<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-22577
333-22577-01
333-22577-02
PROSPECTUS
1st Source(R)
Corporation
<TABLE>
<C> <C>
1,000,000 PREFERRED SECURITIES 600,000 PREFERRED SECURITIES
1ST SOURCE CAPITAL TRUST I 1ST SOURCE CAPITAL TRUST II
9.00% CUMULATIVE TRUST PREFERRED SECURITIES FLOATING RATE CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY GUARANTEED, AS DESCRIBED HEREIN, BY
1ST SOURCE CORPORATION 1ST SOURCE CORPORATION
---------------------------- ----------------------------
$25,000,000 9.00% SUBORDINATED DEBENTURES OF $15,000,000 FLOATING RATE SUBORDINATED DEBENTURES OF
1ST SOURCE CORPORATION 1ST SOURCE CORPORATION
---------------------------- ----------------------------
The 9.00% Cumulative Trust Preferred Securities (the The Floating Rate Cumulative Trust Preferred Securities (the
"Fixed Rate Preferred Securities") offered hereby represent "Floating Rate Preferred Securities") offered hereby repre-
preferred undivided beneficial interests in the assets of 1st sent preferred undivided beneficial interests in the assets of
Source Capital Trust I, a statutory business trust created 1st Source Capital Trust II, a statutory business trust
under the laws of the State of Delaware ("1st Capital I"). created under the laws of the State of Delaware ("1st Capital
1st Source II"). 1st Source
(FIXED RATE PREFERRED SECURITIES_continued on next page) (FLOATING RATE PREFERRED SECURITIES_continued on next page)
</TABLE>
The Fixed Rate Preferred Securities and the Floating Rate Preferred
Securities are being offered hereby separately and not as units. Neither the
sale of the Fixed Rate Preferred Securities nor the sale of the Floating Rate
Preferred Securities is contingent upon completion of the sale of the other
security.
The Preferred Securities have been approved for quotation on The Nasdaq
Stock Market's National Market under the symbols "SRCEP" for the Fixed Rate
Preferred Securities, and "SRCEO" for the Floating Rate Preferred
Securities.
--------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------------------
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NON-
BANKING AFFILIATE OF THE COMPANY (EXCEPT TO THE EXTENT THAT PREFERRED
SECURITIES ARE GUARANTEED BY THE COMPANY AS DESCRIBED HEREIN), ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY AND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION<F1> 1ST CAPITAL<F2>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Fixed Rate Preferred Security............... $25.00 $0.7875<F2> $25.00
- ----------------------------------------------------------------------------------------------------------------------------
Total<F3>....................................... $25,000,000 787,500<F2> $25,000,000
- ----------------------------------------------------------------------------------------------------------------------------
Per Floating Rate Preferred Security............ $25.00 $0.7875<F2> $25.00
- ----------------------------------------------------------------------------------------------------------------------------
Total<F3>....................................... $15,000,000 472,500<F2> $15,000,000
============================================================================================================================
<FN>
<F1>1st Capital I, 1st Capital II and the Company have each agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
<F2>In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Subordinated Debentures, the Company has
agreed to pay the Underwriters as compensation for their arranging the
investment therein of such proceeds, $0.7875 per Preferred Security, or
$787,500 in the aggregate for the Fixed Rate Preferred Securities, ($866,250
if the over-allotment option is exercised in full) and $472,500 in the
aggregate for the Floating Rate Preferred Securities ($543,375 if the
over-allotment option is exercised in full). See "Underwriting." The
Company has also agreed to pay the expenses of the offerings estimated to
be $250,000 in the aggregate.
<F3>1st Capital I and 1st Capital II each have granted the Underwriters an
option exercisable within 30 days from the date of this Prospectus to
purchase, in the case of 1st Capital I, up to 90,000 additional Fixed Rate
Preferred Securities and, in the case of 1st Capital II, up to 100,000
additional Floating Rate Preferred Securities, each such option on the same
terms and conditions set forth above to cover over-allotments, if any. If
all such additional Preferred Securities are purchased, the total Price to
Public and Proceeds to each of 1st Capital I and 1st Capital II will be
$27,500,000 and $17,250,000, respectively. See "Underwriting."
</TABLE>
-----------------------------------------
The Preferred Securities are offered by the Underwriters subject to receipt
and acceptance by them, prior sale and the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of certificates for the Preferred
Securities will be made on or about March 21, 1997.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
March 17, 1997
<PAGE> 2
<TABLE>
<C> <C>
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
Corporation, an Indiana corporation (the "Company"), will Corporation, an Indiana corporation (the "Company"), will
own all the common securities (the "Fixed Rate Common own all the common securities (the "Floating Rate Common
Securities" and, together with the Fixed Rate Preferred Securities" and, together with the Floating Rate Preferred
Securities, the "Fixed Rate Trust Securities") representing Securities, the "Floating Rate Trust Securities")
undivided beneficial interests in the assets of 1st Capital I. representing undivided beneficial interests in the assets of
1st Capital II.
State Street Bank and Trust Company is the Fixed Rate State Street Bank and Trust Company is the Floating Rate
Property Trustee (as defined herein) of 1st Capital I. 1st Property Trustee (as defined herein) of 1st Capital II. 1st
Capital I exists for the purpose of issuing the Fixed Rate Capital II exists for the purpose of issuing the Floating Rate
Preferred Securities and investing the proceeds thereof in an Preferred Securities and investing the proceeds thereof in an
equivalent amount of 9.00% Subordinated Debentures (the equivalent amount of Floating Rate Subordinated Debentures
"Fixed Rate Subordinated Debentures") of the Company. The (the "Floating Rate Subordinated Debentures") of the
Fixed Rate Subordinated Debentures will mature on March 31, Company. The Floating Rate Subordinated Debentures will mature
2027, which date may be (i) shortened to a date not earlier on March 31, 2027, which date may be (i) shortened to a date
than March 31, 2002 (subject to certain exceptions regarding not earlier than March 31, 2002 (subject to certain
earlier redemption described herein), or (ii) extended to a exceptions regarding earlier redemption described herein),
date not later than March 31, 2046, in each case if certain or (ii) extended to a date not later than March 31, 2046,
conditions are met (including, in the case of shorterning the in each case if certain condition are met (including, in the
Stated Maturity (as defined herein) of the Fixed Rate case of shortening the Stated Maturity (as defined herein)
Subordinated Debentures, the Company having received prior of the Floating Rate Subordinated Debentures, the Company
approval of the Board of Governors of the Federal Reserve having received prior approval of the Board of Governors
System ("Federal Reserve") to do so if then required under of the Federal Reserve System ("Federal Reserve") to do so
applicable capital guidelines or policies of the Federal if then required under applicable capital guidelines or
Reserve). The Fixed Rate Preferred Securities will have a policies of the Federal Reserve). The Floating Rate
preference under certain circumstances with respect to cash Preferred Securities will have a preference under certain
distributions and amounts payable on liquidation, circumstances with respect to cash distributions and
redemption or otherwise over the Fixed Rate amounts payable on liquidation, redemption or otherwise
Common Securities. See "Description of the Preferred over the Floating Rate Common Securities. See
Securities--Subordination of Common Securities." "Description of the Preferred Securities--Subordination of
Common Securities."
Holders of Fixed Rate Preferred Securities are entitled to Holders of Floating Rate Preferred Securities are entitled
receive preferential cumulative cash distributions (the to receive preferential cumulative cash distributions (the
"Fixed Rate Distributions") from 1st Capital I, at the "Floating Rate Distributions") from 1st Capital II, at the
annual rate of 9.00% of the liquidation amount of $25 per annual rate equal to the sum of the 3-Month Treasury (as
Preferred Security (the "Fixed Rate Liquidation Amount"), defined herein) plus 2.25% (the "Floating Distribution
accruing from the date of original issuance and payable Rate") of the liquidation amount of $25 per Floating Rate
quarterly in arrears on the last day of March, June, September Preferred Security (the "Floating Rate Liquidation Amount"),
and December of each year, with the first Fixed Rate accruing from the date of original issuance and payable
Distribution payable on June 30, 1997. The Company has the quarterly in arrears on the last day of March, June, September
right, so long as no Debenture Event of Default (as defined and December of each year, with the first Floating Rate
herein) with respect to the Fixed Rate Subordinated Debentures Distribution payable on June 30, 1997; provided, however,
has occurred and is continuing, to defer payment of interest that the Floating Distribution Rate for the Floating Rate
on the Fixed Rate Subordinated Debentures at any time or from Distribution Period (as defined herein) ending on (but
time to time for a period not to exceed 20 consecutive quarters excluding) March 31, 1997 will be 7.50%. The Company has the
with respect o each deferral period (each, an "Extended right, so long as no Debenture Event of Default (as defined
Payment Period"); provided that no Extended Interest Payment herein) with respect to the Floating Rate Debentures has
Period may extend beyond the Stated Maturity of the Fixed Rate occurred and is continuing, to defer payment of interest on
Subordinated Debentures. Upon the termination of any such the Floating Rate Subordinated Debentures at any time or from
Extended Interest Payment Period and the payment of all amounts time to time for a period not to exceed 20 consecutive
then due, the Company may elect to begin a new Extended quarters with respect to each deferral period (each, an
Interest Payment Period "Extended Interest Payment Period"); provided that no Extended
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
ii
<PAGE> 3
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
subject to the requirements set forth herein. If interest Interest Payment Period may extend beyond the
payments on the Fixed Rate Subordinated Debentures are so Stated Maturity of the Floating Rate Subordinated
so deferred, Fixed Rate Distributions on the Fixed Rate Debentures. Upon the termination of any such Extended
Preferred Securities will also be deferred, and the Company Interest Payment Period and the payment of all amounts
will not be permitted, subject to certain exceptions then due, the Company may elect to begin a new Extended
described herein, to declare or pay any cash distributions Interest Payment Period subject to the requirements set forth
with respect to its capital stock or debt securities herein. If interest payments on the Floating Rate Subordinated
that rank pari passu with or junior to the Fixed Debentures are so deferred, Floating Rate Distributions on the
Rate Subordinated Debentures (including the Floating Floating Rate Preferred Securities will also be deferred, and
Rate Subordinated Debentures (as defined herein)). DURING AN the Company will not be permitted, subject to certain ex-
