The trust exists for the exclusive purposes of:
o issuing and selling the common securities and capital
securities;
o using the proceeds from the sale of the common securities and
capital securities to purchase the junior subordinated debt
securities; and
o engaging in other activities that are related to these purposes.
The junior subordinated debt securities will be the sole assets of the
trust, and payments under the junior subordinated debt securities will be the
sole revenues of the trust. All of the common securities will be owned by us.
The common securities will rank equally, and payments will be made thereon pro
rata, with the capital securities, except if there is a Debenture Event of
Default (or an event that, with notice or the passage of time, would become such
an Event of Default) or an Event of Default under the Declaration, our rights 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.
We will acquire common securities in an aggregate liquidation amount
equal to 3% of the total capital of the trust. The trust has a term of
approximately 40 years, but may terminate earlier as provided in the
declaration. The trust's business and affairs are conducted by its trustees,
each appointed by us as holder of the common securities.
Wilmington Trust Company, as property trustee, will act as sole
indenture trustee under the declaration. Wilmington Trust Company will also act
as trustee under the guarantee agreement and the indenture. The holder of the
common securities, 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, will be entitled to
appoint, remove or replace the property trustee and/or Delaware trustee. In no
event will the holders of the capital securities have the right to vote to
appoint, remove or replace the administrative trustees; such voting rights are
ours exclusively. The duties and obligations of each trustee are governed by the
Declaration. Pursuant to the expense provisions under the Indenture, we, as
obligor on the junior subordinated debt securities, will pay all fees and
expenses related to the trust and the offering of the capital securities and
will pay, directly or indirectly, all ongoing costs, expenses and liabilities of
the trust. The address and telephone number of the principal executive office of
the trust is c/o:
Resource Bankshares Corporation
3720 Virginia Beach Boulevard
Virginia Beach, Virginia 23452
Attention: Lu Ann Klevecz
(757) 463-2265
-15-
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following consolidated summary sets forth selected financial data
for Resource Bankshares Corporation and its subsidiaries for the periods and at
the dates indicated. The following summary is qualified in its entirety by the
detailed information and the financial statements included in the documents
incorporated herein by reference. Please see "Incorporation of Information that
We File with the SEC" on page __.
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30 Years Ended December 31
-------------------------- -----------------------------------------------------------
(unaudited)
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Income Statement Data: (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross interest income............... $15,002 $7,592 $10,937 $8,295 $6,046 $3,988 $2,471
Gross interest expense.............. 8,660 4,133 5,983 4,690 3,500 1,905 1,145
Net interest income................. 6,342 3,459 4,954 3,605 2,546 2,083 1,326
Provision for possible loan losses.. 150 113 155 290 512 50 286
Net interest income after
provision for loan losses......... 6,192 3,346 4,799 3,315 2,034 2,033 1,040
Non-interest income................. 6,349 3,049 4,520 2,755 2,012 1,341 1,293
Non-interest expense................ 9,002 4,419 6,533 4,451 3,285 2,904 2,114
Income before income taxes.......... 3,539 1,976 2,786 1,619 761 471 219
Income taxes........................ 1,239 672 965 153 (144) (180) (132)
Net income.......................... 2,300 1,304 1,821 1,466 905 651 351
Per Share Data: (1)
Net income, basic................... $0.93 $0.67 $0.92 $0.79 $0.54 $0.39 $0.21
Net Income, diluted 0.85 0.61 0.84 0.76 0.54 0.39 0.21
Cash dividends...................... 0.18 0.125 0.125 0.05 - - -
Book value at period end............ 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Tangible book value at period end... 7.00 5.12 6.36 4.47 3.44 2.68 1.66
Period-End Balance Sheet Data:
Total assets........................ $231,474 $142,935 $209,330 $115,836 $87,352 $63,735 $51,475
Total loans (net of unearned income) 176,790 93,411 150,590 81,975 58,464 41,034 31,166
Total deposits...................... 201,176 117,218 169,508 99,179 80,905 54,918 47,024
Long-term debt...................... 7,300 5,000 7,300 - - - -
Shareholders' equity................ 17,351 9,909 15,602 8,655 5,810 4,525 4,208
Performance Ratios: (2)
Return on average assets............ 1.27% 1.44% 1.40% 1.45% 1.24% 1.18% 0.93%
Return on average shareholders'
equity............................ 18.58% 18.94% 18.59% 20.46% 17.93% 14.38% 8.33%
Average shareholders' equity to
average total assets.............. 6.80% 7.61% 7.54% 7.10% 6.90% 8.16% 5.91%
Net Overhead Ratio (3).............. 1.46% 1.33% 1.55% 1.68% 1.74% 2.84% 2.18%
Net interest margin (4)............. 3.60% 3.95% 3.90% 3.70% 3.62% 4.00% 3.81%
Earnings to Fixed Charges
Excluding interest on deposits...... 5.01x 12.69x 10.32x 17.52x 4.16x 5.57x 25.33x
Including interest on deposits...... 1.41x 1.48x 1.46x 1.34x 1.30x 1.25x 1.19x
Asset Quality Ratios
Net charge-offs to average loans.... 0.11% 0.01% 0.02% 0.15% 0.31% 0.20% 0.72%
Allowance to period-end loans....... 1.44% 1.22% 1.71% 1.27% 1.46% 1.20% 1.64%
Allowance to nonperforming loans.... 132.65% 138.55% 58.50% 247.03% 1220.00% 793.55% 441.38%
Nonaccrual loans to loans........... 0.40% 0.36% 2.03% 0.06% 0.10% 0.13% 0.36%
Nonperforming assets to loans and
foreclosed properties............. 1.36% 0.94% 3.36% 0.57% 0.24% 0.37% 0.66%
Capital Ratios:
Risk-based capital ratios
Tier 1 capital................. 8.24% 8.79% 9.69% 10.22% 9.61% 10.23% 10.88%
Total capital.................. 9.45% 9.83% 10.93% 11.45% 10.86% 11.28% 12.13%
Leverage capital ratio........... 7.12% 7.44% 9.67% 7.04% 6.25% 7.22% 7.60%
Total equity to total assets..... 7.50% 6.93% 7.45% 7.47% 6.65% 7.10% 8.17%
</TABLE>
___________________
(1) All per share figures have been adjusted to reflect a two-for-one stock
split on July 1, 1998.
(2) Annualized for the nine months ended September 30, 1998 and 1997.
(3) Computed by dividing the difference between noninterest expense and
noninterest income by average total assets.
(4) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents our net yield on our
earning assets.
-16-
<PAGE>
RESOURCE BANKSHARES CORPORATION
The following discussion includes selected consolidated financial and
other data for Resource Bankshares Corporation. This discussion is qualified in
its entirety by the detailed information, and should be read in conjunction
with, the financial statements and other information, included in the documents
incorporated herein by reference.
Resource Bankshares Corporation is a bank holding company that was
formed in 1998 and is headquartered in Virginia Beach, Virginia. Our only
subsidiary is Resource Bank, a Virginia-chartered commercial bank, which opened
for business in September, 1988. In December, 1992 after four years of losses,
Resource Bank was recapitalized under a new board and management. Currently
Resource Bank operates a banking office in Virginia Beach, Virginia, and one
each in the towns of Herndon and Reston, which are in Fairfax County, Virginia.
The Herndon and Reston offices, including certain loans and deposits, were
acquired December 1, 1997 from Eastern American Bank.
From December 31, 1992 through December 31, 1997 our assets, loans, and
deposits increased at compound annual growth rates of: 53.9%; 56.6%; and 53.5%,
respectively. Net income increased from a loss of $351,000 in 1992 to $351,000
in 1993, $651,000 in 1994, $905,000 in 1995, $1.466 million in 1996 and, having
used up a $4 million tax loss carryforward from 1992 to 1996, $1.821 million in
1997. At September 30, 1998 our total assets were $231.5 million, total deposits
$201.2 million, and stockholders' equity $17.4 million. Net income in the nine
months ended September 30, 1998 increased 76.4% to $2.3 million, up from $1.3
million in the first nine months of 1997, while diluted earnings per share
increased 39.3% from the comparable period of fiscal 1997 to $.85.
Virginia Beach and Fairfax County are among the highest per capita,
largest and fastest growing areas of Virginia. Our growth has been accomplished
by hiring experienced bank officers, particularly loan and credit officers, from
large state-wide banks, and achieving significant increases in loan volume.
Since 1992 we have hired ten senior loan and credit officers each with at least
ten years of experience at large banks. Resource Banks' mortgage division made
loans of approximately $290.0 million in 1997 and $501 million in the first nine
months of 1998. Business loans and construction loans make up approximately 50%
of our total loan portfolio. Resource Bank is an SBA Preferred Lender in the
Richmond and Washington, D.C. markets and is an active asset-based lender in
Eastern and Northern Virginia through an accounts receivable financing program
licensed from Private Business, Inc.
Our return on average equity increased from 8.33% in 1993 to 14.38% in
1994, 17.93% in 1995, and 20.46% in 1996 and, with the acquisition of Eastern
American Bank, on a purchase basis, was 18.59% in 1997. For the nine months
ended September 30, 1998, on an annualized basis, the return on average equity
was 18.58%.
-17-
<PAGE>
The following table sets forth average balances of total interest
earning assets and total interest bearing liabilities for the periods indicated,
showing the average distribution of assets, liabilities, stockholders' equity
and the related income, expense and corresponding weighted-average yields and
costs.
Average Balances, Interest Income and Expenses, and Average Yields and Rates
<TABLE>
<CAPTION>
Nine months ended Sept. 30 Year ended December 31
---------------------------- -----------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance(1) Expense Rate(2) Balance(1) Expense Rate(2) Balance(1) Expense Rate(2)
---------- ------- ------- ---------- ------- ------- ---------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest Earning Assets:
Securities......................... $13,061 $563 5.75% $15,935 $1,009 6.33% $16,885 $1,185 7.02%
Loans(3)........................... 163,435 11,268 9.19% 93,839 8,316 8.86% 69,488 6,268 9.02%
Interest bearing deposits in
other banks...................... 13,684 546 5.32% 4,127 232 5.62% 4,411 137 3.11%
Other earning assets (4) 44,902 2,625 7.79% 13,153 1,380 10.49% 6,688 705 10.54%
---------- ------- ------- ---------- ------- ------- ---------- ------- -------
Total interest earning
assets......................... 235,082 15,002 8.51% 127,054 10,937 8.61% 97,472 8,295 8.51%
Noninterest earning assets:
Cash and due from banks............ 2,994 1,700 1,760
Premises and equipment............. 3,290 965 614
Other assets....................... 4,318 1,480 2,027
Less: Allowance for loan
losses........................... (2,612) (1,252) (993)
---------- ---------- ----------
Total noninterest earning
assets......................... 7,990 2,893 3,408
---------- ---------- ----------
Total Assets................. $243,072 $129,947 $100,880
========== ========== ==========
Liabilities and Stockholders'
Equity
Interest Bearing Liabilities:
Interest bearing deposits:
Demand/MMDA accounts............. $11,715 287 3.27% $8,543 285 3.34% 7,787 261 3.35%
Savings.......................... 19,919 682 4.57% 2,289 93 4.06% 779 23 2.95%
Certificates of deposit.......... 158,046 6,827 5.76% 96,370 5,318 5.52% 76,932 4,317 5.61%
---------- ------- ------- ---------- ------- ------- ---------- ------- -------
Total interest bearing
deposits..................... 189,680 7,796 5.48% 107,202 5,696 5.31% 85,498 4,601 5.38%
FHLB advances and other
borrowings..................... 20,108 864 5.73% 4,959 287 5.79% 1,617 89 5.50%
Total interest bearing
liabilities.................. 209,788 8,660 5.50% 112,161 5,983 5.33% 87,115 4,690 5.38%
Noninterest bearing liabilities:
Demand deposits.................. 13,870 6,898 5,800
Other liabilities................ 2,906 1,090 799
---------- ---------- ----------
Total liabilities.............. 16,776 7,988 6,599
Stockholders' equity................. 16,508 9,798 7,166
Total liabilities and
stockholders' equity......... $243,072 $129,947 $100,880
========== ========== ==========
Interest spread (5).................. 3.01% 3.28% 3.13%
Net interest income/net
interest margin (6)................ $6,342 3.60% $4,954 3.90% $3,605 3.70%
======== ======= =======
</TABLE>
----------------------------
1995
----------------------------
Average Income/ Yield/
Balance(1) Expense Rate(2)
---------- ------- -------
Assets
Interest Earning Assets:
Securities......................... $12,826 $871 6.79%
Loans(3)........................... 48,465 4,446 9.17%
Interest bearing deposits in
other banks...................... 5,742 335 5.83%
Other earning assets (4) 3,277 394 12.02%
---------- ------- ------
Total interest earning
assets......................... 70,310 6,046 8.60%
Noninterest earning assets:
Cash and due from banks............ 1,485
Premises and equipment............. 606
Other assets....................... 1,320
Less: Allowance for loan
losses........................... (593)
----------
Total noninterest earning
assets......................... 2,818
----------
Total Assets................. $73,128
==========
Liabilities and Stockholders'
Equity
Interest Bearing Liabilities:
Interest bearing deposits:
Demand/MMDA accounts............. 7,108 229 3.22%
Savings.......................... 955 28 2.93%
Certificates of deposit.......... 50,679 2,999 5.92%
---------- ------- -----
Total interest bearing
deposits..................... 58,742 3,256 5.54%
FHLB advances and other
borrowings..................... 3,809 244 6.41%
Total interest bearing
liabilities.................. 62,551 3,500 5.60%
Noninterest bearing liabilities:
Demand deposits.................. 5,081
Other liabilities................ 449
----------
Total liabilities.............. 5,530
Stockholders' equity................. 5,047
Total liabilities and
stockholders' equity......... $73,128
==========
Interest spread (5).................. 3.00%
Net interest income/net
interest margin (6)................ $2,546 3.62%
=======
_________________________
(1) Average balances are computed on daily balances.
(2) Yield and rate percentages are all computed through the annualization of
interest income and expenses versus the average balances of their
respective accounts.
(3) Non-accrual loans are included in the average loan balances, and income on
such loans is recognized on a cash basis.
(4) Consists of funds advanced in settlement of loans.
(5) Interest spread is the average yield earned on earning assets, less the
average rate incurred on interest bearing liabilities.
(6) Net interest margin is net interest income, expressed as a percentage of
average earning assets.
-18-
<PAGE>
As the largest component of income, net interest income represents the
amount that interest and fees earned on loans and investments exceeds the
interest costs of funds used to support these earning assets. Net interest
income is determined by the relative levels, rates and mix of earning assets and
interest-bearing liabilities.
For the nine months ended September 30, 1998, net interest income was
$6.3 million, compared to $3.5 million for the same period in 1997. Net interest
income for the year-ended December 31, 1997 increased 37.5%, or approximately
$1.35 million over 1996. Average interest earning assets increased $29.6 million
from 1996 to 1997 while average interest-bearing liabilities increased $25.0
million. The yield on average interest-earning assets for the year ended
December 31, 1997 was 8.61% compared with 8.51% for the comparable 1996 period.
The 1997 yield on loans was 8.86%, compared to 9.02% in 1996. The cost on
average interest-bearing liabilities decreased seven basis points during 1997 to
5.31%, compared to 5.38% during 1996.
Our net interest margin is sensitive to the volume of mortgage banking
division loan originations. All loans originated by the mortgage banking
division are sold, servicing released, in the secondary mortgage market. Each
mortgage loan originated is sold when the borrower locks-in the interest rate on
the loan. When the volume of mortgage loan originations increases, typically in
a declining interest rate environment, "funds advanced in settlement of mortgage
loans" increases. This balance sheet item represents funds advanced to close
mortgage loans, pending delivery of the loans to the loan purchaser. Until a
mortgage loan is transferred to the purchaser, we receive interest on the loan
at the note rate. Funds advanced in settlement of mortgage loans are financed to
a large extent with short term Federal Home Loan Bank borrowings. While such
funds advanced contribute to net interest income, the interest rate spread on
this item is not as great as the spread on the loan portfolio, which normally
carries a higher interest yield and is financed with lower cost deposits. Thus,
as funds advanced in settlement of mortgage loans increase, the interest spread
and the net interest margin decrease. The average balance of funds advanced in
settlement of mortgage loans was $44.9 in the nine months ended September 30,
1998, compared to $13.2 million in the year ended December 31, 1998.