EXTENDED INTEREST PAYMENT PERIOD, INTEREST ON THE FIXED RATE ceptions described herein, to declare or pay any cash
SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE distributions with respect to its capital stock or debt
AMOUNT OF FIXED RATE DISTRIBUTIONS TO WHICH HOLDERS OF THE securities that rank pari passu with or junior to the Floating
FIXED RATE PREFERRED SECURITIES ARE ENTITLED WILL ACCUMULATE) Rate Subordinated Debentures (including the Fixed Rate
AT THE RATE OF 9.00%, COMPOUNDED QUARTERLY, AND HOLDERS OF Subordinated Debentures (as defined herein)). DURING AN
THE FIXED RATE PREFERRED SECURITIES WILL BE REQUIRED TO EXTENDED INTEREST PAYMENT PERIOD, INTEREST ON THE FLOATING
INCLUDE INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED RATE SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE
STATES FEDERAL INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF AMOUNT OF FLOATING RATE DISTRIBUTIONS TO WHICH HOLDERS OF THE
THE CASH DISTRIBUTIONS WITH RESPECT TO SUCH DEFERRED INTEREST FLOATING RATE PREFERRED SECURITIES ARE ENTITLED WILL
PAYMENTS. A HOLDER OF FIXED RATE PREFERRED SECURITIES THAT ACCUMULATE) AT THE FLOATING DISTRIBUTION RATE, COMPOUNDED
DISPOSES OF ITS FIXED RATE PREFERRED SECURITIES BETWEEN RECORD QUARTERLY, AND HOLDERS OF THE FLOATING RATE PREFERRED SECUR-
DATES FOR PAYMENTS OF FIXED RATE DISTRIBUTIONS (AND ITIES WILL BE REQUIRED TO INCLUDE INTEREST INCOME IN THEIR
CONSEQUENTLY DOES NOT RECEIVE A FIXED RATE DISTRIBUTION FROM GROSS INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES IN
1ST CAPITAL I FOR THE PERIOD PRIOR TO SUCH DISPOSITION) WILL ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH RESPECT TO
NEVERTHELESS BE REQUIRED TO INCLUDE ACCRUED BUT UNPAID SUCH DEFERRED INTEREST PAYMENTS. A HOLDER OF FLOATING RATE
INTEREST ON THE FIXED RATE SUBORDINATED DEBENTURES THROUGH THE PREFERRED SECURITIES THAT DISPOSES OF ITS FLOATING RATE
DATE OF DISPOSITION IN INCOME AS ORDINARY INCOME AND TO ADD PREFERRED SECURITIES BETWEEN RECORD DATES FOR PAYMENTS OF
SUCH AMOUNT TO ITS ADJUSTED TAX BASIS IN ITS PRO RATA SHARE OF FLOATING RATE DISTRIBUTIONS (AND CONSEQUENTLY DOES NOT RECEIVE
THE UNDERLYING FIXED RATE SUBORDINATED DEBENTURES DEEMED DIS- A FLOATING RATE DISTRIBUTION FROM 1ST CAPITAL II FOR THE
POSED OF. See "Description of the Subordinated PERIOD PRIOR TO SUCH DISPOSITION) WILL NEVERTHELESS BE
Debentures--Option to Extend Interest Payment Period," REQUIRED TO INCLUDE ACCRUED BUT UNPAID INTEREST ON THE
"Certain Federal Income Tax Consequences--Potential Extension FLOATING RATE SUBORDINATED DEBENTURES THROUGH THE DATE OF
of Interest Payment Period and Original Issue Discount" and DISPOSITION IN INCOME AS ORDINARY INCOME AND TO ADD SUCH
"--Disposition of Preferred Securities." AMOUNT TO ITS ADJUSTED TAX BASIS IN ITS PRO RATA SHARE OF THE
UNDERLYING FLOATING RATE SUBORDINATED DEBENTURES DEEMED
DISPOSED OF. See "Description of the Subordinated
Debentures--Option to Extend Interest Payment Period,"
"Certain Federal Income Tax Consequences--Potential Extension
of Interest Payment Period and Original Issue Discount" and
"--Disposition of Preferred Securities."
The Company and 1st Capital I believe that, taken The Company and 1st Capital II believe that, taken together,
together, the obligations of the Company under the Fixed Rate the obligations of the Company under the Floating Rate
Guarantee, the Fixed Rate Trust Agreement, the Fixed Rate Guarantee, the Floating Rate Trust Agreement, the Floating
Subordinated Debentures, the Fixed Rate Indenture and the Rate Subordinated Debentures, the Floating Rate Indenture and
related Expense Agreement (each as defined herein) provide, in the related Expense Agreement (each as defined herein) provide,
the aggregate, a full, irrevocable and unconditional guaranty, in the aggregate, a full, irrevocable and unconditional
on a subordinated basis, of all of the obligations of 1st guaranty, on a subordinated basis, of all of the obligations
Capital I under the Fixed Rate Preferred Securities. See of 1st Capital II under the Floating Rate Preferred
Relationship Among the Preferred Securities, the Securities. See "Relationship Among the Preferred Securities,
Subordinated Debentures and the Guarantee--Full and the Subordinated Debentures and the Guarantee--Full and
Unconditional Guarantee." The Fixed Rate Guar- Unconditional Guarantee." The Floating
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
iii
<PAGE> 4
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
antee of the Company guarantees the payment of Fixed Rate Rate Guarantee of the Company guarantees the payment of
Distributions and payments on liquidation or redemption Floating Rate Distributions and payments on liquidation
of the Fixed Rate Preferred Securities, but only in each or redemption of the Floating Rate Preferred Securities,
case to the extent of funds held by 1st Capital I, as but only in each case to the extent of funds held
described herein. See "Description of the Guarantee-- by 1st Capital II, as described herein. See "Description of
General." If the Company does not make interest payments the Guarantees--General." If the Company does not make
on the Fixed Rate Subordinated Debentures held by 1st Capital interest payments on the Floating Rate Subordinated Debentures
I , 1st Capital I will have insufficient funds to pay Fixed held by 1st Capital II, 1st Capital II will have insufficient
Rate Distributions on the Fixed Rate Preferred Securities. The funds to pay Floating Rate Distributions on the Floating Rate
Fixed Rate Guarantee does not cover payments of Fixed Rate Dis- Preferred Securities. The Floating Rate Guarantee does not
tributions when 1st Capital I does not have sufficient funds cover payments of Floating Rate Distributions when 1st Capital
to pay such Fixed Rate Distributions. In such event, a holder II does not have sufficient funds to pay such Floating Rate
of Fixed Rate Preferred Securities may institute a legal Distributions. In such event, a holder of Floating Rate
proceeding directly against the Company pursuant to the terms Preferred Securities may institute a legal proceeding directly
of the Fixed Rate Indenture to enforce payments of amounts against the Company pursuant to the terms of the Floating Rate
equal to such Fixed Rate Distributions to such holder. See Indenture to enforce payments of amounts equal to such
"Description of the Subordinated Debentures--Enforcement of Floating Rate Distributions to such holder. See "Description
Certain Rights by Holders of the Preferred Securities." The of the Subordinated Debentures--Enforcement of Certain Rights
obligations of the Company under the Fixed Rate Guarantee and by Holders of the Preferred Securities." The obligations of
the Fixed Rate Preferred Securities are subordinate and junior the Company under the Floating Rate Guarantee and the Floating
in right of payment to all Senior Debt, Subordinated Debt and Rate Preferred Securities are subordinate and junior in right
Additional Senior Obligations (each as defined herein) of the of payment to all Senior Debt, Subordinated Debt and
Company. The Fixed Rate Subordinated Debentures are unsecured Additional Senior Obligations (each as defined herein) of the
obligations of the Company and are subordinated to all Senior Company. The Floating Rate Subordinated Debentures are
Debt, Subordinated Debt and Additional Senior Obligations of unsecured obligations of the Company and are subordinated to
the Company. all Senior Debt, Subordinated Debt and Additional Senior
Obligations of the Company.
The Fixed Rate Preferred Securities are subject to The Floating Rate Preferred Securities are subject to
mandatory redemption, in whole or in part, upon repayment of mandatory redemption, in whole or in part, upon repayment of
the Fixed Rate Subordinated Debentures at maturity or their the Floating Rate Subordinated Debentures at maturity or their
earlier redemption. Subject to Federal Reserve approval, if earlier redemption. Subject to Federal Reserve approval, if
then required under applicable capital guidelines or policies then required under applicable capital guidelines or policies
of the Federal Reserve, the Fixed Rate Subordinated Debentures of the Federal Reserve, the Floating Rate Subordinated
are redeemable prior to maturity at the option of the Company Debentures are redeemable prior to maturity at the option of
(i) on or after March 31, 2002, in whole at any time or in the Company (i) on or after March 31, 2002, in whole at any
part from time to time, or (ii) at any time, in whole (but not time or in part from time to time, or (ii) at any time, in
in part), within 180 days following the occurrence of a Tax whole (but not in part), within 180 days following the occur-
Event, a Capital Treatment Event or an Investment Company rence of a Tax Event, a Capital Treatment Event or an
Event (each as defined herein), in each case at a redemption Investment Company Event (each as defined herein), in each
price equal to the accrued and unpaid interest on the Fixed case at a redemption price equal to the accrued and unpaid
Rate Subordinated Debentures so redeemed to the date fixed for interest on the Floating Rate Subordinated Debentures so
redemption, plus 100% of the principal amount thereof. See redeemed to the date fixed for redemption, plus 100% of the
"Description of the Preferred Securities--Redemption or principal amount thereof. See "Description of the Preferred
Exchange." Securities--Redemption or Exchange."
The Company has the right at any time to dissolve, wind-up The Company has the right at any time to dissolve, wind-up
or terminate 1st Capital I subject to the Company having or terminate 1st Capital II subject to the Company having
received prior approval of the Federal Reserve to do so if received prior approval of the Federal Reserve to do so if
then required under applicable capital guidelines or policies then required under applicable capital guidelines or policies
of the Federal Reserve. In the event of the voluntary or of the Federal Reserve. In the event of the voluntary or
involuntary dissolution, involuntary dissolution,
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
iv
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(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
winding up or termination of 1st Capital I, after winding up or termination of 1st Capital II, after
satisfaction of liabilities to creditors of 1st Capital satisfaction of liabilities to creditors of 1st Capital
I as required by applicable law, the holders of Fixed Rate II as required by applicable law, the holders of Floating
Preferred Securities will be entitled to receive a Fixed Rate Preferred Securities will be entitled to receive a
Rate Liquidation Amount of $25 per Fixed Rate Preferred Floating Rate Liquidation Amount of $25 per Floating Rate
Security, plus accumulated and unpaid Fixed Rate Dis- Preferred Security, plus accumulated and unpaid Floating Rate
tributions thereon to the date of payment, which may be in the Distributions thereon to the date of payment, which may be in
form of a Fixed Rate Subordinated Debenture having an the form of a Floating Rate Subordinated Debenture having an
aggregate principal amount equal to the Fixed Rate Liquidation aggregate principal amount equal to the Floating Rate
Amount of such Fixed Rate Preferred Securities (and carrying Liquidation Amount of such Floating Rate Preferred Securities
with it accumulated interest in an amount equal to the (and carrying with it accumulated interest in an amount equal
accumulated and unpaid Fixed Rate Distributions then due on to the accumulated and unpaid Floating Rate Distributions then
such Fixed Rate Preferred Securities), subject to certain ex- due on such Floating Rate Preferred Securities), subject to
ceptions. See "Description of the Preferred Securi- certain exceptions. See "Description of the Preferred
ties--Redemption or Exchange" and "--Liquidation Securities--Redemption or Exchange" and "--Liquidation
Distribution Upon Termination." Distribution Upon Termination."