Net interest income is affected by changes in both average interest
rates and average volumes of interest earning assets and interest bearing
liabilities. The following table sets forth the amounts of the total change in
interest income that can be attributed to changes in the volume of
interest-bearing assets and liabilities and the amount of the change that can be
attributed to changes in interest rates. The amount of the change not solely due
to rate or volume changes was allocated between the change due to rate and the
change due to volume based on the relative size of the rate and volume changes.
<TABLE>
<CAPTION>
Year Ended December 31
Nine Months Ended Sept. 30 --------------------------------------------------------
1998 compared to 1997 1997 compared to 1996 1996 compared to 1995
--------------------- --------------------- ---------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Changes In: Due to Changes In: Due to Changes In:
Volume Rate Net Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- --- ------ ---- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Securities $(206) $(110) $(316) $(64) $(112) $(176) $284 $30 $314
Loans (1) 7,392 (172) 7,220 2,792 (69) 2,723 2,234 (101) 2,133
Interest bearing
deposits in other
banks 507 (1) 506 (8) 103 95 (66) (132) (198)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $7,693 $(283) $7,410 $2,720 $(78) $2,642 $2,452 $(203) $2,249
------ ------ ------ ------ ------ ------ ------ ------ ------
Interest Expense:
Interest bearing
deposits $3,661 $162 $3,823 $1,152 $(57) $1,095 $1,437 $(92) $1,345
FHLB advances and
other borrowings 704 0 704 193 5 198 (125) (30) (155)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $4,365 162 $4,527 $1,345 $(52) $1,293 $1,312 $(122) $1,190
------ ------ ------ ------ ------ ------ ------ ------ ------
Increase
(decrease) in
net interest income $3,328 $(445) $2,883 $1,375 $(26) $1,349 $1,140 $(81) $1,059
====== ====== ====== ====== ====== ====== ======= ====== ======
</TABLE>
(1) Loans includes funds advanced in settlement of loans.
-19-
<PAGE>
Interest Rate Sensitivity Analysis
Management evaluates interest sensitivity through the use of an
asset/liability management reporting gap model on a quarterly basis and then
formulates strategies regarding asset generation and pricing, funding sources
and pricing, and off-balance sheet commitments in order to decrease sensitivity
risk. These strategies are based on management's outlook regarding interest rate
movements, the state of the regional and national economies and other financial
and business risk factors. In addition, we establish prices for deposits and
loans based on local market conditions and manage our securities portfolio under
policies that take interest risk into account.
The following table presents the amounts of our interest sensitive
assets and liabilities that mature or reprice in the periods indicated.
<TABLE>
<CAPTION>
September 30, 1998
Maturing
----------------------------------------------------------------
Within 4-12 1-5 Over
3 Months Months Years 5 Years Total
-------- ------ ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Investment securities $8,195 $939 $1,127 $585 $10,846
Loans 95,048 20,155 37,207 24,380 176,790
Other interest-earning assets 35,232 - - - 35,232
------- ------- ------- ------- -------
Total interest-earning assets 138,475 21,094 38,334 24,965 222,868
------- ------- ------- ------- -------
Interest-Bearing Liabilities:
Deposits
Demand and savings (1) - 29,271 - 29,271
Time deposits, $100,000 and over 3,032 5,011 629 - 8,672
Other time deposits 41,880 98,030 5,746 5 145,661
Other interest-bearing liabilities 2,000 - 7,300 - 9,300
------- ------- ------- ------- -------
Total interest-bearing liabilities 46,912 103,041 42,946 5 192,904
------- ------- ------- ------- -------
Period Gap $91,563 $(81,947) $(4,612) $24,960 $29,964
------- ------- ------- ------- -------
Cumulative Gap $91,563 $9,616 $5,004 $29,964
------- ------- ------- -------
Ratio cumulative gap to total
interest-earning assets 41.08% 4.31% 2.25% 13.44%
</TABLE>
(1) Management has determined that interest checking, money market and savings
accounts are not sensitive to changes in related market ratio and,
therefore, we have placed them in the 1-5 years category.
The September 30, 1998 results of the rate sensitivity analysis show
that we had $91.6 million more in assets than liabilities subject to repricing
within three months or less and was, therefore, in an asset sensitive position.
The cumulative gap at the end of one year was a positive $9.6 million, an
asset-sensitive position. Approximately $115.2 million, or 65.2% of the total
loan portfolio, matures or reprices within one year or less. An asset-sensitive
institution's net interest margin and net interest income generally will be
impacted favorably by rising interest rates, while that of a liability sensitive
institution generally will be impacted favorably by declining rates.
Increases and decreases in our mortgage banking income (which consists
primarily of gains on sales of mortgage loans) tend to offset decreases and
increases in the net interest margin. In a climate of lower or declining
interest rates,
-20-
<PAGE>
our net interest margin will tend to decrease as the yield on interest earning
assets decreases faster than the cost of interest bearing liabilities. Mortgage
banking income, in contrast, tends to increase in times of lower or declining
interest rates, as refinancing activity leads to an increase in mortgage loan
originations. In a climate of rising or higher interest rates, the net interest
margin will tend to increase, while a decrease in mortgage loan originations
leads to a decrease in mortgage banking income.
Loan Portfolio
The table below classifies loans, net of unearned income, by major
category and percentage distribution at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995
----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Description Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $75,116 42.49% $43,336 46.39% $50,713 33.68% $34,021 41.50% $25,005 42.77%
Real Estate 96,683 54.69 45,752 48.98 96,058 63.79 43,195 52.69 28,214 48.26
Consumer 4,991 2.82 4,323 4.63 3,819 2.53 4,759 5.81 5,245 8.97
------- ----- ------- ------ -------- ------ ------- ------ ------- ------
Total $176,790 100.00% $93,411 100.00% $150,590 100.00% $81,975 100.00% $58,464 100.00%
======== ====== ======= ====== ======== ====== ======= ====== ======= ======
</TABLE>
December 31,
------------------------------------------------
1994 1993
---------------------- ----------------------
Description Amount Percentage Amount Percentage
------ ---------- ------ ----------
(Dollars in thousands)
Commercial $3,444 8.39% $2,631 8.44%
Real Estate 21,730 52.96% 13,354 42.85%
Consumer 15,860 38.65% 15,181 48.71%
------ ------
Total $41,034 100.00% $31,166 100.00%
======= ====== ======= ======
Securities Portfolio
The following tables present certain information on our investment
securities portfolio:
Securities Available for Sale(1)
<TABLE>
<CAPTION>
September 30, December 31
------------- --------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government Agencies $7,700 $9,802 $15,799 $10,011
Federal Reserve Bank Stock 434 297 246 165
Federal Home Loan Bank Stock 1,162 2,233 747 316
Other 155 100 100 55
------ ------- ------- -------
$9,451 $12,432 $16,893 $10,547
====== ======= ======= =======
</TABLE>
_________
(1) Carried at fair value
Securities Held to Maturity(1)
<TABLE>
<CAPTION>
September 30, December 31
------------- ----------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government and Agencies $649 $1,996 - -
State and Municipal 746 746 - -
------ ------ ------ ------
$1,395 $2,742 - -
====== ======
</TABLE>
______________
(1) Carried at cost, adjusted for amortization of premium or accretion of
discount using the interest method.
-21-
<PAGE>
At September 30, 1998 and December 31, 1997 there were no unrealized
losses on securities available for sale and gross unrealized gains were $97,000
and $449,000, respectively. At December 31, 1996 gross unrealized gains and
losses on securities available for sale were $90,000 and $125,000, respectively.
At December 31, 1995 gross unrealized gains and losses on securities available
for sale were $42,000 and $3,000, respectively.
At September 30, 1998 and December 31, 1997 gross unrealized gains on
securities held to maturity were $26,000 and $11,000, respectively. At December
31, 1997 there were $37,000 of gross unrealized losses on securities held to
maturity. We had no securities held to maturity at December 31, 1996 or December
31, 1995.
The following table presents information on the maturities of our
investment securities at December 31, 1997:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
---------------- ------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in:
One year or less $938 $919 $ - $ -
One to five years 1,210 1,192 - -
Five to ten years 415 415 - -
After ten years 179 190 9,352 9,801
Federal Reserve Bank Stock - - 297 297
Federal Home Loan Bank Stock - - 2,234 2,234
Other - - 100 100
------ ------ ------- -------
$2,742 $2,716 $11,983 $12,432
====== ====== ======= =======
</TABLE>
In 1997 the average yield on investment securities was 6.33%, compared
to 5.75% for the nine months ended September 30, 1998. At September 30, 1998 and
December 31, 1997, all securities with a maturity of over 10 years carried
variable interest rates. The maturity characteristics of our investment
securities portfolio did not change materially from December 31, 1997 to
September 30, 1998.
Nonperforming Assets
Unless well secured and in the process of collection, we place loans on
non-accrual status after being delinquent greater than ninety days, or earlier
in situations in which the loans have developed inherent problems that indicated
payment of principal and interest may not be made in full. Whenever the accrual
of interest is stopped, previously accrued but uncollected income is reversed.
Thereafter, interest is recognized only as cash is received. The loan is
reinstated to an accrual basis after it has been brought current as to principal
and interest under the contractual terms of the loan. At September 30, 1998,
nonaccrual loans were $711,000, compared to $3.1 million at December 31, 1997
and $50,000 at December 31, 1996. The increase in non-accrual loans from year
end 1996 to 1997 was primarily the result of the Eastern American Bank
acquisition. At the time of the acquisition, Eastern American Bank had $3.04
million of nonaccrual loans, while Resource Bank had nonaccrual loans of
$12,000. During 1998 Resource Bank implemented its plan to substantially reduce
the level of nonaccrual loans acquired from Eastern American Bank. Of our
$711,000 of nonaccrual loans at September 30, 1998, $322,000 were acquired from
Eastern American Bank. All of the non-accrual loans at September 30, 1998 were
secured by real estate. When we acquired Eastern American Bank, we also acquired
a $1.4 million allowance for loan losses.
-22-
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $711 $340 $3,059 $50 $57 $52 $113
Loans contractually past due 90 days or
more and still accruing(1) 1,203 485 1,339 371 13 10 3
Troubled debt restructuring - - - - - - -
------ ---- ------ ---- ---- ---- ----
Total nonperforming loans 1,914 825 4,398 421 70 62 116
Other real estate owned 488 52 684 50 71 91 91
------ ---- ------ ---- ---- ---- ----
Total nonperforming assets $2,402 $877 $5,082 $471 $141 $153 $207
====== ==== ====== ==== ==== ==== ====
Nonperforming assets to period-end total
loans and other real estate 1.36% 0.94% 3.36% 0.57% 0.24% 0.37% 0.66%
</TABLE>
___________
(1) At September 30, 1998, consisted of vehicle loans purchased from dealers
with recourse to the dealer after the loan is 120 days past due and loans
secured by single family residences.
Summary of Loan Loss Experience
The allowance for loan losses is increased by the provision for loan
losses and reduced by loans charged off net of recoveries. The allowance for
loan losses is established and maintained at a level judged by management to be
adequate to cover any anticipated loan losses to be incurred in the collection
of outstanding loans. In determining the adequate level of the allowance for
loan losses, management considers the following factors: (a) loan loss
experience; (b) problem loans, including loans judged to exhibit potential
charge-off characteristics, loans on which interest is no longer being accrued,
loans which are past due and loans which have been classified in the most recent
regulatory examination; and (c) anticipated economic conditions and the
potential impact these conditions may have on individual classifications of
borrowers.
-23-
<PAGE>
The following table presents our loan loss experience for the periods
indicated:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30, -------------------------------------------------------
--------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses at
beginning of period $2,573 $1,040 $1,040 $854 $492 $512 $403
Loans charged off:
Commercial 89 2 2 5 21 124 123
Real Estate 141 42 56 109 148 11 36
Consumer 13 5 7 6 17 63 75
------ ------ ------ ------ ------ ------ ------
Total 243 49 65 120 186 198 234
Recoveries of loans previously charged
off:
Commercial 1 33 34 6 23 116 24
Real Estate 35 - - - - - 27
Consumer 23 6 9 10 13 12 5
------ ------ ------ ------ ------ ------ ------
Total 59 39 43 16 36 128 56
------ ------ ------ ------ ------ ------ ------
Net loans charged off 184 10 22 104 150 70 178
Provision for loan losses 150 113 155 290 512 50 287
------ ------ ------ ------ ------ ------ ------
Allowance acquired through business
combination - - 1,400 - - - -
------ ------ ------ ------ ------ ------ ------
Allowance for loan losses end of
period $2,539 $1,143 $2,573 $1,040 $854 $492 $512
====== ====== ====== ====== ====== ====== ======
Average total loans (net of unearned
income) $163,435 $86,097 $93,839 $69,488 $48,465 $35,714 $24,530
Total loans (net of unearned income)
at period-end $176,790 $93,411 $150,590 $81,975 $58,464 $41,034 $31,166
Ratio of net charge-offs to average
loans 0.11% 0.01% 0.02% 0.15% 0.31% 0.20% 0.72%
Ratio of provision for loan losses to
average loans 0.09% 0.13% 0.17% 0.42% 1.06% 0.14% 1.17%
Ratio of provision for loan losses to
net charge-offs 81.52% 1130.00% 704.55% 278.85% 341.33% 71.43% 161.24%
Allowance for loan losses to
period-end loans 1.44% 1.22% 1.71% 1.27% 1.46% 1.20% 1.64%
</TABLE>
In establishing the allowance for loan losses, in addition to the
factors described above, management considers the following risk elements in the
loan portfolio.
Construction lending often involves larger loan balances with single
borrowers. Construction loans involve risks attributable to the fact that loan
funds are advanced upon the security of the home under construction, which is of
uncertain value prior to the completion of construction. If there is a default,
the corporation may be required to complete and sell the home.
Commercial real estate loans typically involve larger loan balances
concentrated with single borrowers or groups of related borrowers. Additionally,
the payment experience on loans secured by income producing properties is
typically dependent on the successful operation of a business or a real estate
project and thus may be subject to a greater extent, to adverse conditions in
the real estate market or in the economy generally.
Consumer loans entail risks, particularly in the case of consumer loans
which are unsecured, such as lines of credit, or secured by rapidly depreciable
assets such as automobiles. In such cases, any repossessed collateral for a
-24-
<PAGE>
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, thus
are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and involves laws, may limit the
amount which can be recovered on such loans. Such loans may also give rise to
claims and defenses by a consumer loan borrower against an assignee of such loan
such as us, and a borrower may be able to assert against such assignee claims
and defenses which it has against the seller of the underlying collateral.
Commercial business loans typically are made on the basis of the
borrower's ability to make repayment from cash flow from its business and are
secured by business assets, such as commercial real estate, accounts receivable,
equipment and inventory. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral for commercial business
loans may depreciate over time and cannot be appraised with as much precision as
residential real estate.
Sources of Funds
Our primary source of funds is deposit accounts, which include demand
deposits, savings and money market accounts and other time deposits. The
following table is a summary of average deposits and average rates paid.
Average Deposits and Average Rates Paid
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------- ---------------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $13,870 - $6,898 - $5,800 - $5,081 -
Demand/MMDA accounts
11,715 3.27% 8,543 3.34% 7,787 3.35% 7,108 3.22%
Savings 19,919 4.57% 2,289 4.06% 779 2.95% 955 2.93%
Certificates of deposit 158,046 5.76% 96,370 5.52% 76,932 5.61% 50,679 5.92%
------- ------ ------ ------
Total (weighted average
rate) $203,550 3.83% $114,100 4.99% $91,298 5.04% $63,823 5.10%
======== ======== ======= =======
</TABLE>
The following table is a summary of time deposits of $100,000 or more
by remaining maturities at September 30, 1998.
At September 30, 1998
-----------------------------------------
Amount Percent
(Dollars in Thousands)
Three months or less $3,033 34.97%
Three to twelve months 5,011 57.78%
Over twelve 629 7.25%
------ ------
Total $8,673 100.00%
====== ======
-25-
<PAGE>
Certain information on short term borrowings is presented in the
following table. All such borrowings represent advances to Resource Bank by the
Federal Home Loan Bank of Atlanta and are secured by Federal Home Loan Bank
stock, investment securities and first mortgage loans.