</TABLE>
--------------------------------
The Company will provide to the holders of the Preferred Securities
quarterly reports containing unaudited financial statements, if such reports
are furnished to the holders of the Company's common stock, and annual reports
containing financial statements audited by the Company's independent auditors.
The Company will also furnish annual reports on Form 10-K and quarterly reports
on Form 10-Q free of charge to holders of the Preferred Securities who so
request in writing addressed to the Treasurer of the Company.
--------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
v
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[MAP]
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere (or incorporated by reference) in this
Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that the Underwriters' over-allotment options will not be exercised.
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors."
All textual information contained in a left-hand column of this Prospectus
is applicable only to the Fixed Rate Preferred Securities and all textual
information contained in a right-hand column of this Prospectus is applicable
only to the Floating Rate Preferred Securities. All information contained in a
full-width text portion of this Prospectus, which is not otherwise identified
as applicable to a specific type of security, should be read as applicable to
either or both of the Fixed Rate Preferred Securities and the Floating Rate
Preferred Securities. Defined terms used in the full-width text portion of this
Prospectus are not, therefore, preceded by the words "Fixed Rate" or
"Floating Rate" and the term 1st Capital is not followed by the designation
"I" or "II."
THE COMPANY
GENERAL
1st Source Corporation (the "Company") is an Indiana corporation and
registered bank holding company headquartered in South Bend, Indiana. At
December 31, 1996, the Company had assets of $2.08 billion, deposits of $1.63
billion and total shareholders' equity of $171.8 million. The Company, through
its principal subsidiary 1st Source Bank (the "Bank"), delivers a
comprehensive range of consumer and commercial banking services to individual
and business customers through 42 banking locations in the northern
Indiana/southwestern Michigan market area. The Bank also competes for business
nationwide by offering specialized financing services for used private
aircraft, automobiles for leasing and rental agencies, heavy duty trucks and
construction equipment.
The Company's other subsidiaries include 1st Source Leasing, Inc., an
originator and servicer of personal property leases to businesses nationwide,
1st Source Insurance, Inc., a general property and casualty insurance agency in
South Bend, 1st Source Capital Corporation, a licensed small business
investment company, and Trustcorp Mortgage Company, a mortgage banking company
with three offices in Indiana and one each in Ohio, Illinois and Missouri.
The principal executive office of the Company is located at 100 North
Michigan Street, South Bend, Indiana 46601 and its telephone number is (219)
235-2000.
Over the past five years, the Company has experienced strong, consistent
growth in its shareholders' equity, net income and earnings per share. Since
December 31, 1992, total shareholders' equity has increased by 59.4%. During
the same time frame net income and earnings per share have grown by a
compounded annual rate of 13.6% and 13.3% to $23.2 million and $1.45,
respectively. Over the past five years, the Company's return on average assets
has averaged 1.17% and its return on average equity has averaged 14.38%.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Income................................... $ 23,203 $ 21,042 $ 18,465 $ 16,722 $ 13,918
Net Income per share......................... 1.45 1.31 1.16 1.05 .88
Shareholders' equity......................... 171,833 152,601 129,082 125,539 107,797
Return on average equity..................... 14.38% 14.75% 14.49% 14.52% 13.76%
Return on average assets..................... 1.22% 1.25% 1.19% 1.16% 1.05%
</TABLE>
BUSINESS STRATEGY AND OBJECTIVES
The Company has identified several business objectives and strategies which
focus on growth and customer service. The principal objectives of the Company
have been to (i) increase financial performance and market share, (ii) provide
exceptional customer service, (iii) enhance credit quality, and (iv) maintain
cost controls. The Company has employed the following strategies in furtherance
of its business objectives:
2
<PAGE> 8
* INCREASE MARKET SHARE IN EACH MARKET SERVED AND AS A PERCENTAGE OF EACH
CUSTOMER'S RELATIONSHIP. The Company opened ten new banking locations in
1996 as part of its banking center expansion program designed to maintain
its position as one of the dominant financial institutions in the South
Bend/Elkhart market area -- which includes eight counties in northern
Indiana and two counties in southwestern lower Michigan. Management
believes that such a strategy allows the most effective and efficient use
of the Company's marketing resources and assures that the Company's
banking offices are accessible to a majority of the people residing in the
markets served. The Company's goal is to deliver highly personal and
superior customer services through each of its banking facilities and to
meet a higher percentage of each customer's financial needs through
personal relationship management.
* EXPAND FEE-BASED BUSINESSES. The Company currently provides a number of
fee-based services to its clients, the major services being trust,
mortgage banking, equipment leasing, property and casualty insurance, and
securitized loan servicing. The Company believes that additional sources
of fee income are available from existing relationships and that the
existing fee-based product line can be used effectively in developing new
relationships with customers. The Company also believes that customers are
more loyal and responsive to its products and services when a large
percentage of a customer's financial services are provided directly by the
Company. The Company's fee-based businesses are designed to deepen the
strength of the relationship between the Company and its customers. Fee
income (excluding securities and other non-recurring gains and losses) has
increased from $13 million for the year ended December 31, 1992 (or 18.0%
of total revenue) to $25 million for the year ended December 31, 1996 (or
24.2% of total revenue).
* EXPAND THE NATIONAL NICHE BUSINESSES ACROSS THE UNITED STATES TAKING
ADVANTAGE OF SPECIALIZED OPPORTUNITIES. The Company caters to specialized
national market niches that management believes are not being well served
by either the credit subsidiaries of manufacturers or by other financial
institutions. Asset-based lending and personal relationship management of
the customer base, together with an efficient method of operation, is the
focus of the Bank's Transportation and Equipment Financing Group, which
provides such services. Additional experienced sales people have been and
will be added to ensure better geographic coverage in areas of
opportunity. The Company has also pursued a strategy of securitizing loan
receivables so that business growth is not totally dependent on deposit
funding. Loans of approximately $552 million, or 37.9% of the Company's
consolidated total loans, were attributable to the Group at December 31,
1996, compared to loans of approximately $340 million, or 35.6% of the
Company's consolidated total loans, which were attributable to the Group
at December 31, 1992.
* ACTIVELY MANAGING CREDIT QUALITY. The Company has adopted a proactive
credit management process with loan officers maintaining responsibility
for the quality of the credits they originate and manage. The credit
management process is supported by a collective and collaborative review
and approval process and is balanced by a review, evaluation and grading
process undertaken by the Company's independent loan review department.
Senior management is actively involved in the management of the process
and incentive compensation is impacted by the Company's overall credit
experience.
BANKING AND FINANCIAL SERVICES
The organization provides financial services through the following groups:
Personal and Small Business Banking Group. The Bank's Personal and Small
Business Banking Group serves individuals and small businesses with direct
lending, credit cards, auto leasing, personal trust, brokerage services, and a
wide range of deposit products. Besides traditional branch locations,
alternative delivery systems are in place to enhance customer service.
Certificates of deposit are offered on the Internet and customers also can use
their telephone to check their account balances and transfer funds 24 hours a
day. A centralized "loan by phone" system provides customers with immediate
loan decisions while they are on the phone and coordinates product delivery
through the local banking offices. The organization's goal is to continue to
improve the match between a customer's individual needs and the Bank's products
and services.
Commercial Banking Group. The Bank's Commercial Banking Group provides a
wide range of services to business customers, including loans and leases,
investments, international services, corporate cash management and employee
benefit trust services. Customers can initiate deposit and loan transactions,
check balances and account
3
<PAGE> 9
clearings, and transfer funds among accounts on a daily basis using a
direct-access PC to communicate with the Bank. The Group's primary focus is
privately-held or closely-controlled firms, which have annual sales between $2
million and $100 million and are doing business or are located within an
80-mile radius of South Bend.
Transportation and Equipment Financing Group. The Bank's Transportation and
Equipment Financing Group offers specialized financing services nationwide. The
Group serves a limited number of high-quality automobile leasing and rental
companies, truck leasing companies and manufacturers of specialized truck
bodies, finances used aircraft nationwide, and provides lending services to
dealers, contractors and other end users of construction equipment. The Group
has employees located in Georgia, Indiana, Kansas, Michigan, Pennsylvania,
Texas, Washington and Wisconsin.
Mortgage Banking Group. Trustcorp Mortgage Company, a subsidiary of the
Company, is a mortgage banking company operating on a regional basis. Locations
include three offices in Indiana, one in Columbus, Ohio and newly opened
offices in suburban St. Louis and Chicago.
The following table sets forth the distribution of net loans among each of
the Company's operating Groups as of December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
% OF
OPERATING GROUP NET LOANS NET LOANS
--------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Transportation and Equipment Financing............ $551,876 38%
Commercial Banking................................ 472,730 33%
Personal and Small Business Banking............... 366,786 25%
Trustcorp Mortgage Company........................ 64,171 4%
</TABLE>
OWNERSHIP
As of February 14, 1997, the directors and executive officers of the
Company and their immediate families owned approximately 43.5% of the Company's
common stock and, as a result, exercise substantial control over the Company.
<TABLE>
1ST CAPITAL TRUSTS
<C> <C>
1ST CAPITAL I 1ST CAPITAL II
(FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES)
1st Capital I is a statutory business trust 1st Capital II is a statutory business trust formed
formed under Delaware law pursuant to (i) a trust under Delaware law pursuant to (i) a trust agreement,
agreement, dated as of February 20, 1997, executed dated as of February 27, 1997, executed by the Com-
by the Company, as depositor, and the trustees of pany, as depositor, and the trustees of 1st Capital II
1st Capital I (together with the Fixed Rate (together with the Floating Rate Property Trustee, the
Property Trustee, the "Fixed Rate Trustees") and "Floating Rate Trustees"), and (ii) a certificate of trust
amended and restated as of February 27, 1997, and filed with the Secretary of State of the State of Dela-
(ii) a certificate of trust filed with the ware on February 27, 1997. The initial trust agreement
Secretary of State of the State of Delaware on will be amended and restated in its entirety (as so
February 20, 1997 and amended and restated as of amended and restated, the "Floating Rate Trust Agree-
February 27, 1997. The initial trust agreement ment") substantially in the form filed as an exhibit to
will be amended and restated in its entirety (as the Registration Statement (as defined herein) of which
so amended and restated, the "Fixed Rate Trust this Prospectus forms a part. The Floating Rate Trust
Agreement") substantially in the form filed as an Agreement will be qualified as an indenture under the
exhibit to the Registration Statement (as defined Trust Indenture Act of 1939, as amended (the "Trust
herein) of which this Prospectus forms a part. The Indenture Act"). Upon issuance of the Floating Rate
Fixed Rate Trust Agreement will be qualified as an Preferred Securities, the purchasers thereof will own all
indenture under the Trust Indenture Act of 1939, of the Floating Rate Preferred Securities. The Com-
as amended (the "Trust Indenture Act"). Upon pany will acquire all of the Floating Rate Common
issuance of the Fixed Rate Preferred Securities, Securities which will represent an aggregate liquidation
the purchasers thereof will own all of the Fixed amount equal to at least 3% of the total capital of 1st
Rate Preferred Securities. The Company will ac-
quire all of the Fixed Rate Common Securities which
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
4
<PAGE> 10
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
will represent an aggregate liquidation amount equal to at Capital II. The Floating Rate Common Securities will rank pari
least 3% of the total capital of 1st Capital I. The Fixed Rate passu, and payments will be made thereon pro rata, with the
Common Securities will rank pari passu, and payments will be Floating Rate Preferred Securities, except that upon the
made thereon pro rata, with the Fixed Rate Preferred occurrence and during the continuance of an Event of Default
Securities, except that upon the occurrence and during the (as defined herein) under the Floating Rate Trust Agreement
continuance of an Event of Default (as defined herein) under resulting from a Debenture Event of Default, the rights of the
the Fixed Rate Trust Agreement resulting from a Debenture Company as holder of the Floating Rate Common Securities to
Event of Default, the rights of the Company as holder of the payment in respect of Floating Rate Distributions and pay-
Fixed Rate Common Securities to payment in respect of Fixed ments upon liquidation, redemption or otherwise will be
Rate Distributions and payments upon liquidation, redemption subordinated to the rights of the holders of the Floating Rate
or otherwise will be subordinated to the rights of the holders Preferred Securities. See "Description of the Preferred
of the Fixed Rate Preferred Securities. See "Description of Securities--Subordination of Common Securities." 1st Capital
the Preferred Securities--Subordination of Common II exists for the exclusive purposes of (i) issuing the
Securities." 1st Capital I exists for the exclusive purposes Floating Rate Trust Securities representing undivided
of (i) issuing the Fixed Rate Trust Securities representing beneficial interests in the assets of 1st Capital II, (ii)
undivided beneficial interests in the assets of 1st Capital I, investing the gross proceeds of the Floating Rate Trust
(ii) investing the gross proceeds of the Fixed Rate Trust Securities in the Floating Rate Subordinated Debentures issued
Securities in the Fixed Rate Subordinated Debentures issued by by the Company, and (iii) engaging in only those other
the Company, and (iii) engaging in only those other activities activities necessary, advisable, or incidental thereto. The
necessary, advisable, or incidental thereto. The Fixed Rate Floating Rate Subordinated Debentures and payments thereunder
Subordinated Debentures and payments thereunder will be the will be the only assets of 1st Capital II and payments under
only assets of 1st Capital I and payments under the Fixed Rate the Floating Rate Subordinated Debentures will be the only
Subordinated Debentures will be the only revenue of 1st revenue of 1st Capital II. 1st Capital II has a term of 55
Capital I. 1st Capital I has a term of 55 years, but may years, but may terminate earlier as provided in the Floating
terminate earlier as provided in the Fixed Rate Trust Rate Trust Agreement. The principal executive office of 1st
Agreement. The principal executive office of 1st Capital I is Capital II is 100 North Michigan Street, South Bend, Indiana
100 North Michigan Street, South Bend, Indiana 46601, and its 46601, and its telephone number is (219) 235-2000.
telephone number is (219) 235-2000.
The number of Fixed Rate Trustees will, pursuant to the The number of Floating Rate Trustees will, pursuant to the
Fixed Rate Trust Agreement, initially be five. Three of the Floating Rate Trust Agreement, initially be five. Three of the
Fixed Rate Trustees (the "Fixed Rate Administrative Floating Rate Trustees (the "Floating Rate Administrative
Trustees") will be persons who are employees or officers of, Trustees") will be persons who are employees or officers of,
or who are affiliated with, the Company. The fourth trustee or who are affiliated with, the Company. The fourth trustee
will be a financial institution that is unaffiliated with the will be a financial institution that is unaffiliated with the
Company, which trustee will serve as institutional trustee Company, which trustee will serve as institutional trustee
under the Fixed Rate Trust Agreement and as indenture trustee under the Floating Rate Trust Agreement and as indenture
for the purposes of compliance with the provisions of the trustee for the purposes of compliance with the provisions of
Trust Indenture Act (the "Fixed Rate Property Trustee"). the Trust Indenture Act (the "Floating Rate Property
State Street Bank and Trust Company, a state chartered trust Trustee"). State Street Bank and Trust Company, a state
company organized under the laws of the Commonwealth of chartered trust company organized under the laws of the Com-
Massachusetts, will be the Fixed Rate Property Trustee until monwealth of Massachusetts, will be the Floating Rate Property
removed or replaced by the holder of the Fixed Rate Common Trustee until removed or replaced by the holder of the
Securities. For purposes of compliance with the provisions of Floating Rate Common Securities. For purposes of compliance
the Trust Indenture Act, State Street Bank and Trust Company with the provisions of the Trust Indenture Act, State Street
will also act as trustee (the "Fixed Rate Guarantee Bank and Trust Company will also act as trustee (the
Trustee") under the Fixed Rate Guarantee and as "Floating Rate Guarantee Trustee") under the Floating Rate
Guarantee and as
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
5
<PAGE> 11
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
Fixed Rate Debenture Trustee (as defined herein) under the Floating Rate Debenture Trustee (as defined herein) under the
Fixed Rate Indenture. The fifth trustee will be an entity that Floating Rate Indenture. The fifth trustee will be an entity
maintains its principal place of business in the State of that maintains its principal place of business in the State of
Delaware (the "Fixed Rate Delaware Trustee"). Wilmington Delaware (the "Floating Rate Delaware Trustee"). Wilmington
Trust Company, a Delaware chartered trust company, will act as Trust Company, a Delaware chartered trust company, will act as
Fixed Rate Delaware Trustee. Floating Rate Delaware Trustee.
The Fixed Rate Property Trustee will hold title to the The Floating Rate Property Trustee will hold title to the
Fixed Rate Subordinated Debentures for the benefit of the Floating Rate Subordinated Debentures for the benefit of the
holders of the Fixed Rate Trust Securities and holders of the Floating Rate Trust Securities and in such
in such capacity will have the power to exercise all rights, capacity will have the power to exercise all rights, powers
powers and privileges under the Fixed Rate Indenture. The and privileges under the Floating Rate Indenture. The Floating
Fixed Rate Property Trustee will also maintain exclusive Rate Property Trustee will also maintain exclusive control of
control of a segregated non-interest-bearing bank account (the a segregated non-interest-bearing bank account (the
"Fixed Rate Property Account") to hold all payments made in "Floating Rate Property Account") to hold all payments made
respect of the Fixed Rate Subordinated Debentures for the in respect of the Floating Rate Subordinated Debentures for
benefit of the holders of the Fixed Rate Trust Securities. The the benefit of the holders of the Floating Rate Trust
Fixed Rate Property Trustee will make payments of Fixed Rate Securities. The Floating Rate Property Trustee will make
Distributions and payments on liquidation, redemption and payments of Floating Rate Distributions and payments on
otherwise to the holders of the Fixed Rate Trust Securities liquidation, redemption and otherwise to the holders of the
out of funds from the Fixed Rate Property Account. The Fixed Floating Rate Trust Securities out of funds from the Floating
Rate Guarantee Trustee will hold the Fixed Rate Guarantee for Rate Property Account. The Floating Rate Guarantee Trustee
the benefit of the holders of the Fixed Rate Preferred will hold the Floating Rate Guarantee for the benefit of the
Securities. The Company, as the holder of all the Fixed Rate holders of the Floating Rate Preferred Securities. The
Common Securities, will have the right to appoint, remove or Company, as the holder of all the Floating Rate Common
replace any Fixed Rate Trustee and to increase or decrease the Securities, will have the right to appoint, remove or replace
number of Fixed Rate Trustees. The Company will pay all fees any Floating Rate Trustee and to increase or decrease the
and expenses related to 1st Capital I and the offering of the number of Floating Rate Trustees. The Company will pay all
Fixed Rate Trust Securities. fees and expenses related to 1st Capital II and the offering
of the Floating Rate Trust Securities.
The rights of the holders of the Fixed Rate Preferred The rights of the holders of the Floating Rate Preferred
Securities, including economic rights, rights to information Securities, including economic rights, rights to information
and voting rights, are set forth in the Fixed Rate Trust and voting rights, are set forth in the Floating Rate Trust
Agreement, the Delaware Business Trust Act (the "Trust Act") Agreement, the Delaware Business Trust Act (the "Trust Act")
and the Trust Indenture Act. See "Description of the and the Trust Indenture Act. See "Description of the
Preferred Securities." Preferred Securities."
</TABLE>
6
<PAGE> 12
THE OFFERING
The Fixed Rate Preferred Securities and the Floating Rate Preferred
Securities are being offered hereby separately and not as units. Neither
the sale of the Fixed Rate Preferred Securities nor the sale of the Floating
Rate Preferred Securities is contingent upon the sale of the other security.
<TABLE>
<CAPTION>
(FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES)
<S> <C> <C> <C>
Fixed Rate Floating Rate
Securities Securities
Offered.........1,000,000 Fixed Rate Preferred Securities Offered.........600,000 Floating Rate Preferred Securities
having a Fixed Rate Liquidation Amount of $25 having a Floating Rate Liquidation Amount of
per Fixed Rate Preferred Security. The Fixed $25 per Floating Rate Preferred Security. The
Rate Preferred Securities represent pre- Floating Rate Preferred Securities represent
ferred undivided beneficial interests in the preferred undivided beneficial interests in
assets of 1st Capital I, which will consist the assets of 1st Capital II, which will
solely of the Fixed Rate Subordinated consist solely of the Floating Rate Subordi-
Debentures and payments thereunder. 1st nated Debentures and payments thereunder. 1st
Capital I has granted the Underwriters an Capital II has granted the Underwriters an
option, exercisable within 30 days after the option, exercisable within 30 days after the
date of this Prospectus, to purchase up to an date of this Prospectus, to purchase up to an
additional 100,000 Fixed Rate Preferred additional 90,000 Floating Rate Preferred
Securities at the initial offering price, Securities at the initial offering price,
solely to cover over-allotments, if any. solely to cover over-allotments, if any.