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended ---------------------------------------------------
September 30, 1998 1997 1996 1995
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Balance at period end $2,000 $13,650 $7,237 $ -
Average balance during period $12,044 $4,959 $1,617 $3,809
Average rate 5.72% 5.79% 5.50% 6.41%
Maximum outstanding during period $39,137 $13,650 $7,237 $6,300
</TABLE>
CAPITALIZATION
The following table sets forth our consolidated capitalization at
September 30, 1998. This table is based on, and is qualified in its entirety by,
our historical consolidated financial statements, including the related notes
thereto, which are included in documents incorporated by reference herein, and
should be read in conjunction therewith.
<TABLE>
<CAPTION>
Sept. 30, 1998
--------------
(Dollars in Thousands)
<S> <C>
Long-term debt (1) $7,300
Capitalized lease obligations -
Shareholders' Equity
Common Stock, par value $1.50 per share, authorized 6,666,666
shares, shares outstanding - 2,479,446 3,719
Capital surplus 10,855
Retained earnings 2,713
Accumulated other comprehensive income 64
-------
Total shareholders' equity 17,351
-------
Total capitalization $24,651
=======
___________
(1) Federal Home Loan Bank advances
Consolidated Capital Ratios
Equity to assets 7.50%
Tier 1 Capital 8.24%
Total Capital 9.45%
</TABLE>
ACCOUNTING TREATMENT
The financial statements of the trust will be consolidated into our
consolidated financial statements, with the capital securities treated as
minority interest and shown in our consolidated balance sheet as
"Corporation-Obligated Mandatorily Redeemable capital securities of Subsidiary
trust." Our financial statement footnotes will reflect that the sole asset of
the trust will be the amount of the junior subordinated debt securities maturing
on __________ 15, 2029. All future reports we file under the Securities Exchange
Act of 1934 will present information regarding the trust and any other similar
trusts in the manner described above.
-26-
<PAGE>
REGULATORY TREATMENT
As a registered bank holding company, we are required by the Federal
Reserve to maintain certain levels of capital for bank regulatory purposes. We
expect that the capital securities will be treated as "Tier I Capital" for such
purposes; provided that the capital securities can only comprise 25% of our Tier
I Capital. Based on our Tier I Capital at September 30, 1998, approximately $5.8
million of the capital securities would be initially included in Tier I Capital.
DESCRIPTION OF CAPITAL SECURITIES
Under the amended and restated declaration of trust (the
"declaration"), the trust will issue the capital securities and the common
securities, which will represent beneficial ownership interests in the trust.
The declaration will be qualified under the Trust indenture Act of 1939 (the
"Trust Indenture Act"). This summary of certain provisions of the capital
securities, the common securities and the declaration does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the declaration, including the definitions therein of
certain terms. The form of the declaration is available upon request from the
trustees.
General
The capital securities will be limited to $8.0 million aggregate
liquidation amount at any one time outstanding. The trust reserves the right to
increase the aggregate liquidation amount by not more than $1.2 million. The
liquidation amount for each capital security is $25.00. The capital securities
will rank equally, and payments will be made thereon pro rata, with the common
securities except as described under "Subordination of Common Securities" on
page ___. Legal title to the junior subordinated debt securities will be held by
the property trustee on behalf of the trust in trust for the benefit of the
holders of the capital securities and common securities. The guarantee agreement
we will execute for the benefit of the holders of the capital securities (the
"guarantee agreement") will provide for the guarantee on a subordinated basis
with respect to the capital securities but will not guarantee payment of
distributions or amounts payable on redemption of the capital securities or on
liquidation of the trust when the trust does not have funds on hand available to
make such payments.
Distributions
The capital securities represent beneficial ownership interests in the
trust. Distributions on each capital security will be payable at ____% per annum
of the stated liquidation amount of $25. Distributions will be payable quarterly
in arrears on the 15th day of January, April, July and October of each year to
the holders of the capital securities at the close of business on the business
day immediately preceding such distribution date (each, a "record date"). A
"business day" shall mean any day other than a Saturday or a Sunday, or a day on
which banking institutions in Richmond, Virginia are authorized or required by
law or executive order to remain closed, or a day on which the corporate trust
office of the property trustee or the debenture trustee is closed for business.
Distributions on the capital securities will be cumulative.
Distributions will accumulate from the issue date. The first distribution date
for the capital securities will be____ 15, 1999. The amount of distributions
payable for any period will be computed on the actual number of days elapsed in
a year of twelve 30-day months. If any date on which distributions are payable
on the capital securities is not a business day, payment of the distributions
payable on such date will be made on the next succeeding day that is a business
day (and without any additional distributions or other payments in respect to
any such delay) with the same force and effect as if made on the date such
payment was originally payable (each date on which distributions are payable in
accordance with the foregoing a "distribution date").
An agreement known as the junior subordinated indenture (the
"indenture") sets forth our obligations with respect to the junior subordinated
debt securities. It also contains the trust's rights as the holder of the junior
subordinated debt securities. So long as no Debenture Event of Default has
occurred and is continuing, we have the right
-27-
<PAGE>
under the indenture to defer the payment of interest on the junior subordinated
debt securities at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each interest deferral period.
However, no interest deferral period may extend beyond the stated maturity of
the junior subordinated debt securities which is ______ 15, 2029. As a
consequence of any such election, quarterly distributions on the capital
securities by the trust will be deferred during any such interest deferral
period. Distributions to which holders of the capital securities are entitled
will accumulate additional distributions thereon at ____% per annum thereof,
compounded quarterly from the relevant payment date for such distributions
during any interest deferral period, to the extent permitted by applicable law.
The term "distributions" as used herein shall include any such additional
distributions.
During any interest deferral period, we may not:
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to,
any of our capital stock (which includes common and preferred
stock);
o make any payment of principal, interest or premium, if any, on
or repay, repurchase or redeem any debt securities we issue that
rank equally with or junior in interest to the junior
subordinated debt securities; or
o make any guarantee payments with respect to any guarantee by us
of the debt securities of any subsidiary we own if such
guarantee ranks equally with or junior in interest to the junior
subordinated debt securities.
However, during an interest deferral period, we may:
o pay dividends or make distributions in our own common stock;
o declare a dividend in connection with the implementation of a
stockholders' rights plan, issue stock under any such plan in
the future, or redeem or repurchase any such rights pursuant
thereto;
o make payments under the guarantee;
o purchase or acquire shares of our own common stock in connection
with the satisfaction by us of our obligations under any
employee benefit plan or any other contractual obligation (other
than a contractual obligation ranking equally with or junior to
the junior subordinated debt securities);
o make a distribution as a result of a reclassification of our
capital stock or the exchange or conversion of one class or
series of our capital stock for another class or series of our
capital stock; or
o purchase fractional interests in shares of our 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 interest deferral period, we may
further extend such interest deferral period. However, no interest deferral
period may exceed 20 consecutive quarterly periods or extend beyond ________ 15,
2029. Upon the termination of any interest deferral period and the payment of
all amounts then accrued and unpaid on the junior subordinated debt securities
(together with interest thereon accrued at __% per annum, compounded quarterly,
to the extent permitted by applicable law), we may elect to begin a new interest
deferral period. No interest or other amounts shall be due and payable during an
interest deferral period, except at the end thereof.
We must give the property trustee, the administrative trustees and the
debenture trustee notice of our election of any such interest deferral period at
least three business days prior to the earlier of the date the distributions on
the capital
-28-
<PAGE>
securities would have been payable except for the election to begin such
interest deferral period or the date the administrative trustees are required to
give notice to any automated quotation system or to holders of such capital
securities of the record date or the date such distributions are payable, but in
any event not less than three business days prior to such record date. The
debenture trustee shall give notice of our election to begin or extend an
interest deferral period to the holders of the capital securities. There is no
limitation on the number of times that we may elect to begin an interest
deferral period.
We have no current intention of exercising our right to defer payments
of interest on the junior subordinated debt securities.
The revenue of the trust available for distribution to holders of the
capital securities will be limited to payments under the junior subordinated
debt securities. If we do not make interest payments on the junior subordinated
debt securities, the property trustee will not have funds available to pay
distributions on the capital securities. The payment of distributions (if and to
the extent the trust has funds legally available for the payment of such
distributions and cash sufficient to make such payments) is guaranteed by us on
a limited basis as set forth herein under "Description of Guarantee."
Events That Will Cause Redemption of Capital Securities
Upon the repayment or redemption, in whole or in part, of the junior
subordinated debt securities, whether at maturity or upon earlier redemption as
provided in the indenture, the proceeds from such repayment or redemption shall
be applied by the property trustee to redeem a Like Amount (as defined below) of
the common securities and capital securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "redemption price") equal to
the aggregate liquidation amount of such capital securities plus accumulated but
unpaid distributions thereon to the date of redemption (the "redemption date")
and the related amount of the premium, if any, paid by the us upon the
concurrent redemption of such junior subordinated debt securities. If less than
all the junior subordinated debt securities are to be repaid or redeemed on a
redemption date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the capital securities and the common
securities. The amount of premium, if any, paid by us upon the redemption of all
or any part of the junior subordinated debt securities to be repaid or redeemed
on a redemption date shall be allocated to the redemption pro rata of the
capital securities and the common securities.
We have the right to redeem the junior subordinated debt securities (i)
on or after __________ 15, 2004, in whole at any time or in part from time to
time, or (ii) in whole, but not in part, at any time within 90 days following
the occurrence and during the continuation of a Tax Event, Investment Company
Event or Capital Treatment Event (each as defined below), in each case subject
to possible regulatory approval. A redemption of the junior subordinated debt
securities would cause a mandatory redemption of a Like Amount of the capital
securities and common securities at the redemption price.
The redemption price, in the case of a redemption on or after
_________________ 15, 2004, shall equal the following prices, expressed in
percentages of the liquidation amount (as defined below), together with
accumulated distributions to but excluding the date fixed for redemption, if
redeemed during the 12-month period beginning 15:
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Year redemption price
2004 %($_________)
2005
2006
2007
2008
2009
2010
2011
2012
2013
and at 100% on or after ____________ 15, 2014
The redemption price, in the case of a redemption prior to 15, 2004
following a Tax Event, Investment Company Event or Capital Treatment Event, will
equal for each Capital Security the Make-Whole Amount for a corresponding $25
principal amount of junior subordinated debt securities together with
accumulated distributions to but excluding the date fixed for redemption. The
"Make-Whole Amount" will be equal to the greater of (i) 100% of the principal
amount of such junior subordinated debt securities and (ii) as determined by a
Quotation Agent (as defined below), the sum of the present values of the
principal amount and premium payable as part of the redemption price with
respect to an optional redemption of such junior subordinated debt securities on
15, 2004 together with the present values of scheduled payments of interest (not
including the portion of any such payments of interest accrued as of the
redemption date) from the redemption date to 15, 2004 (the "Remaining Life"), in
each case discounted to the redemption date on a quarterly basis (assuming a
360-day year consisting of 30-day months) at the Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any redemption date,
the Treasury Rate plus (i) 2.00% if such redemption date occurs on or before
April 15, 2000 or (ii) 1.25% if such redemption date occurs after April 15, 2000
"Treasury Rate" means:
o the yield, under the heading which represents the average for
the week immediately prior to the calculation date, appearing in
the most recently published statistical release designated "H.15
(519)" or any successor publication which is published weekly by
the Federal Reserve and which establishes yields on actively
traded United States Treasury securities adjusted to constant
maturity under the caption "Treasury Constant Maturities," for
the maturity corresponding to the Remaining Life (if no maturity
is within three months before or after the Remaining Life,
yields for the two published maturities most closely
corresponding to the Remaining Life shall be determined and the
Treasury Rate shall be interpolated or extrapolated from such
yields on a straight-line basis, rounding to the nearest month);
or
o if such release (or any successor release) is not published
during the week preceding the calculation date or does not
contain such yields, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date. The Treasury
Rate shall be calculated on the third business day preceding the
redemption date.
"Like Amount" means, with respect to a redemption of common securities
and capital securities, common securities and capital securities having a
liquidation amount (as defined below) equal to that portion of the principal
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amount of junior subordinated debt securities to be contemporaneously redeemed
in accordance with the Junior Subordinated indenture, allocated to the common
securities and to the capital securities based upon the relative liquidation
amounts of such classes. With respect to a distribution of junior subordinated
debt securities to holders of common securities and capital securities in
connection with a dissolution or liquidation of the trust, "Like Amount" means
junior subordinated debt securities having a principal amount equal to the
liquidation amount of the common securities and capital securities of the holder
to whom such junior subordinated debt securities are distributed.
"Tax Event" means the receipt by the trust of an opinion of our 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 or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the capital securities, there is more than an insubstantial risk that:
o the trust is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with
respect to income received or accrued on the junior subordinated
debt securities;
o interest payable by us on the junior subordinated debt
securities is not, or within 90 days of the delivery of such
opinion, will not be, deductible, in whole or in part, for
United States federal income tax purposes; or
o the trust is, or will be within 90 days of the delivery of such
opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the trust of an opinion
of our counsel experienced in such matters to the effect that, as a result of
the occurrence of a change in law or regulation or a written change (including
any announced prospective change) in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the trust is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act, which change or prospective change becomes effective or
would become effective, as the case may be, on or after the date of the issuance
of the capital securities.
"Capital Treatment Event" means the reasonable determination by us
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or decision
is announced on or after the date of issuance of the capital securities, there
is more than an insubstantial risk that we will not be entitled to treat an
amount equal to the liquidation amount of the capital securities as "Tier I
Capital" (or the then equivalent thereof) for purposes of the risk-based capital
adequacy guidelines of the Federal Reserve, as then in effect and applicable us.
Payment of Additional Sums. If a Tax Event involving the payment of
taxes by the trust has occurred and is continuing and the trust is the holder of
all the junior subordinated debt securities, we will pay Additional Sums (as
defined below), if any, on the junior subordinated debt securities.
"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 of the trust will not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the trust has become subject as a result of a Tax Event.
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Procedures for Redeeming Capital Securities
Common securities and capital securities shall be redeemed, if at all,
at the applicable redemption price with the proceeds from the contemporaneous
repayment or redemption of the junior subordinated debt securities. Redemptions
of the common securities and capital securities shall be made and the redemption
price shall be payable on each redemption date (as defined below) only to the
extent that the trust has funds on hand available for the payment of such
redemption price. See also "Subordination of Common Securities" on page ___.
If the trust gives a notice of redemption in respect of the capital
securities, then, by 12:00 noon, Richmond, Virginia time, on the date fixed for
redemption (the "redemption date"), to the extent funds are available, with
respect to the capital securities held in global form, the property trustee will
deposit irrevocably with DTC funds sufficient to pay the redemption price and
will give DTC irrevocable instructions and authority to pay the redemption price
to the holders of the capital securities. With respect to the capital securities
held in certificated form, the property trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the capital
securities funds sufficient to pay the redemption price and will give such
paying agent irrevocable instructions and authority to pay the redemption price
to the holders thereof upon surrender of their certificates evidencing the
capital securities. Notwithstanding the foregoing, distributions payable on or
prior to the redemption date shall be payable to the holders of the capital
securities on the relevant record dates for the related distribution dates.
If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of the holders of the
capital securities will cease, except the right of the holders of the capital
securities to receive the redemption price, but without interest on such
redemption price, and the capital securities will cease to be outstanding. In
the event that any date fixed for redemption of capital securities is not a
business day, then payment of the redemption price payable on such date will be
made on the next succeeding day which is a business day (and without any
interest or other payment in respect of any such delay), except that, if such
business day falls in the next calendar year, such payment will be made on the
immediately preceding business day. In the event that payment of the redemption
price is improperly withheld or refused and not paid either by the trust or by
us pursuant to the guarantee, distributions on capital securities will continue
to accrue at the then applicable rate, from the redemption date originally
established by the trust to the date such redemption price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the redemption price.
Subject to applicable law (including, without limitation, United States
federal securities laws), we or our subsidiaries may at any time and from time
to time purchase outstanding capital securities by tender in the open market or
by private agreement.
Notice of any redemption (other than at the stated maturity of the
junior subordinated debt securities) will be mailed at least 30 days but not
more than 60 days before the redemption date to each holder of common securities
and capital securities at its registered address. Unless we default in payment
of the redemption price on, or in the repayment of, the junior subordinated debt
securities, on and after the redemption date, distributions will cease to accrue
on the common securities and capital securities called for redemption.