Fixed Rate Floating Rate
Distributions...The Fixed Rate Distributions payable on each Distributions...The Floating Rate Distributions payable on
Fixed Rate Preferred Security will be fixed each Floating Rate Preferred Security will
at a rate per annum of 9.00% of the Fixed Rate float at the Floating Distribution Rate
Liquidation Amount of $25 per Fixed Rate applied to the Liquidation Amount of $25 per
Preferred Security, will be cumulative, will Floating Rate Preferred Security, will be
accrue from March 21, 1997, the date of cumulative, will accrue from March 21,
issuance of the Fixed Rate Preferred Se- 1997, the date of issuance of the Floating
curities, and will be payable quarterly in Rate Preferred Securities, and will be
arrears, on March 31, June 30, September 30 payable quarterly in arrears, on March 31,
and December 31 of each year, with the first June 30, September 30 and December 31 of each
Fixed Rate Distribution payable on June 30, year, with the first Floating Rate
1997. See "Description of the Preferred Distribution payable on June 30, 1997. The
Securities--Distributions--Payment of Floating Distribution Rate is equal to the
Distributions." sum of the 3-month Treasury (determined as
provided herein) plus 2.25%; provided,
<CAPTION>
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
7
<PAGE> 13
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
<S> <C> <C> <C>
however, that the Floating Distribution Rate for
the Floating Rate Distribution Period ending on
(but excluding) March 31, 1997 will be 7.50%.
See "Description of the Preferred Securities--
Distributions-- Payment of Distributions."
Nasdaq National Nasdaq National
Market Market
Symbol..........The Fixed Rate Preferred Securities Symbol..........The Floating Rate Preferred Securities have
have been approved for quotation on been approved for quotation on The Nasdaq
The Nasdaq Stock Market's National Market Stock Market's National Market under the
under the symbol "SRCEP." symbol "SRCEO."
</TABLE>
<TABLE>
<S> <C>
Option to Extend Interest
Payment Period.............. The Company has the right, at any time, so long as no Debenture Event of
Default has occurred and is continuing, to defer payments of interest on
the Subordinated Debentures for a period not exceeding 20 consecutive
quarters; provided, that no Extended Interest Payment Period may extend
beyond the Stated Maturity of the Subordinated Debentures. As a consequence
of the extension by the Company of the interest payment period, quarterly
Distributions on the Preferred Securities will be deferred (though such
Distributions would continue to accrue with interest thereon compounded
quarterly, since interest will continue to accrue and compound on the
Subordinated Debentures) during any such Extended Interest Payment Period.
During an Extended Interest Payment Period, the Company will be prohibited,
subject to certain exceptions described herein, from declaring or paying
any cash distributions with respect to its capital stock or debt securities
that rank pari passu with or junior to the Subordinated Debentures.
Although the Company may exercise the rights described herein with regard
to the Fixed Rate Subordinated Debentures independent of such rights with
regard to the Floating Rate Subordinated Debentures, the Fixed Rate
Subordinated Debentures and the Floating Rate Subordinated Debentures will
rank pari passu and, therefore, if the Company elects to defer the payment
of interest on one, it would not be permitted to make interest payments
with respect to the other. Upon the termination of any Extended Interest
Payment Period and the payment of all amounts then due, the Company may
commence a new Extended Interest Payment Period, subject to the foregoing
requirements. See "Description of the Preferred Securi-
ties--Distributions--Extension Period" and "Description of the
Subordinated Debentures--Option to Extend Interest Payment Period."
Should an Extended Interest Payment Period occur, holders of Preferred
Securities will be required to include deferred interest income in their
gross income for United States federal income tax purposes in advance of
receipt of the cash distributions with respect to such deferred interest
payments. See "Certain Federal Income Tax Consequences--Potential
Extension of Interest Payment Period and Original Issue Discount."
8
<PAGE> 14
Optional Redemption........... The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Subordinated Debentures at maturity or their
earlier redemption. Subject to Federal Reserve approval, if then required
under applicable capital guidelines or policies of the Federal Reserve, the
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (i) on or after March 31, 2002, in whole at any time or in part from
time to time, or (ii) at any time, in whole (but not in part), within 180 days
following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event, in each case at the redemption price equal to 100%
of the principal amount of the Subordinated Debenture, together with any
accrued but unpaid interest to the date fixed for redemption. The Company may
exercise the rights described herein with regard to the Fixed Rate
Subordinated Debentures independent of such rights with regard to the
Floating Rate Subordinated Debentures, and vice versa. See "Description of
the Subordinated Debentures--Redemption or Exchange."
Distribution of Subordinated
Debentures.................. The Company has the right at any time to terminate the Preferred Securities
and cause the Subordinated Debentures to be distributed to holders of
Preferred Securities in liquidation of 1st Capital, subject to the Company
having received prior approval of the Federal Reserve to do so if then
required under applicable capital guidelines or policies of the Federal
Reserve. The Company may exercise the rights described herein with regard
to the Fixed Rate Subordinated Debentures independent of such rights with
regard to the Floating Rate Subordinated Debentures, and vice versa. See
"Description of the Preferred Securities--Redemption or Exchange" and
"Description of the Preferred Securities--Liquidation Distribution Upon
Termination."
Guarantee..................... The Company has guaranteed the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each
case to the extent of funds held by 1st Capital, as described herein. The
Company and 1st Capital believe that, taken together, the obligations of
the Company under the Guarantee, the Trust Agreement, the Subordinated
Debentures, the Indenture and the Expense Agreement provide, in the
aggregate, a full, irrevocable and unconditional guaranty, on a
subordinated basis, of all of the obligations of 1st Capital under the
Preferred Securities. The obligations of the Company under the Guarantee
and the Preferred Securities are subordinate and junior in right of payment
to all Senior Debt, Subordinated Debt and Additional Senior Obligations of
the Company. If the Company does not make principal or interest payments on
the Subordinated Debentures, 1st Capital will not have sufficient funds to
make distributions on the Preferred Securities; in which event, the
Guarantee will not apply to such Distributions until 1st Capital has
sufficient funds available therefor. The Fixed Rate Guarantee will be
executed by the Company for the sole benefit of the holders of the Fixed
Rate Preferred Securities and the Floating Rate Guarantee will be executed
by the Company for the sole benefit of the holders of the Floating Rate
Preferred Securities. Holders of Fixed Rate Preferred Securities will,
therefore, have no rights under the Floating Rate Guarantee, and holders of
Floating Rate Preferred Securities will have no rights under the Fixed Rate
Guarantee. See "Description of the Guarantee."
9
<PAGE> 15
Voting Rights................. The holders of the Preferred Securities generally will have no voting
rights except in limited circumstances. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement."
Use of Proceeds............... The proceeds from the sale of the Preferred Securities offered hereby will
be used by 1st Capital to purchase the Subordinated Debentures issued by
the Company. The Company intends to use the net proceeds from the sale of
the Subordinated Debentures for general corporate purposes. These may
include, without limitation, the repurchase of common stock, the repayment
of long term debt, the funding of investments in or extensions of credit to
the Company's subsidiaries and the making of investments in or possibly
acquiring businesses which enhance the Company's long-term growth or
improve or expand the Company's products, services or markets. Pending
their application for any or all of such purposes, the net proceeds may be
invested in investment grade financial instruments. See "Use of
Proceeds."
</TABLE>
10
<PAGE> 16
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED RESULTS OF
OPERATIONS:
Interest income.......... $ 148,820 $ 135,115 $ 112,942 $ 104,104 $ 106,319
Interest expense......... 73,429 64,946 47,709 44,578 50,227
---------- ---------- ---------- ---------- ----------
Net interest income...... 75,391 70,169 65,233 59,526 56,092
Provision for loan
losses................. 4,649 2,757 4,197 3,533 3,724
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses................. 70,742 67,412 61,036 55,993 52,368
Other noninterest
income................. 25,479 19,492 14,874 14,301 12,216
Noninterest expense...... 60,622 54,861 49,577 46,428 43,674
---------- ---------- ---------- ---------- ----------
Income before income
tax expense.......... 35,599 32,043 26,333 23,866 20,910
Income tax expense....... 12,396 11,001 7,868 7,144 6,296
---------- ---------- ---------- ---------- ----------
Net income before
cumulative effect of
accounting change.... 23,203 21,042 18,465 16,722 14,614
Cumulative effect of
accounting change...... -- -- -- -- (696)
---------- ---------- ---------- ---------- ----------
Net income............. $ 23,203 $ 21,042 $ 18,465 $ 16,722 $ 13,918
========== ========== ========== ========== ==========
PER SHARE DATA:<F1>
Net income (primary and
fully diluted)......... $ 1.45 $ 1.31 $ 1.16 $ 1.05 $ 0.88
Cash dividends
declared............... 0.264 0.229 0.203 0.175 0.148
Book value............... 11.02 9.80 8.22 7.96 6.90
Dividend payout ratio.... 18.21% 17.48% 17.50% 16.67% 16.82%
SELECTED BALANCE SHEET
DATA:
Assets................... $2,079,767 $1,799,257 $1,583,027 $1,488,123 $1,400,249
Securities<F2>........... 423,096 396,375 349,885 360,154 343,956
Loans and leases......... 1,455,563 1,259,415 1,100,713 1,019,813 956,416
Allowance for loan and
lease losses........... 29,516 27,470 23,868 22,350 19,141
Deposits................. 1,633,978 1,441,749 1,301,337 1,179,363 1,154,887
Long term debt........... 18,596 21,819 28,084 25,473 16,368
Shareholders' equity..... 171,833 152,601 129,082 125,539 107,797
PERFORMANCE RATIOS:
Return on average
equity................. 14.38% 14.75% 14.49% 14.52% 13.76%
Return on average
assets................. 1.22% 1.25% 1.19% 1.16% 1.05%
Net interest margin
(fully taxable
equivalent)............ 4.48% 4.71% 4.80% 4.71% 4.79%
ASSET QUALITY RATIOS:
Allowance for loan losses
to loans............... 2.03% 2.18% 2.17% 2.19% 2.00%
Nonperforming assets to
loans.................. 0.53% 0.52% 0.43% 0.52% 1.00%
Net loan losses to
average loans.......... 0.13% (0.07)% 0.12% 0.03% 0.20%
CAPITAL RATIOS:
Average equity to average
assets................. 8.51% 8.46% 8.24% 8.00% 7.60%
Tier 1 capital ratio..... 10.93% 11.43% 11.69% 11.30% 10.48%
Total risk based capital
ratio.................. 12.45% 13.03% 14.07% 14.00% 13.38%
Leverage ratio........... 8.48% 8.44% 8.33% 8.09% 7.43%
RATIO OF EARNINGS TO
FIXED CHARGES:<F3>
Including interest on
deposits............... 1.48x 1.49x 1.55x 1.54x 1.42x
Excluding interest on
deposits............... 4.86x 4.66x 5.62x 5.95x 5.26x
<FN>
- ---------
<F1>Per share data has been restated to reflect a five-for-four stock split
declared on January 21, 1997.
<F2>Includes market value adjustment on Available for Sale securities.
<F3>Earnings consist of income before income tax plus interest expense. Fixed
charges consist of interest expense. The Company does not currently have
any preferred stock outstanding.
</TABLE>
11
<PAGE> 17
All textual information contained in a left-hand column of this Prospectus
is applicable only to the Fixed Rate Preferred Securities and all textual
information contained in a right-hand column of this Prospectus is applicable
only to the Floating Rate Preferred Securities. All information contained in a
full-width text portion of this Prospectus, which is not otherwise identified
as applicable to a specific type of security, should be read as applicable to
either or both of the Fixed Rate Preferred Securities and the Floating Rate
Preferred Securities. Defined terms used in the full-width text portion of this
Prospectus are not, therefore, preceded by the words "Fixed Rate" or
"Floating Rate" and the term 1st Capital is not followed by the designation
"I" or "II."
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors before purchasing the Preferred Securities offered
hereby. Prospective investors should note, in particular, that this Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Act of 1934, as amended (the "Exchange Act"), and that actual
results could differ materially from those contemplated by such statements.
Prospective investors should also refer to the factors discussed under
"Business -- Forward-Looking Statements" set forth in the Company's annual
report on Form 10-K for the year ended December 31, 1996, which is incorporated
herein by reference. See "Incorporation of Certain Documents by Reference."
These considerations are not intended to represent a complete list of the
general or specific risks that may affect the Preferred Securities, the
Subordinated Debentures or the Company and 1st Capital. It should be recognized
that other risks may be significant, presently or in the future, and the risks
set forth below may affect the Preferred Securities, the Subordinated
Debentures or the Company and 1st Capital to a greater extent than indicated.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued for the benefit
of the holders of Preferred Securities and under the Subordinated Debentures
are unsecured and rank subordinate and junior in right of payment to all Senior
Debt, Subordinated Debt and Additional Senior Obligations of the Company. At
December 31, 1996, the aggregate outstanding Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company was approximately $18.6 million.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of the Bank upon the Bank's
liquidation or reorganization or otherwise (and thus the ability of holders of
the Preferred Securities to benefit indirectly from such distribution) is
subject to the prior claims of creditors of the Bank, except to the extent that
the Company may itself be recognized as a creditor of the Bank. The
Subordinated Debentures, therefore, will be effectively subordinated to all
existing and future liabilities of the Bank and holders of Subordinated
Debentures and Preferred Securities should look only to the assets of the
Company for payments on the Subordinated Debentures. Neither the Indenture, the
Guarantee nor the Trust Agreement places any limitation on the amount of
secured or unsecured debt, including Senior Debt, Subordinated Debt and
Additional Senior Obligations, that may be incurred by the Company. See
"Description of the Guarantee--Status of the Guarantee" and "Description of
the Subordinated Debentures--Subordination."
The ability of 1st Capital to pay amounts due on the Preferred Securities
is solely dependent upon the Company making payments on the Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture
Event of Default has occurred and is continuing, to defer the payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with respect to each Extended
Interest Payment Period; provided that no Extended Interest Payment Period may
extend beyond the Stated Maturity of the Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by 1st Capital will be deferred (and the amount of Distributions to
which holders of the Preferred Securities are entitled will accumulate
additional Distributions thereon at the rate of 9.00% per annum (in the case of
the Fixed Rate Preferred Securities) or at the Floating Distribution Rate (in
the case of the Floating Rate Preferred Securities), compounded quarterly from
the relevant payment date for such Distributions) during any such Extended
Interest Payment Period. During any such Extended Interest Payment Period, the
Company may not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of the Company's capital stock (other
12
<PAGE> 18
than (a) dividends or distributions in common stock of the Company, any
declaration of a non-cash dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
and (b) purchases of common stock of the Company related to the rights under
any of the Company's benefit plans for its directors, officers or employees),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks pari passu with or junior
in interest to the Subordinated Debentures (other than payments under the
Guarantee), or (iii) redeem, purchase or acquire less than all of the
Subordinated Debentures or any of the Preferred Securities. Although the Company
may exercise the rights described herein with regard to the Fixed Rate
Subordinated Debentures independent of such rights with regard to the Floating
Rate Subordinated Debentures, the Fixed Rate Subordinated Debentures and the
Floating Rate Subordinated Debentures will rank pari passu and, therefore, if
the Company elects to defer the payment of interest on one, it would not be
permitted to make interest payments with respect to the other. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further defer the payment of interest; provided that no Extended Interest
Payment Period may exceed 20 consecutive quarters or extend beyond the Stated
Maturity of the Subordinated Debentures. Upon the termination of any Extended
Interest Payment Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the rate of 9.00% per annum (in the case of
the Fixed Rate Preferred Securities) or at the Floating Distribution Rate (in
the case of the Floating Rate Preferred Securities) compounded quarterly, to
the extent permitted by applicable law), the Company may elect to begin a new
Extended Interest Payment Period, subject to the above requirements. Subject to
the foregoing, there is no limitation on the number of times that the Company
may elect to begin an Extended Interest Payment Period. See "Description of
the Preferred Securities--Distributions--Extension Period" and "Description
of the Subordinated Debentures--Option to Extend Interest Payment Period."
Should an Extended Interest Payment Period occur, each holder of Preferred
Securities will be required to accrue and recognize income (in the form of
original issue discount ("OID")) in respect of its pro rata share of the
interest accruing on the Subordinated Debentures held by 1st Capital for United
States federal income tax purposes. A holder of Preferred Securities must, as a
result, include such income in gross income for United States federal income
tax purposes in advance of the receipt of cash, and will not receive the cash
related to such income from 1st Capital if the holder disposes of the Preferred
Securities prior to the record date for the payment of the related
Distributions. See "Certain Federal Income Tax Consequences--Potential
Extension of Interest Payment Period and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. Should the Company elect, however, to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities
during an Extended Interest Payment Period, therefore, might not receive the
same return on its investment as a holder that continues to hold its Preferred
Securities. As a result of the existence of the Company's right to defer
interest payments, the market price of the Preferred Securities may be more
volatile than the market prices of other securities on which original issue
discount accrues that are not subject to such optional deferrals.
TAX EVENT, CAPITAL TREATMENT EVENT OR INVESTMENT COMPANY EVENT; REDEMPTION
The Company has the right to redeem the Subordinated Debentures in whole
(but not in part) within 180 days following the occurrence of a Tax Event,
Capital Treatment Event or Investment Company Event (whether occurring before
or after March 31, 2002), and, therefore, cause a mandatory redemption of the
Preferred Securities. The exercise of such right is subject to the Company
having received prior approval of the Federal Reserve to do so if then required
under applicable capital guidelines or policies of the Federal Reserve. The
Company may exercise the rights described herein with regard to the Fixed
Rate Subordinated Debentures independent of such rights with regard to the
Floating Rate Subordinated Debentures, and vice versa. It is also possible
that a Tax Event, Capital Treatment Event or Investment Company Event could
occur with respect to the Fixed Rate Subordinated Debentures but not with
respect to the Floating Rate Subordinated Debentures, and vice versa.
"Tax Event" means the receipt by 1st Capital of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced prospective change) in the laws (or any
13
<PAGE> 19
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) 1st Capital is, or will be within 90 days of the
date of such opinion, subject to United States federal income tax with respect
to income received or accrued on the Subordinated Debentures, (ii) interest
payable by the Company on the Subordinated Debentures is not, or, within 90
days of such opinion, will not be, deductible by the Company, in whole or in
part, for United States federal income tax purposes, or (iii) 1st Capital is,
or will be within 90 days of the date of the opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges. The Company
must request and receive an opinion with regard to such matters within a
reasonable period of time after it becomes aware of the possible occurrence of
any of the events described in clauses (i) through (iii) above.
A "Capital Treatment Event" means the receipt by 1st Capital of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the Company's ability to treat the
aggregate Liquidation Amount of the Preferred Securities (or any substantial
portion thereof) as "Tier 1 Capital" (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
"Investment Company Event" means the receipt by 1st Capital of an opinion
of counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, 1st Capital is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
becomes effective on or after the date of original issuance of the Preferred
Securities.
See "--Proposed Tax Legislation" for a discussion of certain potential
legislative developments that, if adopted, could give rise to a Tax Event,
which may permit the Company to cause a redemption of the Preferred Securities
prior to March 31, 2002.
SHORTENING OR EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES
The Company has the right, at any time, to shorten the maturity of the
Subordinated Debentures to a date not earlier than March 31, 2002. The exercise
of such right is subject to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. The Company also has the right to extend the
maturity of the Subordinated Debentures (whether or not 1st Capital is
terminated and the Subordinated Debentures are distributed to holders of the
Preferred Securities) to a date no later than March 31, 2046, a date
approximately 49 years after the initial issuance of the Preferred Securities.
Such right may only be exercised, however, if at the time such election is made
and at the time of such extension (i) the Company is not in bankruptcy,
otherwise insolvent or in liquidation, (ii) the Company is not in default in
the payment of any interest or principal on the Subordinated Debentures, and
(iii) 1st Capital is not in arrears on payments of Distributions on the
Preferred Securities and no deferred Distributions are accumulated.
The Company may exercise the rights described herein with regard to the
Fixed Rate Subordinated Debentures independent of such rights with regard
to the Floating Rate Subordinated Debentures, and vice versa.
See "Description of the Subordinated Debentures--General."
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities, to the
extent not paid by 1st Capital, (i) any accrued and unpaid Distributions
required to be paid on the Preferred Securities, to the extent that 1st Capital
has funds available therefor at such time, (ii) the Redemption Price (as
defined herein) with respect to any Preferred Securities called for redemption,
to the extent that 1st Capital has funds available therefor at such time, and
(iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of
1st Capital (other than in connection with the distribution of Subordinated
Debentures to the holders of Preferred Securities or a redemption of all of the
Preferred
14
<PAGE> 20
Securities), the lesser of (a) the amount of the Liquidation
Distribution (as defined herein), to the extent 1st Capital has funds available
therefor at such time, and (b) the amount of assets of 1st Capital remaining
available for distribution to holders of the Preferred Securities in
liquidation of 1st Capital. The Fixed Rate Guarantee will be executed by the
Company for the sole benefit of the holders of the Fixed Rate Preferred
Securities and the Floating Rate Guarantee will be executed by the Company for
the sole benefit of the holders of the Floating Rate Preferred Securities.