Liquidation of the Trust and Distribution of Junior Subordinated Debt Securities
We, as the holder of the outstanding common securities, will have the
right at any time (including, without limitation, upon the occurrence of a Tax
Event or Capital Treatment Event) to terminate the trust and cause a Like Amount
of the junior subordinated debt securities to be distributed to the holders of
the common securities and capital securities upon liquidation of the trust. Such
right to terminate is subject to prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve.
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Upon liquidation of the trust and certain other events, the junior
subordinated debt securities may be distributed to holders of the capital
securities. Under current United States federal income tax law, a distribution
of junior subordinated debt securities 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 debt securities may constitute a
taxable event to holders of capital securities.
The trust shall automatically terminate upon the first to occur of:
o Our bankruptcy, dissolution or liquidation;
o the distribution of a Like Amount of the junior subordinated
debt securities to the holders of the common securities and
capital securities if we have given written direction to the
property trustee to terminate the trust (which direction is
optional and, except as described above, wholly within our
discretion);
o redemption of all of the common securities and capital
securities as described under "Events That Will Cause Redemption
of Capital Securities" above;
o expiration of the term of the trust; and
o the entry of an order for the dissolution of the trust by a
court of competent jurisdiction.
If an early termination occurs as described above, unless the common
securities and capital securities are redeemed, the trust shall be liquidated by
the trustees as expeditiously as the trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the trust as
provided by applicable law, to the holders of such common securities and capital
securities a Like Amount of the junior subordinated debt securities, unless such
distribution would not be practical, in which event such holders will be
entitled to receive out of the assets of the trust available for distribution to
holders, after satisfaction of liabilities to creditors of the trust as provided
by applicable law, an amount equal to, in the case of holders of capital
securities, the aggregate of the liquidation amount plus accumulated and unpaid
distributions thereon to the date of payment (such amount being the "liquidation
distribution").
If the liquidation distribution can be paid only in part because the
trust has insufficient assets available to pay in full the aggregate liquidation
distribution, then the amounts payable directly by the trust on the capital
securities shall be paid on a pro rata basis. The holder(s) of the common
securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the capital securities, except that if a Debenture
Event of Default (or an event that, with notice or passage of time, would become
such an Event of Default) or an Event of Default under the declaration has
occurred and is continuing, the capital securities shall have a priority over
the common securities with respect to any such distributions. If an early
termination occurs as the result of a court order, the junior subordinated debt
securities will be subject to optional redemption in whole (but not in part).
If we elect not to redeem the junior subordinated debt securities prior
to maturity and the trust is not liquidated and the junior subordinated debt
securities are not distributed to holders of the common securities and capital
securities, the capital securities will remain outstanding until the repayment
of the junior subordinated debt securities at the stated maturity.
On and after the liquidation date is fixed for any distribution of
junior subordinated debt securities to holders of the common securities and
capital securities:
o the capital securities will no longer be deemed to be
outstanding;
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o DTC or its nominee, as the record holder of the capital
securities, will receive a registered global certificate or
certificates representing the junior subordinated debt
securities to be delivered upon such distribution with respect
to capital securities held by DTC or its nominee; and
o any certificates representing capital securities not held by DTC
or its nominee will be deemed to represent junior subordinated
debt securities having a principal amount equal to the
liquidation amount of such capital securities and bearing
accrued and unpaid interest in an amount equal to the
accumulated and unpaid distributions on such capital securities
until such certificates are presented to the administrative
trustees or their agent for cancellation, whereupon we will
issue to such holder, and the debenture trustee will
authenticate, a certificate representing such junior
subordinated debt securities.
There can be no assurance as to the market prices for the capital
securities or the junior subordinated debt securities that may be distributed in
exchange for the common securities and capital securities if a dissolution and
liquidation of the trust were to occur. Accordingly, the capital securities that
an investor may purchase, or the junior subordinated debt securities that the
investor may receive on dissolution and liquidation of the trust, may trade at a
discount to the price that the investor paid to purchase the capital securities
offered hereby.
Subordination of Common Securities
Payment of distributions on, and the redemption price of, the capital
securities and common securities, as applicable, shall be made pro rata to the
holders of capital securities and common securities based on the liquidation
amount of the common securities and capital securities. However, if on any
distribution date or redemption date any Debenture Event of Default (or an event
that, with notice or passage of time, would become such an Event of Default) or
an Event of Default under the declaration shall have occurred and be continuing,
no payment of any distribution on, or redemption price of, any of the common
securities, and no other payment on account of the redemption, liquidation or
other acquisition of such common securities, shall be made unless payment in
full in cash of all accumulated and unpaid distributions on all of the
outstanding capital securities for all distribution periods terminating on or
prior thereto, or, in the case of payment of the redemption price, the full
amount of such redemption price on all of the outstanding capital securities,
shall have been made or provided for, and all funds available to the property
trustee shall first be applied to the payment in full in cash of all
distributions on, or the redemption price of, the capital securities then due
and payable.
In the case of any Event of Default under the declaration resulting
from a Debenture Event of Default, we as holder of the common securities will be
deemed to have waived any right to act with respect to any such Event of Default
under the declaration until the effect of all such Events of Default have been
cured, waived or otherwise eliminated. Until all such Events of Default under
the declaration have been so cured, waived or otherwise eliminated, the property
trustee shall act solely on behalf of the holders of such capital securities and
not on our behalf as holder of the common securities, and only the holders of
the capital securities will have the right to direct the property trustee to act
on their behalf.
Events That Are a Default Under the Declaration
Any one of the following events constitutes an "Event of Default" under
the declaration (an "Event of Default") (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
o the occurrence of a Debenture Event of Default (as described in
pages ___ and ___); or
o default by the trust in the payment of any distribution when it
becomes due and payable, and continuation of such default for a
period of 30 days; or
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o default by the trust in the payment of any redemption price of
any common security or capital security when it becomes due and
payable; or
o default in the performance, or breach, in any material respect,
of any covenant or warranty of the trustees in the declaration
(other than a covenant or warranty, a default in the performance
of which or the breach of which is addressed in the second and
third points above), and continuation of such default or breach
for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting trustee or
trustees by the holders of at least 25% in aggregate liquidation
amount of the outstanding capital securities, a written notice
specifying such default or breach and requiring it to be
remedied and stating that such notice is a "notice of default"
under the declaration; or
o the occurrence of certain events of bankruptcy or insolvency
with respect to the property trustee and our failure to appoint
a successor property trustee within 60 days thereof.
Within five business days after the occurrence of any Event of Default
actually known to the property trustee, the property trustee shall transmit
notice of such Event of Default to the holders of the capital securities, the
administrative trustees and to us, unless such Event of Default shall have been
cured or waived. We and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under the
declaration.
If a Debenture Event of Default (or an event that with notice or the
passage of time, would become such an Event of Default) or an Event of Default
under the declaration has occurred and is continuing, the capital securities
shall have a preference over the common securities as described above.
Removal of Trustees
Unless a Debenture Event of Default shall have occurred and be
continuing, we may remove any trustee at any time. If a Debenture Event of
Default has occurred and is continuing, the property trustee and the Delaware
trustee may be removed at such time by the holders of a majority in liquidation
amount of the outstanding capital securities. In no event will the holders of
the capital securities have the right to vote to appoint, remove or replace the
administrative trustees, which voting rights are exclusively ours as the holder
of the common securities. No resignation or removal of a trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
declaration.
Co-trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust indenture Act or of any jurisdiction in which any part of the trust's
property may at the time be located, we, as the holder of the common securities,
and the administrative trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the property trustee, of all or any
part of such trust's property, or to act as separate trustee of any such
property, in either case with such powers as may be provided in the instrument
of appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the declaration. In case a Debenture Event of Default has occurred
and is continuing, the property trustee alone shall have power to make such
appointment.
Merger or Consolidation of Trustees
Any person into which the property trustee, the Delaware trustee or any
administrative trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any person resulting from any
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merger, conversion or consolidation to which such trustee shall be a party, or
any person succeeding to all or substantially all the corporate trust business
of such trustee, shall be the successor of such trustee under the declaration,
provided such person shall be otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The trust may not merge with or into, consolidate, amalgamate or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below or as otherwise set forth in the declaration.
The trust may, at our request, with the consent of the administrative
trustees but without the consent of the holders of the capital securities, the
property trustee or the Delaware trustee, merge with or into, consolidate,
amalgamate or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to, a trust organized as such under the laws
of any State. However, in connection with any transaction:
o such successor entity either must (a) expressly assume all of
the obligations of the trust with respect to the capital
securities or (b) substitute for the capital securities other
securities having substantially the same terms as the capital
securities (the "successor securities") so long as the successor
securities rank the same as the capital securities rank in
priority with respect to distributions and payments upon
liquidation, redemption and otherwise;
o We must appoint a trustee of such successor entity possessing
the same powers and duties as the property trustee as the holder
of the junior subordinated debt securities;
o the successor securities must be listed or traded, or any
successor securities will be listed or traded upon notification
of issuance, on any national securities exchange or other
organization on which the capital securities are then listed or
traded, if any;
o such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease may not adversely affect the
rights, preferences and privileges of the holders of the capital
securities (including any successor securities) in any material
respect;
o such successor entity must have a purpose identical and limited
to that of the trust;
o prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we must receive an opinion from
independent counsel to the trust experienced in such matters to
the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of
the capital securities (including any successor securities) in
any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer
or lease, neither the trust nor such successor entity will be
required to register as an investment company under the
Investment Company Act of 1940 (the "Investment Company Act");
and
o we or any permitted successor or assignee must own all of the
common securities of such successor entity and guarantee the
obligations of such successor entity under the successor
securities at least to the extent provided by the guarantee.
The trust may not, however, except with the consent of holders of 100%
in liquidation amount of the common securities and capital securities,
consolidate,
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amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it, if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the trust or the successor entity to
be classified as an association taxable as a corporation or as other than a
grantor trust for United States federal income tax purposes.
Voting Rights of Capital Securities; Amendment of the Declaration
Except as provided below and under "Description of
Guarantee--Amendments and Assignment" and as otherwise required by law and the
declaration, the holders of the capital securities will have no voting rights.
The declaration may be amended from time to time by us, the property
trustee and the administrative trustees, without the consent of the holders of
the capital securities, to:
o cure any ambiguity, correct or supplement any provision in the
declaration that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or
questions arising under the declaration, which shall not be
inconsistent with the other provisions of the declaration, or
o modify, eliminate or add to any provisions of the declaration to
such extent as shall be necessary to ensure that the trust will
be classified for United States federal income tax purposes as a
grantor trust or as other than an association taxable as a
corporation at all times that any common securities and capital
securities are outstanding or to ensure that the trust will not
be required to register as an "investment company" under the
Investment Company Act.
However, amendment made under the first point above may not adversely
affect in any material respect the interests of any holder of common securities
and capital securities. Any amendments of the declaration shall become effective
when notice thereof is given to the holders of the common securities and capital
securities.
The declaration may otherwise be amended by the trustees and us with
the consent of holders representing not less than a majority (based upon
liquidation amounts) of the outstanding capital securities, and receipt by the
trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the trustees in accordance with such amendment
will not cause the trust to be classified as an association taxable as a
corporation or affect the trust's status as a grantor trust for United States
federal income tax purposes or the trust's exemption from status as an
"investment company" under the Investment Company Act.
However, without the consent of each holder of common securities and
capital securities, the declaration may not be amended to change the amount or
timing of any distribution on the common securities and capital securities or
otherwise adversely affect the amount of any distribution required to be made in
respect of the common securities and capital securities as of a specified date
or restrict the right of a holder of common securities and capital securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any junior subordinated debt securities are held by the
trust, the trustees shall not:
o direct the time, method and place of conducting any proceeding
for any remedy available to the debenture trustee, or executing
any trust or power conferred on the property trustee with
respect to the junior subordinated debt securities;
o waive any past default that is waivable under Section 5.13 of
the indenture;
o exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debt securities shall
be due and payable or
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o consent to any amendment, modification or termination of the
indenture or the junior subordinated debt securities, where such
consent shall be required, without, in each case, obtaining the
prior approval of the holders of a majority in aggregate
liquidation amount of all outstanding capital securities.
However, where a consent under the indenture would require the consent
of each holder of junior subordinated debt securities affected thereby, no such
consent shall be given by the property trustee without the prior consent of each
holder of the capital securities. The trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the capital
securities except by subsequent vote of such holders. The property trustee shall
notify each holder of capital securities of any notice of default with respect
to the junior subordinated debt securities. In addition to obtaining the
foregoing approvals of such holders of the capital securities, prior to taking
any of the foregoing actions, the trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the trust will not be classified
as an association taxable as a corporation for United States federal income tax
purposes as a result of such action and such action would not cause the trust to
be classified as other than a grantor trust for United States federal income tax
purposes.
Any required approval of holders of capital securities may be given at
a meeting of such holders convened for such purpose or pursuant to written
consent. The property trustee will cause a notice of any meeting at which
holders of capital securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
holder of record of capital securities in the manner set forth in the
declaration.
No vote or consent of the holders of capital securities will be
required for the trust to redeem and cancel the capital securities in accordance
with the declaration.
Notwithstanding that holders of the capital securities are entitled to
vote or consent under any of the circumstances described above, any of the
capital securities that are owned by us, the trustees or any affiliate of us or
any trustees, shall, for purposes of such vote or consent, be treated as if they
were not outstanding.
Payment of Expenses and Taxes of the Trust
In the indenture, we, as borrower, have agreed to pay all debts,
expenses and other obligations of the trust (other than payments of
distributions, amounts payable upon redemption and the liquidation amount of the
common securities and capital securities). These expenses include costs and
expenses relating to the organization of the trust, the fees and expenses of the
trustees, the costs and expenses of operating the trust, costs of offering the
capital securities, and all taxes and all costs and expenses with respect to the
foregoing (other than United States withholding taxes) to which the trust might
become subject. The foregoing obligations under the indenture are for the
benefit of, and shall be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "creditor") whether or not
such creditor has received notice thereof. Any creditor may enforce such
obligations directly against us, and we have irrevocably waived any right or
remedy to require that any such creditor take any action against the trust or
any other person before proceeding against us. We have also agreed in the
indenture to execute such additional agreement(s) as may be necessary or
desirable to give full effect to the foregoing.
Form, Denomination, Book-Entry Procedures and Transfer of Capital Securities
The capital securities initially will be evidenced by certificates in
fully registered form (each, a "certificate"). The property trustee will from
time to time register the transfer of any outstanding certificate upon surrender
thereof at the office of the property trustee which is currently located at 1100
N. Market Street, Wilmington, Delaware 19890, Attention: Corporate trust
Administration (the "property trustee's office"), duly endorsed by, or
accompanied by a written instrument or instruments of transfer in a form
satisfactory to the property trustee duly executed by the holder thereof, a duly
appointed legal representative or a duly authorized attorney. Such signature
must be guaranteed by a bank or trust company having a correspondent office in
New York City or by a broker or dealer that is a member of the
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National Association of Securities Dealers, Inc. (the "NASD") or a member of a
national securities exchange. A new certificate will be issued to the transferee
upon any such registration of transfer.
At the option of a holder, certificates may be exchanged for other
certificates representing a like number of capital securities, upon surrender to
the property trustee at the property trustee's office of the certificates to be
exchanged. We will thereupon execute, and the property trustee will authenticate
and deliver, one or more new certificates representing such like number of
capital securities.
If any certificate is mutilated, lost, stolen or destroyed, we shall
execute, and the property trustee shall authenticate and deliver, in exchange
and substitution for such mutilated certificate, or in replacement for such
lost, stolen or destroyed certificate, a new certificate representing the same
number of capital securities represented by such certificate, but only upon
receipt of evidence satisfactory to us and to the property trustee of loss,
theft or destruction of such certificate and security or indemnity, if
requested, satisfactory to them. Holders requesting replacement certificates
must also comply with such other reasonable regulations as we or the property
trustee may prescribe.
No service charge will be made for any registration of transfer or
exchange of certificates, but we may require the payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection
therewith, other than exchanges not involving any transfer. In the case of the
replacement of mutilated, lost, stolen or destroyed certificates, we may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith and any other expenses (including
the fees and expenses of the property trustee) connected therewith.
Possible Exchange of Certificated Capital Securities for Book-Entry Capital
Securities.