Holders of Fixed Rate Preferred Securities will, therefore, have no rights
under the Floating Rate Guarantee, and holders of Floating Rate Preferred
Securities will have no rights under the Fixed Rate Guarantee. The holders
of not less than a majority in Liquidation Amount of the Preferred Securities
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of the Preferred Securities
may institute a legal proceeding directly against the Company to enforce its
rights under the Guarantee without first instituting a legal proceeding against
1st Capital, the Guarantee Trustee or any other Person (as defined in the
Guarantee). If the Company were to default on its obligation to pay amounts
payable under the Subordinated Debentures, 1st Capital would lack funds for the
payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of Preferred Securities
would not be able to rely upon the Guarantee for such amounts. In the event,
however, that a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest on or
principal of the Subordinated Debentures on the payment date on which such
payment is due and payable, then a holder of Preferred Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder (a "Direct Action"). The exercise by the
Company of its right, as described herein, to defer the payment of interest on
the Subordinated Debentures does not constitute a Debenture Event of Default. In
connection with such Direct Action, the Company will have a right of set-off
under the Indenture to the extent of any payment made by the Company to such
holder of Preferred Securities in the Direct Action. Except as described herein,
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Subordinated Debentures or assert
directly any other rights in respect of the Subordinated Debentures. See
"Description of the Subordinated Debentures--Enforcement of Certain Rights by
Holders of the Preferred Securities," "Description of the Subordinated
Debentures--Debenture Events of Default" and "Description of the Guarantee." The
Trust Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Indenture.
NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES
Holders of Preferred Securities will have no voting rights except in
limited circumstances relating only to the modification of the Preferred
Securities and the exercise of the rights of 1st Capital as holder of the
Subordinated Debentures and the Guarantee. Holders of Preferred Securities will
not be entitled to vote to appoint, remove or replace the Property Trustee or
the Delaware Trustee, as such voting rights are vested exclusively in the
holder of the Common Securities (except upon the occurrence of certain events
described herein). The Property Trustee, the Administrative Trustees and the
Company may amend the Trust Agreement without the consent of holders of
Preferred Securities to ensure that 1st Capital will be classified for United
States federal income tax purposes as a grantor trust even if such action
adversely affects the interests of such holders. See "Description of the
Preferred Securities--Voting Rights; Amendment of Trust Agreement" and
"Description of the Preferred Securities--Removal of 1st Capital Trustees."
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes that
would, among other things, generally deny corporate issuers a deduction for
interest in respect of certain debt obligations issued on or after December 7,
1995 (the "1996 Proposed Legislation") if such debt obligations have a
maximum term in excess of 20 years and are not shown as indebtedness on the
issuer's applicable consolidated balance sheet. On March 29, 1996, Senate
Finance Committee Chairman William V. Roth, Jr. and House Ways and Means
Committee Chairman Bill Archer issued a joint statement (the "Joint
Statement") indicating their intent that certain legislative proposals
initiated by the Clinton administration, including the 1996 Proposed
Legislation, that may be adopted by either of the tax-writing committees of
Congress would have an effective date that is no earlier than the date of
"appropriate
15
<PAGE> 21
Congressional action." In addition, subsequent to the publication of the Joint
Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons
and Charles B. Rangel wrote letters to Treasury Department officials concurring
with the views expressed in the Joint Statement. Neither the 1996 Proposed
Legislation nor similar legislation was enacted during the 104th Congress. On
February 6, 1997, President Clinton proposed in the administration's fiscal year
1998 budget certain tax law changes (the "1997 Proposed Legislation") that
would, among other things, generally deny corporate issuers a deduction for
interest or OID in respect of certain debt obligations if such debt obligations
have a maximum term in excess of 15 years and are not shown as indebtedness on
the issuer's applicable consolidated balance sheet. The 1997 Proposed
Legislation also contains a provision that would deny a deduction to corporate
issuers for interest or OID with respect to debt instruments that have a maximum
term of more than 40 years (including rights to extend, renew or relend), or are
payable in stock of the issuer or a related party. The U.S. Treasury
Department's summary of the 1997 Proposed Legislation states that the above
provisions regarding the deduction of interest would generally be effective for
instruments issued on or after the date of first Congressional committee action
with respect to the 1997 Proposed Legislation. The Ways and Means Committee
began a full committee hearing on the President's fiscal 1998 budget on February
11, 1997. There can be no assurance that the effective date guidance in the 1997
Proposed Legislation will be adopted if the proposed change to the tax law is
enacted, or that other legislation enacted after the date hereof will not
otherwise adversely affect the ability of the Company to deduct the interest
payable on the Subordinated Debentures. Consequently, there can be no assurance
that a Tax Event will not occur. A Tax Event would permit the Company, upon
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve, to cause a redemption of the
Preferred Securities before, as well as after, March 31, 2002. See "Description
of the Subordinated Debentures--Redemption or Exchange" and "Description of the
Preferred Securities--Redemption or Exchange--Tax Event Redemption, Capital
Treatment Event Redemption or Investment Company Event Redemption" and "Certain
Federal Income Tax Consequences--Effect of Proposed Changes in Tax Laws."
REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES
The Company has the right at any time to dissolve, wind-up or terminate 1st
Capital and cause the Subordinated Debentures to be distributed to the holders
of the Preferred Securities in exchange therefor in liquidation of 1st Capital.
The exercise of such right is subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. The Company will have the right,
in certain circumstances, to redeem the Subordinated Debentures in whole or in
part, in lieu of a distribution of the Subordinated Debentures by 1st Capital,
in which event 1st Capital will redeem the Trust Securities on a pro rata basis
to the same extent as the Subordinated Debentures are redeemed by the Company.
Any such distribution or redemption prior to the Stated Maturity will be
subject to prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve. The
Company may exercise the rights described herein with regard to 1st Capital I
independent of such rights with regard to 1st Capital II, and vice versa.
See "Description of the Preferred Securities--Redemption or Exchange--Tax Event
Redemption, Capital Treatment Event Redemption or Investment Company Event
Redemption."
Under current United States federal income tax law, a distribution of
Subordinated Debentures upon the dissolution of 1st Capital would not be a
taxable event to holders of the Preferred Securities. If, however, 1st Capital
is characterized as an association taxable as a corporation at the time of the
dissolution of 1st Capital, the distribution of the Subordinated Debentures may
constitute a taxable event to holders of Preferred Securities. Moreover, upon
occurrence of a Tax Event, a dissolution of 1st Capital in which holders of the
Preferred Securities receive cash may be a taxable event to such holders. See
"Certain Federal Income Tax Consequences--Receipt of Subordinated Debentures
or Cash Upon Liquidation of 1st Capital."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities upon a dissolution or liquidation of 1st Capital. The
Preferred Securities or the Subordinated Debentures, may, therefore, trade at a
discount to the price that the investor paid to purchase the Preferred
Securities offered hereby. Because holders of Preferred Securities may receive
Subordinated Debentures, prospective purchasers of Preferred Securities are
also making an investment decision with regard to the Subordinated Debentures
and should carefully review all the information regarding the Subordinated
Debentures contained herein.
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<PAGE> 22
If the Subordinated Debentures are distributed to the holders of Preferred
Securities upon the liquidation of 1st Capital, the Company will use its best
efforts to list the Subordinated Debentures on The Nasdaq Stock Market's
National Market or such stock exchanges, if any, on which the Preferred
Securities are then listed.
COMPANY MAY EXERCISE RIGHTS INDEPENDENTLY
Although the Fixed Rate Subordinated Debentures and the Floating Rate
Subordinated Debentures will rank pari passu, the Company, as described herein,
may, provided any applicable conditions precedent have been satisfied, take
certain actions or exercise certain rights with regard to 1st Capital I and/or
the Fixed Rate Preferred Securities and the Fixed Rate Subordinated Debentures
without taking any corresponding or similar action with regard to 1st Capital II
and/or the Floating Rate Preferred Securities and the Floating Rate Subordinated
Debentures, and vice versa.
TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder of Preferred Securities that disposes of its
Preferred Securities between record dates for payments of Distributions (and
consequently does not receive a Distribution from 1st Capital for the period
prior to such disposition) will nevertheless be required to include accrued but
unpaid interest on the Subordinated Debentures through the date of disposition
in income as ordinary income and to add such amount to its adjusted tax basis
in its pro rata share of the underlying Subordinated Debentures deemed disposed
of. Such holder will recognize a capital loss to the extent the selling price
(which may not fully reflect the value of accrued but unpaid interest) is less
than its adjusted tax basis (which will include all accrued but unpaid
interest). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Disposition of
Preferred Securities."
There is no current public market for the Preferred Securities. Although
the Preferred Securities have been approved for quotation on The Nasdaq
Stock Market's National Market, there can be no assurance that an active
public market will develop for the Preferred Securities or that, if such
market develops, the market price will equal or exceed the public offering
price set forth on the cover page of this Prospectus. The public offering
price for the Preferred Securities has been determined through negotiations
between the Company and the Underwriters. Prices for the Preferred
Securities will be determined in the marketplace and may be influenced by
many factors, including prevailing interest rates, the liquidity of the
market for the Preferred Securities, investor perceptions of the Company and
general industry and economic conditions.
PREFERRED SECURITIES ARE NOT INSURED
The Preferred Securities are not insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
or by any other governmental agency.
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<PAGE> 23
USE OF PROCEEDS
1st Capital will use the gross proceeds received from the sale of the
Preferred Securities to purchase Subordinated Debentures from the Company. The
Company intends to use the net proceeds from the sale of the Subordinated
Debentures for general corporate purposes. These may include, without
limitation, the repurchase of common stock, the repayment of long term debt,
the funding of investments in or extensions of credit to the Company's
subsidiaries and the making of investments in or possibly acquiring businesses
which enhance the Company's long-term growth or improve or expand the Company's
products, services or markets. Pending their application for any or all of such
purposes, the net proceeds may be invested in investment grade financial
instruments.
MARKET FOR THE PREFERRED SECURITIES
<TABLE>
<C> <C>
(FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES)
The Fixed Rate Preferred Securities have been The Floating Rate Preferred Securities have been
approved for quotation on The Nasdaq Stock Market's approved for quotation on The Nasdaq Stock Market's
National Market under the symbol "SRCEP." Although Stifel, National Market under the symbol "SRCEO." Although Stifel,
Nicolaus & Company, Incorporated has informed the Company that Nicolaus & Company, Incorporated has informed the Company that
it presently intends to make a market in the Fixed Rate it presently intends to make a market in the Floating Rate
Preferred Securities, there can be no assurance that an active Preferred Securities, there can be no assurance that an active
and liquid trading market will develop or, if developed, that and liquid trading market will develop or, if developed, that
such a market will continue. The offering price and such a market will continue. The offering price and
distribution rate have been determined by negotiations among distribution rate have been determined by negotiations among
representatives of the Company and the Underwriters, and the representatives of the Company and the Underwriters, and the
offering price of the Fixed Rate Preferred Securities may not offering price of the Floating Rate Preferred Securities may
be indicative of the market price following the offering. See not be indicative of the market price following the offering.
"Underwriting." See "Underwriting."