Following the issuance of the capital securities, we will make the
capital securities available in book-entry form ("book-entry capital
securities"). Holders may (but are not required to) exchange certificates for
book-entry capital securities, which will be represented by a beneficial
interest in a global security (as defined below), by causing the certificates to
be delivered to The Depository Trust Company ("DTC"), in proper form for deposit
into DTC's book-entry system, on or after the initial exchange date (as defined
below). Certificates received by DTC for exchange during the period commencing
on a date we designate (the "initial exchange date") and ending on the fifth day
after the initial exchange date (the "initial exchange period") will be
exchanged for book-entry capital securities by the close of business on the
business day on which they are received by DTC (if received by DTC by its then
applicable cut-off time for same-day credit) or on the following business day
(if received by DTC by its then applicable cut-off time for next-day credit).
After the last day of the initial exchange period, DTC will not be
required to accept delivery of certificates in exchange for book-entry capital
securities, but DTC may permit such certificates to be so exchanged on a
case-by-case basis. It is anticipated that after the initial exchange period,
certificates delivered to DTC in good order and in proper form for deposit will
be accepted by DTC for exchange for book-entry capital securities generally
within three to four business days after delivery to DTC. However, there can be
no assurance that such certificates will be accepted for exchange or, if
accepted, that such exchange will occur within such time period. Certificates
surrendered at any time for exchange for book-entry capital securities may not
be delivered for settlement or transfer until such exchange has been effected.
Accordingly, persons purchasing capital securities in secondary market trading
after the initial exchange date may wish to make specific arrangements with
brokers or DTC's participants if they wish to purchase only book-entry capital
securities and not certificates.
We will notify DTC, the property trustee and each holder of a
certificate by overnight mail that exchanges of certificates for book-entry
capital securities will commence on the initial exchange date, which will be
approximately one business day after the date on which we notify DTC that we
have elected to permit such exchanges. The initial exchange date will not be
later than one day after _________ __, 1999.
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In order to be exchanged for book-entry capital securities, a
certificate must be delivered to DTC, in proper form for deposit, by a
participant (as defined below). Accordingly, holders of capital securities that
are not participants must deliver their certificates, in proper form for
deposit, to a participant, either directly or through a brokerage firm that
maintains an account with a participant, in order to have their certificates
exchanged for book-entry capital securities. Holders of capital securities that
want to exchange their certificates for book-entry capital securities should
contact their broker or a participant to obtain information on procedures for
submitting their certificates to DTC, including the proper form for submission
and (during the initial exchange period) the cut-off times for same-day and
next-day exchange. A certificate that is held on behalf of a beneficial owner in
nominee or "street name" may be automatically exchanged for book-entry capital
securities by the broker or other entity that is the registered holder of such
capital securities, without any action of or consent by the beneficial owner of
the capital securities.
Book-Entry System
Any book-entry capital securities will be represented by a single
global security (a "global security"), which will be deposited with, or on
behalf of, DTC, and registered in the name of a nominee of DTC. Certificates
that have been exchanged for book-entry capital securities may not be
re-exchanged for certificates, except under the limited circumstances described
in "Description of Capital Securities--Form, Denomination, Book-Entry Procedures
and Transfer--Exchange of Book-Entry Capital Securities for Certificated Capital
Securities." Unless and until it is exchanged in whole or in part for
certificates, the global security may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC.
Transfer of beneficial interests in the global capital securities will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants which may change from time to time.
Depositary Procedures
DTC has advised the trust and us as follows: DTC is a limited purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, the
"participants") and to facilitate the clearance and settlement of transactions
in those securities between participants through electronic book-entry changes
to accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
(collectively, the "indirect participants"). Persons who are not participants
may beneficially own securities held by or on behalf of DTC only through the
participants or the indirect participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the participants and indirect
participants.
DTC has also advised the trust and us that, pursuant to procedures
established by it, (i) upon deposit of the global capital securities, DTC will
credit the accounts of participants with portions of the principal amount of the
Global capital securities and (ii) ownership of such interests in the global
capital securities will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
participants) or by the participants and the indirect participants (with respect
to other owners of beneficial interests in the global capital securities).
Investors in the global capital securities may hold their interests
therein directly through DTC, if they are participants in DTC, or indirectly
through organizations which are participants in such system. All interests in a
global capital security will be subject to the procedures and requirements of
DTC. The laws of some states require that certain
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persons take physical delivery in certificated form of certain securities, such
as the capital securities, that they own. Consequently, the ability to transfer
beneficial interests in a global capital security to such persons will be
limited to that extent. Because DTC can act only on behalf of participants,
which in turn act on behalf of indirect participants and certain banks, the
ability of a person having beneficial interests in a global capital security to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of beneficial interests in the global
capital securities will not be entitled to have capital securities registered in
their names, will not receive or be entitled to receive physical delivery of
capital securities in certificated form and will not be considered the
registered owners or holders thereof under the declaration for any purpose.
Payments in respect of the global capital security registered in the
name of DTC or its nominee will be payable by the property trustee to DTC or its
nominee as the registered holder under the declaration by wire transfer in
immediately available funds on each distribution date. Under the terms of the
declaration, the property trustee will treat the persons in whose names the
capital securities, including the global capital securities, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the property trustee nor
any agent thereof has or will have any responsibility or liability for:
o any aspect of DTC's records or any participant's or indirect
participant's records relating to, or payments made on account
of, beneficial ownership interests in the global capital
securities, or for maintaining, supervising or reviewing any of
DTC's records or any participant's or indirect participant's
records relating to the beneficial ownership interests in the
global capital securities, or
o any other matter relating to the actions and practices of DTC or
any of its participants or indirect participants.
DTC has advised the trust and us that its current practice, upon
receipt of any payment in respect of securities such as the capital securities,
is to credit the accounts of the relevant participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
liquidation amount of beneficial interests in the global capital security, as
shown on the records of DTC, unless DTC has reason to believe it will not
receive payment on such payment date. Payments by the participants and the
indirect participants to the beneficial owners of capital securities represented
by global capital securities held through such participants will be governed by
standing instructions and customary practices and will be the responsibility of
the participants or the indirect participants and will not be the responsibility
of DTC, the property trustee or the trust. Neither the trust nor the property
trustee will be liable for any delay by DTC or any of its participants in
identifying the beneficial owners of the capital securities, and the trust and
the property trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
Interests in the global capital securities will trade in DTC's same-day
funds settlement system and secondary market trading activity in such interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the trust and us that it will take any action permitted
to be taken by a holder of capital securities (including, without limitation,
the presentation of capital securities for exchange as described below) only at
the direction of one or more participants to whose account with DTC interests in
the global capital securities are credited and only in respect of such portion
of the aggregate liquidation amount of the capital securities represented by the
global capital securities as to which such Participant or participants has or
have given such direction. However, if there is an Event of Default under the
declaration, DTC reserves the right to exchange the global capital securities
for legended capital securities in certificated form and to distribute such
capital securities to its participants.
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So long as DTC or its nominee is the registered owner of the global
capital securities, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the capital securities represented by the global
capital security for all purposes under the declaration.
Neither DTC nor its nominee will consent or vote with respect to the
capital securities. Under its usual procedures, DTC would mail an omnibus proxy
to the trust as soon as possible after the record date. The omnibus proxy
assigns the consenting or voting rights of DTC or its nominee to those
participants to whose accounts the capital securities are credited on the record
date (identified in a listing attached to the omnibus proxy).
The information in this section concerning DTC and its book-entry
system has been obtained from sources that we and the trust believe to be
reliable, but neither we nor the trust take responsibility for the accuracy
thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the global capital securities among participants in
DTC, it is under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
trust nor the property trustee will have any responsibility for the performance
by DTC or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Exchange of Book-Entry Capital Securities for Certificated Capital Securities
A global capital security is exchangeable for capital securities in
registered certificated form if:
o DTC notifies the trust that it is no longer willing or able to
properly discharge its responsibilities with respect to the
capital securities and we are unable to locate a qualified
successor, or has ceased to be a "clearing agency" registered
under the Exchange Act;
o the trust at its sole option elects to terminate the book-entry
system through DTC; or
o there shall have occurred and be continuing a Debenture Event of
Default.
In addition, beneficial interests in a global capital security may be
exchanged by or on behalf of DTC for certificated capital securities upon
request by DTC, but only upon at least 20 days prior written notice given to the
property trustee in accordance with DTC's customary procedures. In all cases,
certificated capital securities delivered in exchange for any global capital
security or beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of DTC (in
accordance with its customary procedures).
How Payments Will Be Made on the Capital Securities
Payments in respect of the capital securities held in global form shall
be made to DTC, which shall credit the relevant accounts at DTC on the
applicable distribution dates or in respect of the capital securities that are
not held by DTC, such payments shall be made by check mailed to the address of
the holder entitled thereto as such address shall appear on the register. The
paying agent shall initially be the property trustee and any co-paying agent
chosen by the property trustee and acceptable to the administrative trustees and
us. The paying agent shall be permitted to resign as paying agent upon 30 days'
written notice to the property trustee, the administrative trustees and us. In
the event that the property trustee shall no longer be the paying agent, the
administrative trustees shall appoint a successor (which shall be a bank or
trust company acceptable to the administrative trustees and us) to act as paying
agent.
Wilmington Trust Company has informed the trust that so long as it
serves as paying agent for the capital securities, it anticipates that
information regarding distributions on the capital securities, including payment
date, record
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date and redemption information, will be made available through Wilmington Trust
Company at 1100 N. Market Street, Wilmington, Delaware, Attention: Corporate
Trust Administration.
Information About Registrar and Transfer Agent
The property trustee will act as registrar and transfer agent for the
capital securities.
Registration of transfers of the capital securities will be effected
without charge by or on behalf of the trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The trust will not be required to register or cause to be
registered the transfer or exchange of the capital securities after they have
been called for redemption.
Information About the Property Trustee
The property trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the declaration and, during the existence of an Event
of Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the property trustee is under no obligation to exercise any of the
powers vested in it by the declaration at the request of any holder of common
securities and capital securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby. If
no Event of Default has occurred and is continuing and the property trustee is
required to decide between alternative causes of action, construe ambiguous
provisions in the declaration or is unsure of the application of any provision
of the declaration, and the matter is not one on which holders of the capital
securities or the common securities are entitled under the declaration to vote,
then the property trustee shall take such action as we direct and, if not so
directed, shall take such action as it deems advisable and in the best interests
of the holders of the common securities and capital securities and will have no
liability except for its own bad faith, negligence or willful misconduct.
Miscellaneous
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that the trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes or as other than a grantor trust
for United States federal income tax purposes, and so that the junior
subordinated debt securities will be treated as our indebtedness for United
States federal income tax purposes. In this connection, we and the
administrative trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of the trust or the declaration, that
we and the administrative trustees determine in our discretion to be necessary
or desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the common securities and
capital securities.
Holders of the common securities and capital securities have no
preemptive or similar rights.
The trust may not borrow money or issue debt or mortgage or pledge any
of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBT SECURITIES
The junior subordinated debt securities are to be issued as a separate
series under the indenture, as supplemented from time to time, between us and
Wilmington trust Company, as trustee (the "debenture trustee"). The indenture
will be qualified under the Trust Indenture Act. This summary of certain terms
and provisions of the junior subordinated debt securities and the indenture does
not purport to be complete, and where reference is made to particular provisions
of the indenture, such provisions, including the definitions of certain terms,
some of which are not otherwise defined herein, are
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qualified in their entirety by reference to all of the provisions of the
indenture and those terms made a part of the indenture by the Trust Indenture
Act.
General
Concurrently with the issuance of the common securities and capital
securities, the trust will invest the proceeds thereof in junior subordinated
debt securities issued by us. The junior subordinated debt securities will bear
interest at _____% per annum of the principal amount thereof, payable quarterly
in arrears on the 15th day of January, April, July and October of each year
(each, an "interest payment date"), commencing ____ 15, 1999, to the person in
whose name each junior subordinated debt security is registered, subject to
certain exceptions, at the close of business on the business day next preceding
such interest payment date. It is anticipated that, until the liquidation of the
trust, each junior subordinated debt security will be held in the name of the
property trustee in trust for the benefit of the holders of the common
securities and capital securities. The amount of interest payable for any period
will be computed on the basis of the actual number of days elapsed in a year of
twelve 30-day months. In the event that any date on which interest is payable on
the junior subordinated debt securities is not a business day, then payment of
the interest payable on such date will be made on the next succeeding day that
is a business day (and without any interest or other payment in respect of any
such delay), with the same force and effect as if made on the date such payment
was originally payable. Accrued interest that is not paid on the applicable
interest payment date will bear additional interest on the amount thereof (to
the extent permitted by law) at ____% per annum thereof, compounded quarterly
from the relevant interest payment date. The term "interest" as used herein
shall include quarterly payments, interest on quarterly interest payments not
paid on the applicable interest payment date and Additional Sums, as applicable.
The junior subordinated debt securities will be issued as a series of
junior subordinated debt securities under the indenture. Unless previously
redeemed or repurchased, the junior subordinated debt securities will mature on
15, 2029.
The junior subordinated debt securities will be unsecured and will rank
junior and be subordinate in right of payment to all senior debt. Because
Resource Bankshares Corporation is a bank holding company, our right to
participate in any distribution of assets of any subsidiary, including Resource
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 we may be recognized as a creditor of such
subsidiary. Accordingly, the junior subordinated debt securities will be
subordinated to all senior debt and effectively subordinated to all existing and
future liabilities of our subsidiaries, and holders of junior subordinated debt
securities should look only to our assets for payments on the junior
subordinated debt securities. The indenture does not limit the incurrence or
issuance of other secured or unsecured debt, including senior debt, whether
under the indenture or any existing or other indenture that we may enter into in
the future or otherwise.
The junior subordinated debt securities will rank equally with all
other debentures issued under the indenture 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 our senior debt. As a holding company, we conduct
our operations principally through Resource Bank and, therefore, our principal
source of cash, is receipt of dividends from Resource Bank. Resource Bankshares
Corporation is a legal entity separate and distinct from Resource Bank. Resource
Bank is subject to certain restrictions imposed by federal law on any extensions
of credit to, and certain other transactions with, Resource Bankshares
Corporation and certain other affiliates, and on investments in stock or other
securities thereof. Such restrictions prevent Resource Bankshares Corporation
and such other affiliates from borrowing from Resource Bank unless the loans are
secured by various types of collateral. In addition, payment of dividends to
Resource Bankshares Corporation by Resource Bank 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.
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Denominations, Registration and Transfer
The junior subordinated debt securities will be represented by one or
more global certificates registered in the name of Cede & Co. as the nominee of
DTC if, and only if, distributed to the holders of the common securities and
capital securities. Until such time, the junior subordinated debt securities
will be held in the name of the property trustee in trust for the benefit of the
holders of the common securities and capital securities. Should the junior
subordinated debt securities be distributed to holders of the common securities
and capital securities, beneficial interests in the junior subordinated debt
securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in DTC. Except as described below,
junior subordinated debt securities in certificated form will not be issued in
exchange for the global certificates.
A global security shall be exchangeable for junior subordinated debt
securities registered in the names of persons other than Cede & Co. only if:
o DTC notifies us 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;
o We in our sole discretion determine that such global security
shall be so exchangeable; or
o 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.
Payments on junior subordinated debt securities represented by a global
security will be made to DTC, as the depositary for the junior subordinated debt
securities. In the event junior subordinated debt securities are issued in
certificated form, principal and interest will be payable, the transfer of the
junior subordinated debt securities will be registrable, and junior subordinated
debt securities will be exchangeable for junior subordinated debt securities of
other denominations of a like aggregate principal amount, at the corporate
office of the debenture trustee in Wilmington, Delaware, or at the offices of
any paying agent or transfer agent we appoint, provided that payment of interest
may be made at our option by check mailed to the address of the persons entitled
thereto or by wire transfer.
If the junior subordinated debt securities are distributed to the
holders of the common securities and capital securities upon the termination of
the trust, the form, denomination, book-entry and transfer procedures with
respect to the capital securities as described under "Description of Capital
Securities--Form, Denomination, book-entry Procedures and Transfer," shall apply
to the junior subordinated debt securities.
How Payments Will Be Made on the Junior Subordinated Debt Securities
Payment of principal of and any interest on junior subordinated debt
securities will be made at the office of the debenture trustee in Wilmington,
Delaware or at the office of such paying agent or paying agents as we may
designate from time to time, except that at our option payment of any interest
may be made (except in the case of junior subordinated debt securities in global
form), by check mailed to the address of the person entitled thereto as such
address shall appear in the register for junior subordinated debt securities or
by wire transfer to an account specified 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 junior
subordinated debt security will be made to the person in whose name such junior
subordinated debt security is registered at the close of business on the record
date for such
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interest, except in the case of defaulted interest. We may at any time designate
additional paying agents or rescind the designation of any paying agent; however
the we will at all times be required to maintain a paying agent in each place of
payment for the junior subordinated debt securities.
Any moneys deposited with the debenture trustee or any paying agent, or
then held by us in trust, for the payment of the principal of or interest on any
junior subordinated debt security and remaining unclaimed for two years after
such principal or interest has become due and payable shall, at our request, be
repaid to us and the holder of such junior subordinated debt security shall
thereafter look, as a general unsecured creditor, only to us for payment
thereof.
Our Option to Defer Interest Payments
So long as no Debenture Event of Default has occurred and is
continuing, we have the right under the indenture to defer the payment of
interest on the junior subordinated debt securities at any time or from time to
time for a period not exceeding 20 consecutive quarterly periods with respect to
each interest deferral period, provided, that no interest deferral period may
extend beyond ______ 15, 2029. At the end of an interest deferral period, we
must pay all interest then accrued and unpaid on the junior subordinated debt
securities (together with interest thereon accrued at ____% per annum,
compounded quarterly from the relevant interest payment date, to the extent
permitted by applicable law). During an interest deferral period and for so long
as the junior subordinated debt securities remain outstanding, interest will
continue to accrue and holders of junior subordinated debt securities (and
holders of the capital securities while capital securities are outstanding) will
be required to accrue interest income (in the form of OID) for United States
federal income tax purposes.
With certain exceptions, during any interest deferral period, we may
not pay cash dividends on our capital stock or acquire shares of its capital
stock. Additionally, we may not make any payment on or repay, repurchase or
redeem any of our debt securities that rank equally with or junior in interest
to the junior subordinated debt securities or make any guarantee payments with
respect to any guarantee by us of the debt securities of any of our subsidiaries
if such guarantee ranks equally with or junior in interest to the junior
subordinated debt securities.
Our Option to Redeem the Junior Subordinated Debt Securities Before Maturity
The junior subordinated debt securities are redeemable prior to
maturity at our option on or after _____________ 15, 2004, in whole at any time
or in part from time to time, or in whole, but not in part, at any time within
90 days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Capital Securities--Events That Will Cause Redemption of Capital
Securities"), in each case at the redemption price described below. The proceeds
of any such redemption will be used by the trust to redeem the capital
securities.
The Federal Reserve's risk-based capital guidelines, which are subject
to change, currently provide that redemptions of permanent equity or other
capital instruments before stated maturity could have a significant impact on a
bank holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the junior subordinated debt securities by us prior
to _____ 15, 2029 would constitute the redemption of capital instruments under
the Federal Reserve's current risk-based capital guidelines and may be subject
to the prior approval of the Federal Reserve. The redemption of the junior
subordinated debt securities also could be subject to the additional prior
approval of the Federal Reserve under its current risk-based capital guidelines.
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The redemption price for junior subordinated debt securities in the
case of a redemption on or after ___________ 15, 2004 shall equal the following
prices, expressed in percentages of the principal amount, together with accrued
interest to but excluding the date fixed for redemption. If redeemed during the
12-month period beginning ____________ 15:
Year redemption price
2004 %($_______)
2005
2006
2007
2008
2009
2010
2011
2012
2013
and at 100% on or after _______________ 15, 2014
The redemption price for junior subordinated debt securities, in the
case of a redemption prior to ____________ 15, 2004 following a Tax Event,
Investment Company Event or Capital Treatment Event as described above, will
equal the Make-Whole Amount (as defined under "Description of Capital
Securities--Events That Will Cause Redemption of Capital Securities"), together
with accrued interest to but excluding the date fixed for redemption.
Additional Sums We Might Have to Pay to the Trust
We have covenanted in the indenture that, if and for so long as the
trust is the holder of all junior subordinated debt securities and the trust is
required to pay any additional taxes, duties or other governmental charges as a
result of a Tax Event, we will pay as additional sums on the junior subordinated
debt securities such amounts as may be required so that the distributions
payable by the trust will not be reduced as a result of any such additional
taxes, duties or other governmental charges.
Interest on the Junior Subordinated Debt Securities
The junior subordinated debt securities shall bear interest at ___% per
annum, from the original date of issuance, payable quarterly in arrears on the
15th day of January, April, July and October of each year, commencing ________
15, 1999, to the person in whose name such junior subordinated debt security is
registered, subject to certain exceptions, at the close of business on the
business day next preceding, such interest payment date. The term "interest" as
used herein, as such term relates to the junior subordinated debt securities,
includes any compounded interest or Additional Sums or any additional
distributions payable unless otherwise stated. In the event the junior
subordinated debt securities are not held solely in book-entry only form, we
will select relevant record dates, which shall be 15 days prior to the relevant
interest payment date.
The amount of interest payable for any period will be computed on the
basis of the actual number of days elapsed in a year of twelve 30-day months. In
the event that any date on which interest is payable on the junior subordinated
debt securities is not a business day, then payment of the interest payable on
such date will be made on the next succeeding day that is a business day (and
without any interest or other payment in respect of any such delay) with the
same force and effect as if made on such date.
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How the Indenture Can Be Amended
From time to time we and the debenture trustee may, without the consent
of the holders of junior subordinated debt securities, 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 junior
subordinated debt securities or the holders of the capital securities so long as
they remain outstanding) and maintaining the qualification of the indenture
under the Trust indenture Act. The indenture contains provisions permitting us
and the debenture trustee, with the consent of the holders of not less than a
majority in principal amount of outstanding junior subordinated debt securities,
to modify the indenture in a manner affecting the rights of the holders of
junior subordinated debt securities; provided, however, that no such
modification may, without the consent of the holder of each outstanding junior
subordinated debt security so affected, change the stated maturity, or reduce
the principal amount of the junior subordinated debt securities, or reduce the
rate or extend the time of payment of interest thereon or reduce the percentage
of principal amount of junior subordinated debt securities, or have certain
other effects as set forth in the indenture.
In addition, we and the debenture trustee may execute, without the
consent of any holder of junior subordinated debt securities, any supplemental
indenture for the purpose of creating any other debentures.
What Is a Debenture Event of Default and What Are the Consequences?
The indenture provides that any one or more of the following described
events with respect to the junior subordinated debt securities that has occurred
and is continuing constitutes a "Debenture Event of Default":
o our failure for 30 days to pay any interest on the junior
subordinated debt securities when due (subject to the deferral
of any due date in the case of an interest deferral period); or
o our failure to pay any principal on the junior subordinated debt
securities when due, whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
o our failure to observe or perform in any material respect
certain other covenants contained in the indenture for 90 days
after written notice to us from the debenture trustee or the
holders of at least 25% in aggregate outstanding principal
amount of the junior subordinated debt securities; or
o our bankruptcy, insolvency or reorganization; or
o the voluntary or involuntary dissolution, winding-up or
termination of the trust, except in connection with the
distribution of the junior subordinated debt securities to the
holder of common securities and capital securities in
liquidation of the trust, the redemption of all of the common
securities and capital securities of the trust, or certain
mergers, consolidations or amalgamations, each as permitted by
the declaration.
The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debt securities 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 junior subordinated debt
securities may declare the principal due and payable immediately upon a
Debenture Event of Default and, should the debenture trustee or such holders of
junior subordinated debt securities fail to make such declaration, the holders
of at least 25% in aggregate liquidation amount of the capital securities shall
have such right. The holders of a majority in aggregate outstanding principal
amount of the junior subordinated debt securities may annul such declaration and
waive the default if the default (other than the nonpayment of the principal of
the junior subordinated debt securities which has become due solely by such
acceleration) has been cured and a sum sufficient to
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pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the debenture trustee. Should the holders
of junior subordinated debt securities fail to annul such declaration and waive
such default, the holders of a majority in aggregate liquidation amount of the
capital securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debt securities affected thereby may, on behalf of the
holders of all the junior subordinated debt securities, waive any past default,
except a default in the payment of principal of or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
debenture trustee) on the junior subordinated debt securities or a default in
respect of a covenant or provision which under the indenture cannot be modified
or amended without the consent of the holder of each outstanding junior
subordinated debt security. Should the holders of such junior subordinated debt
securities fail to annul such declaration and waive such default, the holders of
a majority in aggregate liquidation amount of the capital securities shall have
such right. We are required to file annually with the debenture trustee a
certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to it under the indenture.
In case a Debenture Event of Default shall occur and be continuing, the
property trustee will have the right to declare the principal of and the
interest on the junior subordinated debt securities, and any other amounts
payable under the indenture, to be forthwith due and payable and to enforce its
other rights as a creditor with respect to the junior subordinated debt
securities.
Enforcement of Rights by Holders of Capital Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to our failure to pay interest or principal on the junior
subordinated debt securities on the date such interest or principal is otherwise
payable, a holder of capital securities may institute a direct action against
us. We may not amend the indenture to remove the foregoing right to bring a
direct action against us without the prior written consent of the holders of all
of the capital securities. Notwithstanding any payments made to a holder of
capital securities by us in connection with a direct action against us, we shall
remain obligated to pay the principal of and interest on the junior subordinated
debt securities, and we 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 us to such holder in any direct action against
us.
The holders of the 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 junior subordinated debt securities unless there
shall have been an Event of Default under the declaration.
Consolidation, Merger, Sale of Assets and Other Transactions Involving Us
The indenture provides that we may not consolidate with or merge with
or into any other person or convey, transfer or lease its properties and assets
substantially as an entirety to any person, and no person shall consolidate with
or merge with or into us or convey, transfer or lease its properties and assets
substantially as an entirety to us, unless:
o in case we consolidate with or merge with or into another person
or convey or transfer our 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 our
obligations on the junior subordinated debt securities issued
under the indenture;
o 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;
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o if at the time any capital securities are outstanding, such
transaction is permitted under the declaration and the guarantee
and does not give rise to any breach or violation of the
declaration or the guarantee; and
o certain other conditions as prescribed in the indenture are met.
The provisions of the indenture do not afford holders of the junior
subordinated debt securities protection in the event of a highly leveraged or
other transaction involving us that may adversely affect holders of the junior
subordinated debt securities.
What Does Subordination Mean to You?
In the indenture, we have covenanted and agreed that any junior
subordinated debt securities issued thereunder shall be subordinate and junior
in right of payment to all senior debt 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, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding involving us, the holders of senior debt will first be
entitled to receive payment in full of principal of and interest, if any, on
such senior debt before the holders of junior subordinated debt securities, or
the property trustee on behalf of the holders, 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 junior
subordinated debt securities, the holders of all senior debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before the
holders of the junior subordinates debt securities will be entitled to receive
or retain any payment in respect of the principal of or interest, if any, on the
junior subordinated debt securities.
If we default in the payment of any principal of or interest, if any,
on any, senior debt when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration of acceleration or
otherwise, then, unless and until such default shall have been cured or waived
or shall have ceased to exist or all senior debt shall have been paid, no direct
or indirect payment (in cash, property, securities, by set-off or otherwise)
shall be made or agreed to be made for principal or interest, if any, on the
junior subordinated debt securities, or in respect of any redemption, repayment,
retirement, purchase or other acquisition of any of the junior subordinated debt
securities.
"senior debt" means:
o the principal of, and premium, if any, and interest on all our
indebtedness for money borrowed, whether outstanding on the date
of execution of the indenture or thereafter created, assumed or
incurred, except indebtedness that is expressly stated to rank
junior to or equally with the junior subordinated debt
securities;
o all obligations (except those that are expressly stated to rank
junior to or equally with the junior subordinated debt
securities) to make payment pursuant to the terms of financial
instruments, such as,
(i) securities contracts and foreign currency exchange
contracts,
(ii) derivative instruments, such as swap agreements
(including interest rate and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange
agreements, options, commodity futures contracts and
commodity options contracts, and
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(iii) similar financial instruments;
o indebtedness or obligations of others of the kinds described
above for the payment of which we are is responsible or liable
as guarantor or otherwise, and
o any deferrals, renewals or extensions of any such senior debt.
However, senior debt does not include
o any debt of ours which, when incurred and without respect to any
election under Section 1111 (b) of the United States Bankruptcy
Code of 1978, was without recourse to us,
o any debt of ours to any of our subsidiaries,
o debt to any of our employees,
o debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of such
debt by the holders of the junior subordinated debt securities
as a result of the subordination provisions of the indenture
would be greater than such payments otherwise would have been as
a result of any obligation of such holders of such debt to pay
amounts over to the obligees on such trade accounts payable or
accrued liabilities arising in the ordinary course of business
as a result of subordination provisions to which such debt is
subject,
o trade accounts payable or accrued liabilities arising in the
ordinary course of business and
o any other debt securities issued pursuant to the indenture.
The indenture places no limitation on the amount of senior debt that we
may incur. We expect from time to time to incur additional indebtedness
constituting senior debt. At September 30, 1998 we had no senior debt on an
unconsolidated basis. The indenture also places no limitation on the
indebtedness of our subsidiaries, which rank senior in right of payment to the
junior subordinated debt securities.
Governing Law
The indenture and the junior subordinated debt securities will be
governed by and construed in accordance with the laws of the State of Virginia.
Information About the Debenture Trustee
The debenture trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the debenture trustee is under no
obligation to exercise any of the powers vested in it by the indenture at the
request of any holder of junior subordinated debt securities, 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.
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DESCRIPTION OF GUARANTEE
The guarantee will be executed and delivered by us concurrently with
the issuance by the trust of the common securities and capital securities for
the benefit of the holders from time to time of such common securities and
capital securities. Wilmington trust Company will act as trustee (the "guarantee
trustee") under the guarantee agreement. The guarantee agreement will be
qualified under the Trust Indenture Act. This summary of certain provisions of
the guarantee does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all of the provisions of the guarantee,
including the definitions therein of certain terms, and the Trust Indenture Act.
The guarantee trustee will hold the guarantee for the benefit of the holders of
the common securities and capital securities.
General
We will irrevocably agree to pay in full on a subordinated basis, to
the extent set forth herein, the guarantee payments (as defined below) to the
holders of the common securities and 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 common securities and capital securities, to the extent not paid
by or on behalf of the trust (the "guarantee payments"), will be subject to the
guarantee:
o any accrued and unpaid distributions required to be paid on the
common securities and capital securities, to the extent that the
trust has funds on hand available therefor at such time,
o the redemption price with respect to common securities and
capital securities called for redemption, to the extent that the
trust has funds on hand available therefor at such time, and
o upon a voluntary or involuntary dissolution, winding up or
liquidation of the trust (other than in connection with the
distribution of junior subordinated debt securities to the
holders of the common securities and capital securities or the
redemption of all of the capital securities) the lesser of the
liquidation distribution, to the extent the trust has funds
available therefor and the amount of assets of the trust
remaining available for distribution to holders of the common
securities and capital securities upon liquidation of the trust
after satisfaction of liabilities to creditors of the trust as
required by applicable law.
Our obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by us to the holders of the common securities
and capital securities or by causing the trust to pay such amounts to such
holders.
The guarantee will be an irrevocable guarantee on a subordinated basis
of the trust's obligations under the common securities and capital securities,
although it will apply only to the extent that the trust has funds sufficient to
make such payments, and is not a guarantee of collection. If we do not make
interest payments on the junior subordinated debt securities held by the trust,
the trust will not be able to pay distributions on the capital securities and
will not have funds legally available therefor.
The guarantee will rank subordinate and junior in right of payment to
all senior debt. As a holding company, we conduct our operations principally
through Resource Bank and, therefore, our principal source of cash is receipt of
dividends from Resource Bank. However, there are legal limitations on the source
and amount of dividends that a Virginia-chartered, Federal Reserve member bank
such as Resource Bank is permitted to pay. A Virginia-chartered bank may pay
dividends only from net undivided profits. Additionally, a dividend may not be
paid if it would impair the paid-in capital of the bank. In addition, prior
approval of the Federal Reserve is required if the total of all dividends
declared by a member bank in any calendar year will exceed the sum of that
bank's net profits for that year and its retained net profits for the preceding
two calendar years, less any required transfers to either surplus or any fund
for the retirement of any preferred stock. At September 30, 1998, Resource Bank
could have paid approximately $2.7 million in dividends to
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us without prior Federal Reserve approval. The payment of dividends by Resource
Bank may also be affected by other factors, such as requirements for the
maintenance of adequate capital. In addition, the Federal Reserve is authorized
to determine, under certain circumstances relating to the financial condition of
Resource Bank, whether the payment of dividends would be an unsafe or unsound
banking practice and to prohibit payment thereof. The guarantee does not limit
the incurrence or issuance of other secured or unsecured debt of by us,
including senior debt, whether under the indenture, any other indenture that we
may enter into in the future or otherwise.
Taken together, our obligations under the guarantee, the declaration,
the junior subordinated debt securities and the indenture, including our
obligation to pay the costs, expenses and other liabilities of the trust (other
than the trust's obligations to the holders of the common securities and capital
securities), provide, in the aggregate, a full, irrevocable and unconditional
guarantee of all of the trust's obligations under the 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
capital securities.
Status of the Guarantee
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all senior debt in the same manner
as junior subordinated debt securities.
The guarantee will rank equally with all other guarantees issued by us
under the indenture. The guarantee will constitute a guarantee of payment and
not of collection (i.e., the guaranteed party may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against any other person or entity). The
guarantee will be held for the benefit of the holders of the common securities
and capital securities. The guarantee will not be discharged except by payment
of the guarantee payments in full to the extent not paid by the trust or upon
distribution to the holders of the common securities and capital securities of
the junior subordinated debt securities. The guarantee does not place a
limitation on the amount of additional senior debt that we may incur. We expect
from time to time to incur additional indebtedness constituting senior debt.
How the Guarantee Can Be Amended or Assigned
Except with respect to any changes that do not materially adversely
affect the rights of holders of the common securities and capital securities (in
which case no vote will be required), the guarantee may not be amended without
the prior approval of the holders of not less than a majority of the aggregate
liquidation amount of such outstanding capital securities. The manner of
obtaining any such approval will be as set forth under "Description of Capital
Securities--Voting Rights; Amendment of the Declaration." All guarantees and
agreements contained in the guarantee shall bind our successors, assigns,
receivers, trustees and representatives and shall inure to the benefit of the
holders of the capital securities then outstanding.
Your Rights If We Default
An event of default under the guarantee will occur upon our failure to
perform any of our payments or other obligations thereunder; provided, however,
that except with respect to a default in payment of any guarantee payment, we
shall have received notice of default and shall not have cured such default
within 60 days after receipt of such notice; and provided, further, that no
event of default under the guarantee shall occur unless an Event of Default
under the declaration or a Debenture Event of Default shall have occurred. The
holders of not less than 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 in
respect of the guarantee or to direct the exercise of any trust or power
conferred upon the guarantee trustee under the guarantee.
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Any holder of the capital securities may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the trust, the guarantee trustee or any
other person or entity.
We, as guarantor, are required to file annually with the guarantee
trustee a certificate as to whether or not we are in compliance with all the
conditions and covenants applicable to us under the guarantee.
Information About the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance
of a default by us in performance of the guarantee, undertakes 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 is under no obligation
to exercise any of the powers vested in it by the guarantee at the request of
any holder of the common securities and capital securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
Termination of the guarantee
The guarantee will terminate and be of no further force and effect upon
full payment of the redemption price of the common securities and capital
securities, upon full payment of the amounts payable upon liquidation of the
trust or upon distribution of junior subordinated debt securities to the holders
of the common securities and capital securities. The guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of the common securities and capital securities must restore payment of
any sums paid under the common securities and capital securities or the
guarantee.
Governing Law
The guarantee will be governed by and construed in accordance with the
laws of the State of Virginia.
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBT SECURITIES AND THE GUARANTEE
Our Full and Unconditional Guarantee
Payments of distributions and other amounts due on the capital
securities (to the extent the trust has funds available for the payment of such
distributions) are irrevocably guaranteed by us as and to the extent set forth
under "Description of Guarantee." Taken together, our obligations under the
junior subordinated debt securities, the indenture, the declaration and the
guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of distributions and other amounts due on the 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
capital securities. If and to the extent that the we do not make payments on the
junior subordinated debt securities, the trust will not pay distributions or
other amounts due on the capital securities. The guarantee does not cover
payment of distributions when the trust does not have sufficient funds to pay
such distributions. In such event, the remedy of a holder of capital securities
is to institute a direct action against us. Our obligations under the guarantee
are subordinate and junior in right of payment to all senior debt.
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Why Our Payments on the Junior Subordinated Debt Securities Will be Sufficient
As long as payments of interest and other payments are made when due on
the junior subordinated debt securities, such payments will be sufficient to
cover distributions and other payments due on the capital securities, primarily
because:
o the aggregate principal amount or redemption price of the junior
subordinated debt securities will be equal to the sum of the
aggregate liquidation amount or redemption price, as applicable,
of the common securities and capital securities;
o the interest rate and interest and other payment dates on the
junior subordinated debt securities will match the distribution
rate and distribution and other payment dates for the capital
securities;
o we will pay for all costs, expenses and liabilities of the trust
except the trust's obligations to holders of common securities
and capital securities under such common securities and capital
securities; and
o the declaration further provides that the trust will not engage
in any activity that is not consistent with the limited purposes
thereof.
Notwithstanding anything to the contrary in the indenture, we have the
right to set off any payment we are otherwise required to make thereunder with
and to the extent we have theretofore made, or is concurrently on the date of
such payment making, any payment under the guarantee used to satisfy the related
payment of indebtedness under the indenture.
Enforcement Rights of Holders of Capital Securities
A holder of any Capital Security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person or entity.
A default or event of default under any senior debt would not
constitute a default or Event of Default under the declaration. However, in the
event of payment defaults under, or acceleration of, senior debt, the
subordination provisions of the indenture provide that no payments may be made
in respect of the junior subordinated debt securities until such senior debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on junior subordinated debt securities would
constitute an Event of Default under the declaration.
The Purpose of the Trust Is Limited
The capital securities evidence a beneficial interest in the trust, and
the trust exists for the sole purpose of issuing the capital securities and
common securities, investing the proceeds of the common securities and capital
securities in junior subordinated debt securities and engaging in other
activities necessary or incidental thereto.
Your Rights Upon Termination of the Trust
Upon any voluntary or involuntary termination, winding-up or
liquidation of the trust involving the liquidation of the junior subordinated
debt securities, after satisfaction of the liabilities of creditors of the trust
as required by applicable law, the holders of the common securities and capital
securities will be entitled to receive, out of assets held by the trust, the
liquidation distribution in cash. Upon our voluntary or involuntary liquidation
or bankruptcy, the property trustee, as holder of the junior subordinated debt
securities, would be our subordinated creditor, subordinated in right of payment
to all senior debt as set forth in the indenture, but entitled to receive
payment in full of principal and interest, before any of
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our stockholders receive payments or distributions. Since we are the guarantor
under the guarantee and have agreed to pay for all costs, expenses and
liabilities of the trust (other than the trust's obligations to the holders of
its common securities and capital securities), the positions of a holder of
capital securities and a holder of junior subordinated debt securities relative
to our other creditors and to stockholders in the event of our liquidation or
bankruptcy are expected to be substantially the same.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal
income tax consequences of the purchase, ownership and disposition of capital
securities. Unless otherwise stated, this summary addresses only the tax
consequences to a "U.S. holder" (as defined below) that acquires capital
securities on their original issue at their original offering price and does not
address the tax consequences to persons that may be subject to special treatment
under United States federal income tax law, such as banks, insurance companies,
thrift institutions, regulated investment companies, real estate investment
trusts, tax-exempt organizations, dealers in securities or currencies, persons
that hold capital securities as part of a position in a "straddle" or as part of
a "hedging", "conversion" or other integrated investment transaction for United
States federal income tax purposes, persons whose functional currency is not the
United States dollar or persons that do not hold capital securities as capital
assets. For purposes of this summary, a "U.S. holder" is a securityholder (as
defined below) who or that is an individual citizen or resident of the United
States, a domestic corporation or partnership organized under the laws of the
United States or any State thereof or the District of Columbia or an estate or
trust the income of which is subject to United States federal income taxation
regardless of source.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of Williams Mullen Christian & Dobbins, tax counsel to us
and the trust. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of the capital
securities. The authorities on which this summary is based are subject to
various interpretations, and it is therefore possible that the United States
federal income tax treatment of the purchase, ownership and disposition of the
capital securities may differ from the treatment described below.
Prospective investors are advised to consult with their own tax
advisors in light of their own particular circumstances as to the federal tax
consequences of the purchase, ownership and disposition of the capital
securities, as well as the effect of any state, local or foreign tax laws.
Classification of the Junior Subordinated Debt Securities and the Trust
Under current law and assuming compliance with the terms of the
Declaration, the trust will not be classified as an association taxable as a
corporation for United States federal income tax purposes. Moreover, the trust
should be classified as a grantor trust, and if not so classified will be
classified as a partnership, for United States federal income tax purposes. As a
result, each beneficial owner of capital securities (a "securityholder") that is
a U.S. holder will be required to include in its gross income its pro rata share
of the interest income, including OID, paid or accrued with respect to the
junior subordinated debt securities, whether or not cash is actually distributed
to the securityholders. The junior subordinated debt securities will be
classified as indebtedness of Resource Bankshares Corporation for United States
federal income tax purposes.
Interest Income and Original Issue Discount
Under applicable Treasury Regulations, a "remote" contingency that
stated interest will not be timely paid will be ignored in determining whether a
debt instrument is issued with OID. We believe that the likelihood of our
exercising
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<PAGE>
our option to defer payments of interest is remote. Based on the foregoing, we
believe that the junior subordinated debt securities will not be considered to
be issued with OID at the time of their original issuance.
Because the discount at which the junior subordinated debt securities
are being issued is less than 1/4 of 1 percent of the junior subordinated debt
securities stated redemption price at maturity times the number of complete
years to maturity of the junior subordinated debt securities, such discount will
constitute de minimis OID and will not be required to be taken into account on a
current basis. The following discussion assumes that unless and until we
exercise our option to defer interest on the junior subordinated debt
securities, the junior subordinated debt securities will not be treated as
issued with OID other than de minimis OID.
Under the Treasury Regulations, if we exercised our option to defer any
payment of interest, the junior subordinated debt securities would be treated as
reissued with OID, and, thereafter, all stated interest on the Junior
Subordinated Debentures would be treated as OID as long as the junior
subordinated debt securities remained outstanding. In such event, all of a U.S.
holder's taxable interest income with respect to the junior subordinated debt
securities would be accounted for as OID on an economic accrual basis regardless
of such U.S. holder's method of tax accounting, and actual distributions of
stated interest would not be reported separately as taxable income.
Consequently, a U.S. holder would be required to include OID in gross income
even though we would not make any actual cash payments during an interest
deferral period.
The Treasury Regulations have not been addressed in any rulings or
other interpretations by the IRS, and it is possible that the IRS could take the
position that the junior subordinated debt securities were issued with OID at
the time of their original issuance.
Because income on the capital securities will constitute interest or
OID, corporate U.S. holders will not be entitled to the dividends-received
deduction with respect to any income recognized with respect to the capital
securities. If any additional distributions are paid on the capital securities
it is possible that such additional distributions might constitute OID (whether
or not an interest deferral period has occurred).
Subsequent uses of the term "interest" in this summary shall include
income in the form of OID.
Distribution of the Junior Subordinated Debt Securities to Holders of Capital
Securities
Under current law, a distribution by the trust of the junior
subordinated debt securities, as described under the caption "Description of
Capital Securities--Liquidation of the Trust and Distribution of Junior
Subordinated Debt Securities," will be nontaxable and will result in a U.S.
holder receiving directly its pro rata share of the junior subordinated debt
securities previously held indirectly through the trust, with a holding period
and aggregate adjusted tax basis equal to the holding period and aggregate
adjusted tax basis such U.S. holder had in its capital securities immediately
before such distribution. If, however, the liquidation of the trust were to
occur because the trust were subject to United States federal income tax with
respect to income accrued or received on the junior subordinated debt
securities, the distribution of junior subordinated debt securities to U.S.
holders by the trust would be a taxable event to the trust and each U.S. holder,
and each U.S. holder would recognize gain or loss as if the U.S. holder had
exchanged its capital securities for the junior subordinated debt securities it
received upon the liquidation of the trust. A U.S. holder will include interest
in respect of the junior subordinated debt securities received from the trust in
the manner described above under "Interest Income and Original Issue Discount."
Sales or Redemption of the Capital Securities
Gain or loss will be recognized by a U.S. holder on a sale, exchange,
or other disposition of the capital securities (including a redemption for cash)
in an amount equal to the difference between the amount realized and the U.S.
holder's adjusted tax basis in the capital securities sold or so redeemed.
Assuming that we do not exercise our option to defer
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<PAGE>
payment of interest on the junior subordinated debt securities, a U.S. holder's
adjusted tax basis in the capital securities generally will be its initial
purchase price. If the Junior Subordinated Debentures are deemed to be issued
with OID (as a result of our deferral of any interest payment), a U.S. holder's
adjusted tax basis in the capital securities generally will be its initial
purchase price, increased by OID previously included in such U.S. holder's gross
income to the date of disposition and decreased by distributions or other
payments received on the capital securities other than payments of stated
interest that are not treated as OID. Gain or loss recognized by a U.S. holder
on the capital securities generally will be taxable as capital gain or loss
(except to the extent any amount realized is treated as a payment of accrued
interest with respect to such U.S. holder's pro rata share of the junior
subordinated debt securities required to be included in income) and generally
will be long-term capital gain or loss if the capital securities have been held
for more than one year.
Should we exercise our option to defer any payment of interest on the
junior subordinated debt securities, the capital securities may trade at a price
that does not fully reflect the value of accrued but unpaid interest with
respect to the underlying junior subordinated debt securities. In the event of
such a deferral, a securityholder that disposes of its capital securities
between record dates for payments of distributions (and consequently does not
receive a distribution from the trust for the period prior to such disposition)
will nevertheless be required to include in income as ordinary income accrued
but unpaid interest on the junior subordinated debt securities through the date
of disposition and to add such amount to its adjusted tax basis in its capital
securities disposed of. Such U.S. holder will recognize a capital loss on the
disposition of its capital securities to the extent the selling price (which may
not fully reflect the value of accrued but unpaid interest) is less than the
U.S. holder's adjusted tax basis in the capital securities (which will include
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States alien holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a nonresident alien individual, a foreign
partnership or a nonresident fiduciary of a foreign estate or trust.
Under current United States federal income tax law, and subject to the
discussion of backup withholding below, payments by the trust or any of its
paying agents to any securityholder who or that is a United States alien holder
will not be subject to United States federal withholding tax; provided that:
o the securityholder does not actually or constructively own 10%
or more of the total combined voting power of all classes of
stock of Resource Bankshares Corporation entitled to vote;
o the securityholder is not a controlled foreign corporation that
is related to Resource Bankshares Corporation through stock
ownership; and
o either the securityholder 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 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), holding 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 securityholder by it or by a financial
institution holding such security for the securityholder and
furnishes the trust or its agent with a copy thereof.
Additionally, 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 disposition of a capital security.
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Information Reporting to Securityholders
Generally, income on the capital securities will be reported to
securityholders on Forms 1099, which forms should be mailed to securityholders
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% unless the securityholder
complies with certain certification requirements. Any withheld amounts will be
allowed as a credit against the securityholder's United States federal income
tax, provided the required information is furnished to the Internal Revenue
Service on a timely basis.
ERISA CONSIDERATIONS
ERISA pension plans, qualified retirement plans, and IRAs (collectively
referred to as retirement plans) are subject to certain transactional
restrictions under ERISA and/or the Internal Revenue Code. For example, a
fiduciary (generally, someone who has discretionary control over plan assets or
receives money for investment advice) is prohibited under these restrictions
from (1) engaging in transactions in its own interest or for its own account or
(2) from receiving consideration from any party dealing with a plan with regard
to its assets. In addition, a plan may not enter into purchase, sale, or loan
transaction with a disqualified person. A disqualified person includes, among
other things, a fiduciary, the plan sponsor, and any entity providing services
(for example, custodial or administrative services) to a plan. Violation of
these transactional restrictions can result in the imposition of federal excise
taxes, federal and state income tax on otherwise exempt retirement trusts, and
accelerated federal and state income tax on the otherwise deferred income
accounts of retirement plan participants.
In the usual case, when a retirement plan invests plan assets in a
security, the security purchased replaces the purchase money as a plan asset and
the purchase money becomes an asset of the entity who offered the security for
sale. Because of a concern that certain enterprises were in reality functioning
as investment managers to plans, but avoiding classification as a fiduciary
under ERISA through the device of issuing participation units in, for example,
limited partnerships, the Department of Labor issued regulations (the "plan
asset regulations") which provide that when certain equity interests (including
a beneficial interest in a trust as well as participation in a limited
partnership) are acquired by a plan, both the equity interest acquired in the
hands of the purchasing plan and the purchase money in the hands of the issuer
of the equity interest constitute plan assets. Since the issuer has
discretionary control over these assets, the issuer becomes a fiduciary under
ERISA with respect to the investing plan. As a result, unless an exception
applies, the trust's purchase of the junior subordinated debt securities from
Resource Bankshares Corporation with assets invested by retirement plans would
constitute an instance of the trust as a fiduciary dealing on its own account
and in its own interest with plan assets or receiving consideration from an
entity (Resource Bankshares Corporation) engaged in a transaction involving plan
assets. The plan asset regulations provide certain exemptions to its plan asset
characterization rules.
It appears that one of the exemptions provided by the plan asset
regulations, namely, the publicly-offered exemption, applies to junior
subordinated debt securities purchased by the trust as consequence of a
retirement plan's investment in capital securities with the result that the
purchase money or junior subordinated debt securities will not be deemed to be
plan assets in the hands of the trustee. Under the plan asset regulations, a
publicly-offered equity interest in a trust or other non-operating entity
purchased by a plan does not constitute a plan asset if the interest is freely
transferable and widely held. The plan asset regulations provide that a security
is publicly-offered if it is sold to a plan as part of an offering of securities
to the public pursuant to an effective registration statement under the
Securities Act of 1933 and the class of securities of which such security is
part is registered under the Securities Exchange Act of 1934 within 120 days (or
such later time as may be allowed by the Securities and Exchange Commission)
after the end of the fiscal year of the issuer during which the offering of such
securities to the public occurred. We intend to cause the capital securities to
be so registered under the Securities Exchange Act of 1934. Further, although
ultimately under the plan
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<PAGE>
asset regulations it is a question of fact, a security will generally be deemed
to be freely transferable if its purchase price is $25,000 or less at the time
of the public offering. If, in addition, the securities when offered initially
to the public will be held by 100 or more persons independent of the issuer or
of one another, they will generally be deemed to be widely held. It is
anticipated that with regard to these criteria provided by the plan asset
regulations, the capital securities at the time of being initially offered
constitute securities which are publicly-offered, widely held, and freely
transferable. Retirement plans should, nevertheless, consult with their own
counsel regarding the application of the plan asset regulations to the purchase
of capital securities from the trust.
If we or Resource Bank provide any services to an investing retirement
plan, then it is a disqualified person with respect to that plan irrespective of
whether the trust qualifies under the publicly-offered securities exemption to
the plan asset regulations. Consequently, the purchase of junior subordinated
debt securities by the trust would be an indirect loan made by the retirement
plan to us and, as such, would constitute a prohibited transaction under ERISA.
FORWARD LOOKING STATEMENTS
Some of the statements contained or incorporated by reference in this
prospectus may be "forward-looking statements." Statements which use words such
as "believes," "expects," "may," "will," "should," "projected," "contemplates"
or "anticipates" or the negative of those terms or other variations may be
forward-looking statements. These statements are subject to known and unknown
risks, uncertainties and other factors that could cause actual results to differ
materially from those contemplated by the statements.
Some important factors that may cause actual results to differ from
that projected in a forward-looking statement, include for example,
o our ability to implement our business strategy;
o a decline in economic condition in our market areas;
o a tightening in the difference between our cost of funds and
what we earn on the loans we make;
o changes in governmental regulations affecting our business.
There are several other factors spelled out in "Risk Factors" beginning
on page __ of this prospectus.
UNDERWRITING
The underwriter, McKinnon & Company, Inc., 555 Main Street, Norfolk,
Virginia, has agreed, subject to the terms and conditions contained in an
underwriting agreement with the trust and us, to sell, as selling agent, on a
best efforts basis, up to $8.0 million (aggregate liquidation amount) of capital
securities. The trust has, however, reserved the right to increase the aggregate
liquidation amount by not more than $1.2 million. The underwriter is not
obligated to purchase the capital securities if they are not sold to the public.
The underwriter has informed the trust and us that it proposes to sell
the capital securities as selling agent for the trust, subject to prior sale,
when, as and if issued by the trust, in part to the public at the public
offering price set forth on the cover page of this prospectus and, in part,
through certain selected dealers, who are members of the National Association of
Securities Dealers, Inc., to customers of such selected dealers at such public
offering price, for which each selected dealer will receive a commission of
$____, for each $25 of capital securities that it sells. The underwriter
reserves the right to reject any order for the purchase of capital securities
through it in whole or in part.
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<PAGE>
The public offering is not contingent upon the occurrence of any event
or the sale of a minimum or maximum number of capital securities. Funds received
by the underwriter from investors in the public offering will be deposited with
and held by the escrow agent in a non-interest bearing account until the closing
of the public offering. Closing is expected to occur on or about ______ __,
1999.
As the proceeds of the sale of the capital securities will ultimately
be used to purchase the junior subordinated debt securities, the Underwriting
Agreement provides that we will pay as compensation ("underwriter's
compensation") an amount directly to the underwriter for its arranging the
investment therein of such proceeds $0.__ per capital security (or up to $______
in the aggregate) for the account of the underwriter.
The underwriting agreement provides that we and the trust will
indemnify the underwriter against certain liabilities, including liabilities
under the Securities Act or contribute to payments the underwriter may be
required to make in respect thereof.
The capital securities are a new issue of securities with no
established trading market. We and the trust do not intend to apply for listing
of the capital securities on any securities exchange. We and the trust have been
advised by the underwriter that it may make a market in the capital securities.
The underwriter, however, is not obligated to make a market in the capital
securities. It also may discontinue any market making at any time without
notice. Neither we nor the trust can provide any assurance that a secondary
market for the capital securities will develop.
The underwriter provides or has provided investment banking services to
us from time to time in the ordinary course of business.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the capital
securities, the enforceability of the declaration and the formation of the trust
will be passed upon by Richards, Layton & Finger, special Delaware counsel to us
and the trust. The validity of the guarantee and the junior subordinated debt
securities, as well as certain matters relating to United States federal income
tax considerations, will be passed upon for us by Williams Mullen Christian &
Dobbins. Williams Mullen Christian & Dobbins will rely on the opinion of
Richards, Layton & Finger as to matters of Delaware law.
ACCOUNTANTS
The financial statements of Resource Bank as of December 31, 1997 and
1996 and for each of the years then ended, included in Resource Bank's 1997
Annual Report on Form 10-KSB incorporated by reference into this prospectus,
have been incorporated by reference herein in reliance upon the report of
Goodman & Company, L.L.P., independent auditors, included in Resource Bank's
1997 Form 10-KSB and incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
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<PAGE>
INDEX OF SIGNIFICANT TERMS
<TABLE>
<CAPTION>
<S> <C>
Additional Sums.......................31 Like Amount..........................30
Adjusted Treasury Rate................30 Make-Whole Amount....................30
Capital Treatment Event...............31 NASD.................................39
Debenture Event of Default............48 Remaining Life.......................30
DTC...................................39 Tax Event............................31
Event of Default......................34 Treasury Rate........................30
Investment Company Act................36 Trust Indenture Act..................27
Investment Company Event..............31
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
======================================================== ========================================================
We have not authorized any dealer, salesperson or
other person to give any information or to represent
anything not contained in this prospectus. You must
not rely on any unauthorized information or
representations. This prospectus is an offer to sell
only the securities offered hereby, but only in the
jurisdictions where it is lawful to do so. The $8,000,000
information contained in this prospectus is current RESOURCE CAPITAL TRUST I
only as of __________, 1999.
$_______ capital securities
_______________
(liquidation amount
TABLE OF CONTENTS $25 per Capital Security)
Where You Can Find More Information....................1 Fully and Unconditionally guaranteed, as
Incorporation Of Information That We File With described herein, by
The SEC..............................................1
Prospectus Summary.....................................3
The Offering...........................................6 RESOURCE BANKSHARES
Ratio Of Earnings To Fixed Charges.....................9 CORPORATION
Summary Financial Information.........................10
Risk Factors..........................................11
Use Of Proceeds.......................................14
Resource Capital TrustI...............................15
Selected Historical Financial Information.............16 McKinnon & Company, Inc.
Resource Bankshares Corporation.......................17
Capitalization........................................26 Prospectus
Accounting Treatment..................................26
Regulatory Treatment..................................27 Dated , 1999
Description Of Capital Securities.....................27
Description Of Junior Subordinated Debt Securities....43
Description Of Guarantee..............................52
Relationship Among The Capital Securities, The
Junior Subordinated Debt Securities and The
Guarantee...........................................54
United States Federal IncomeTax Consequences..........56
Erisa Considerations..................................59
Forward Looking Statements............................60
Underwriting..........................................60
Validity Of Securities................................61
Accountants...........................................61
Index Of Significant Terms............................62
======================================================== ========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits
The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:
EXHIBIT NO. DESCRIPTION
1.1 Form of Underwriting Agreement for offering of Capital
Securities*
3.1 Amended and Restated Articles of Incorporation of Resource
Bankshares Corporation (incorporated herein by reference to
Exhibit 3.1 to Resource Bankshares Corporation's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 1998)
3.2 Bylaws of Resource Bankshares Corporation (incorporated
herein by reference to Exhibit 3.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
4.1 Certificate of Trust of Resource Capital Trust I*
4.2 Trust Agreement between Resource Bankshares Corporation and
Wilmington Trust Company*
4.3 Form of Amended and Restated Declaration of Trust for
Resource Capital Trust I*
4.4 Form of Junior Subordinated Indenture between Resource
Bankshares Corporation and Wilmington Trust Company, as
Trustee*
4.5 Form of Capital Security (included in Exhibit 4.3 above)
4.6 Form of Junior Subordinated Debt Security (included in
Exhibit 4.4 above)
4.7 Form of Guarantee Agreement with respect to Trust
Securities issued by Resource Capital Trust I*
4.8 Form of Escrow Agreement among McKinnon & Company, Inc.,
Resource Capital Trust I, Resource Bankshares Corporation
and Wilmington Trust Company*
5.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C.*
5.2 Opinion of Richards, Layton & Finger*
8.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C. as
to tax matters*
12.1 Calculation of Ratio of Earnings to Fixed Charges*
23.1 Consent of Goodman & Company, L.L.P.
23.2 Consent of Williams, Mullen, Christian & Dobbins, P.C.
(included in Exhibit 5.1 above)
23.3 Consent of Richards, Layton & Finger (included in Exhibit
5.2 above)
24.1 Powers of Attorney (included on signature page)*
II-1
<PAGE>
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Trustee
under the Junior Subordinated Indenture*
25.2 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Property
Trustee under the Amended and Restated Declaration of Trust
of Resource Capital Trust I*
25.3 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Guarantee
Trustee under the Guarantee Agreement for the benefit of
holders of Trust Securities of Resource Capital Trust I*
99.1 Resource Bank's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.1 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.2 Resource Bank's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1998, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.3 Proxy Statement relating to the 1998 Annual Meeting of
Shareholder of Resource Bank (incorporated herein by
reference to Exhibit 99.3 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
- ---------------------
* Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Virginia Beach, Commonwealth of Virginia, on February 4,
1999.
RESOURCE BANKSHARES CORPORATION
By: /s/ Lawrence N. Smith
-------------------------------------
Lawrence N. Smith
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lawrence N. Smith President, Chief Executive Officer and February 4, 1999
- ------------------------------------------- Director
Lawrence N. Smith (Principal Executive Officer)
/s/ Eleanor J. Whitehurst Senior Vice President, Chief Financial February 4, 1999
- ------------------------------------------- Officer and Treasurer
Eleanor J. Whitehurst (Principal Financial Officer)
(Principal Accounting Officer)
Chairman of the Board
- -------------------------------------------
John B. Bernhardt
* Director
- -------------------------------------------
Alfred E. Abiouness
Director
- -------------------------------------------
Thomas W. Hunt
<PAGE>
Signature Title Date
--------- ----- ----
* Director
- -------------------------------------------
Louis R. Jones
Director
- -------------------------------------------
A. Russell Kirk
* Director
- -------------------------------------------
Elizabeth A. Twohy
</TABLE>
* Lawrence N. Smith, by signing his name hereto, signs this document on
behalf of each of the persons indicated by an asterisk above pursuant to powers
of attorney duly executed by such persons and previously filed with the
Securities and Exchange Commission as part of the registration statement.
Date: February 4, 1999 /s/ Lawrence N. Smith
-------------------------------------
Lawrence N. Smith
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Virginia Beach, Commonwealth of Virginia, on February 4,
1999.
RESOURCE CAPITAL TRUST I
By: Resource Bankshares Corporation,
as Depositor
By: /s/ Lawrence N. Smith
-------------------------------------
Lawrence N. Smith
President and Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
1.1 Form of Underwriting Agreement for offering of Capital
Securities*
3.1 Amended and Restated Articles of Incorporation of Resource
Bankshares Corporation (incorporated herein by reference to
Exhibit 3.1 to Resource Bankshares Corporation's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 1998)
3.2 Bylaws of Resource Bankshares Corporation (incorporated
herein by reference to Exhibit 3.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
4.1 Certificate of Trust of Resource Capital Trust I*
4.2 Trust Agreement between Resource Bankshares Corporation and
Wilmington Trust Company*
4.3 Form of Amended and Restated Declaration of Trust for
Resource Capital Trust I*
4.4 Form of Junior Subordinated Indenture between Resource
Bankshares Corporation and Wilmington Trust Company, as
Trustee*
4.5 Form of Capital Security (included in Exhibit 4.3 above)
4.6 Form of Junior Subordinated Debt Security (included in
Exhibit 4.4 above)
4.7 Form of Guarantee Agreement with respect to Trust
Securities issued by Resource Capital Trust I*
4.8 Form of Escrow Agreement among McKinnon & Company, Inc.,
Resource Capital Trust I, Resource Bankshares Corporation
and Wilmington Trust Company*
5.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C.*
5.2 Opinion of Richards, Layton & Finger*
8.1 Opinion of Williams, Mullen, Christian & Dobbins, P.C. as
to tax matters*
12.1 Calculation of Ratio of Earnings to Fixed Charges*
23.1 Consent of Goodman & Company, L.L.P.
23.2 Consent of Williams, Mullen, Christian & Dobbins, P.C.
(included in Exhibit 5.1 above)
23.3 Consent of Richards, Layton & Finger (included in Exhibit
5.2 above)
24.1 Powers of Attorney (included on signature page)*
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Trustee
under the Junior Subordinated Indenture*
25.2 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Property
Trustee under the Amended and Restated Declaration of Trust
of Resource Capital Trust I*
<PAGE>
25.3 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Wilmington Trust Company, as Guarantee
Trustee under the Guarantee Agreement for the benefit of
holders of Trust Securities of Resource Capital Trust I*
99.1 Resource Bank's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.1 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.2 Resource Bank's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1998, as filed with the Board of
Governors of the Federal Reserve System (incorporated
herein by reference to Exhibit 99.2 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
99.3 Proxy Statement relating to the 1998 Annual Meeting of
Shareholder of Resource Bank (incorporated herein by
reference to Exhibit 99.3 to Resource Bankshares
Corporation's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 1998)
- ---------------------
* Previously filed.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in the
Form S-2 Registration Statement for Resource Bankshares Corporation of our
report, dated January 30, 1998, on the financial statements of Resource Bank for
the years ended December 31, 1997 and 1996, and to the reference to our firm in
the "Experts Section" of the Form S-2 Registration Statement.
/s/ Goodman & Company, L.L.P.
One Commercial Place
Norfolk, Virginia
February 8, 1999