</TABLE>
ACCOUNTING TREATMENT
1st Capital will be treated, for financial reporting purposes, as a
subsidiary of the Company and, accordingly, the accounts of 1st Capital will be
included in the consolidated financial statements of the Company. The Preferred
Securities will be presented as a separate line item in the consolidated
balance sheet of the Company under the caption "Guaranteed Preferred
Beneficial Interests in the Company's Subordinated Debentures," and appropriate
disclosures about the Preferred Securities, the Guarantee and the Subordinated
Debentures will be included in the notes to consolidated financial statements.
The Company will record Distributions payable on the Preferred Securities as an
expense in the consolidated statements of operations for financial reporting
purposes.
All future reports of the Company filed under the Exchange Act will (a)
present the Trust Securities issued by 1st Capital on the balance sheet as a
separate line-item entitled "Guaranteed preferred beneficial interests in the
Company's subordinated debentures," (b) include in a footnote to the financial
statements disclosure that the sole assets of 1st Capital are the Subordinated
Debentures (including the outstanding principal amount, interest rate and
maturity date of such Subordinated Debentures), and (c) include in an audited
footnote to the financial statements disclosure that the Company owns all of
the Common Securities of 1st Capital, the sole assets of 1st Capital are the
Subordinated Debentures, and the back-up obligations, in the aggregate,
constitute a full and unconditional guarantee by the Company of the obligations
of 1st Capital under the Preferred Securities.
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<PAGE> 24
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at December 31, 1996 and (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Fixed Rate Preferred Securities
and the Floating Rate Preferred Securities hereby offered by 1st Capital I and
1st Capital II, respectively, and receipt by the Company of the proceeds from
the corresponding sale of the Fixed Rate Subordinated Debentures and the
Floating Rate Subordinated Debentures to 1st Capital I and 1st Capital II,
respectively, as if such sale had been consummated on December 31, 1996, and
assuming the Underwriters' over-allotment options were not exercised.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
Notes payable......................................................................... $ 18,596 $ 18,596
-------- ---------
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S
SUBORDINATED DEBENTURES:
Guaranteed preferred beneficial interests in the Company's subordinated
debentures........................................................................... 0 40,000
-------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized; no shares issued....................... 0 0
Common stock, no par value; 40,000,000 shares authorized; 12,936,120 shares issued and
outstanding<F1>...................................................................... 5,700 5,700
Capital surplus....................................................................... 69,947 69,947
Retained earnings..................................................................... 102,399 102,399
Cost of common stock in treasury; 345,622 shares<F1>.................................. (6,670) (6,670)
Unrealized gain on available-for-sale securities...................................... 457 457
-------- ---------
Total shareholders' equity.................................................... 171,833 171,833
-------- ---------
Total capitalization.......................................................... $190,429 $ 230,429
======== =========
CAPITAL RATIOS:<F2>
Shareholders' equity to total assets.................................................. 8.26% 8.11%
Leverage ratio<F3><F4><F5>............................................................ 8.48 10.30
Risk-based capital ratios:<F4><F5>
Tier 1 capital to risk-weighted assets............................................ 10.96 13.22
Total risk-based capital to risk-weighted assets.................................. 12.47 14.73
<FN>
- --------
<F1>Shares not restated for five-for-four stock split declared January 21,
1997.
<F2>Capital ratios, as adjusted, are calculated based upon the assumption that
the proceeds from the sale of the Subordinated Debentures would be
reinvested in new assets of the Company. See "Use of Proceeds."
<F3>The leverage ratio is Tier 1 capital divided by average quarterly assets,
after deducting intangible assets and net deferred tax assets in excess of
regulatory maximum limits.
<F4>The capital ratios, as adjusted, are computed including the total estimated
proceeds from the sale of the Preferred Securities, in a manner
consistent with Federal Reserve guidelines.
<F5>Federal Reserve guidelines for calculation of Tier 1 capital to
risk-weighted assets limits the amount of cumulative preferred stock which
can be included in Tier 1 capital to 25% of total Tier 1 capital.
</TABLE>
19
<PAGE> 25
DESCRIPTION OF THE PREFERRED SECURITIES
<TABLE>
<C> <C>
(FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES)
The Fixed Rate Preferred Securities will The Floating Rate Preferred Securities will be issued pursuant
be issued pursuant to the terms of the Fixed Rate to the terms of the Floating Rate Trust Agreement. The Floating
Trust Agreement. The Fixed Rate Trust Agreement will Rate Trust Agreement will be qualified as an indenture under
be qualified as an indenture under the Trust the Trust Indenture Act. The Floating Rate Property Trustee,
Indenture Act. The Fixed Rate Property State Street Bank and Trust Company, will act as indenture
Trustee, State Street Bank and trustee for the Floating Rate Preferred Securities under
and Trust Company, will act as the Floating Rate Trust Agreement for purposes
indenture trustee for the Fixed Rate Preferred Securities of complying with the provisions of the Trust
under the Fixed Rate Trust Agreement for purposes of complying Indenture Act. The terms of the Floating Rate Preferred
with the provisions of the Trust Indenture Act. The terms of Securities will include those stated in the Floating Rate
the Fixed Rate Preferred Securities will include those stated Trust Agreement and those made part of the Floating Rate Trust
in the Fixed Rate Trust Agreement and those made part of the Agreement by the Trust Indenture Act. The following summary of
Fixed Rate Trust Agreement by the Trust Indenture Act. The the material terms and provisions of the Floating Rate
following summary of the material terms and provisions of the Preferred Securities and the Floating Rate Trust Agreement
Fixed Rate Preferred Securities and the Fixed Rate Trust does not purport to be complete and is subject to, and is
Agreement does not purport to be complete and is subject to, qualified in its entirety by reference to, the Floating Rate
and is qualified in its entirety by reference to, the Fixed Trust Agreement, the Trust Act, and the Trust Indenture Act.
Rate Trust Agreement, the Trust Act, and the Trust Indenture Wherever particular defined terms of the Floating Rate Trust
Act. Wherever particular defined terms of the Fixed Rate Trust Agreement are referred to, but not defined herein, such
Agreement are referred to, but not defined herein, such defined defined terms are incorporated herein by reference. The form
terms are incorporated herein by reference. The form of the of the Floating Rate Trust Agreement has been filed as an
Fixed Rate Trust Agreement has been filed as an exhibit to the exhibit to the Registration Statement of which this Prospectus
Registration Statement of which this Prospectus forms a part. forms a part.
GENERAL GENERAL
Pursuant to the terms of the Fixed Rate Trust Agreement, Pursuant to the terms of the Floating Rate Trust Agreement,
the Fixed Rate Trustees, on behalf of 1st Capital I, will the Floating Rate Trustees, on behalf of 1st Capital II, will
issue the Fixed Rate Trust Securities. All of the Fixed issue the Floating Rate Trust Securities. All of the Floating
Rate Common Securities will be owned by the Company. The Rate Common Securities will be owned by the Company. The
Fixed Rate Preferred Securities will represent preferred Floating Rate Preferred Securities will represent preferred
undivided beneficial interests in the assets of 1st Capital undivided beneficial interests in the assets of 1st Capital II
I and the holders thereof will be entitled to a preference and the holders thereof will be entitled to a preference in
in certain circumstances with respect to Fixed Rate certain circumstances with respect to Floating Rate
Distributions and amounts payable on redemption or liquidation Distributions and amounts payable on redemption or liquidation
over the Fixed Rate Common Securities, as well as other over the Floating Rate Common Securities, as well as other
benefits as described in the Fixed Rate Trust AGreement. benefits as described in the Floating Rate Trust Agreement.
Holders of Fixed Rate Preferred Securities will have no Holders of Floating Rate Preferred Securities will have no
interest in the assets of 1st Capital II. The Fixed Rate interest in the assets of 1st Capital I. The Floating Rate
Trust Agreement does not permit the issuance by 1st Capital I Trust Agreement does not permit issuance by 1st Capital II of
of any securities other than the Fixed Rate Trust Securities any securities other than the Floating Rate Trust Securities
or the incurrence of any indebtedness by 1st Capital I. or the incurrence of any indebtedness by 1st Capital II.
The Fixed Rate Preferred Securities will rank pari passu, The Floating Rate Preferred Securities will rank pari passu,
and payments will be made thereon pro rata, with the Fixed Rate and payments will be made thereon pro rata, with the Floating
Common Securities, except as described under "--Subordination Rate Common Securities, except as described under
of Common Securi- "--Subordination of Common Securi-
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
20
<PAGE> 26
(FIXED RATE PREFERRED SECURITIES--continued from previous page) (FLOATING RATE PREFERRED SECURITIES--continued from previous
page)
ties." Legal title to the Fixed Rate Subordinated Debentures ties." Legal title to the Floating Rate Subordinated
will be held by the Fixed Rate Property Trustee in trust for Debentures will be held by the Floating Rate Property Trustee
the benefit of the holders of the Fixed Rate Trust Securities. in trust for the benefit of the holders of the Floating Rate
The Fixed Rate Guarantee executed by the Company for the Trust Securities. The Floating Rate Guarantee executed by the
benefit of the holders of the Fixed Rate Preferred Securities Company for the benefit of the holders of the Floating Rate
will be a guarantee on a subordinated basis with respect to Preferred Securities will be a guarantee on a subordinated
the Fixed Rate Preferred Securities, but will not guarantee basis with respect to the Floating Rate Preferred Securities,
payment of Fixed Rate Distributions or amounts payable on re- but will not guarantee payment of Floating Rate Distributions
demption or liquidation of such Fixed Rate Preferred or amounts payable on redemption or liquidation of such
Securities when 1st Capital I does not have funds on hand Floating Rate Preferred Securities when 1st Capital II does
available to make such payments. State Street Bank and Trust not have funds on hand available to make such payments. State
Company, as Fixed Rate Guarantee Trustee, will hold the Fixed Street Bank and Trust Company, as Floating Rate Guarantee
Rate Guarantee for the benefit of the holders of the Fixed Trustee, will hold the Floating Rate Guarantee for the benefit
Rate Preferred Securities. See "Description of the of the holders of the Floating Rate Preferred Securities. See
Guarantee." "Description of the Guarantee."
DISTRIBUTIONS DISTRIBUTIONS
PAYMENT OF DISTRIBUTIONS. Fixed Rate Distributions PAYMENT OF DISTRIBUTIONS. Floating Rate Distributions on each
on each Fixed Rate Preferred Security will by Floating Rate Preferred Security will be payable at the
payable at the annual rate of 9.00% of the stated Floating Distribution Rate applied to the stated Floating Rate
Fixed Rate Liquidation Amount of $25, payable quarterly Liquidation Amount of $25, payable quarterly in arrears on
in arrears on March 31, June 30, September 30 and March 31, June 30, September 30 and December 31 of each year,
December 31 of each year, to the holders of the Fixed Rate to the holders of the Floating Rate Preferred Securities on
Preferred Securities on the relevant record dates (each date the relevant record dates (each date on which Floating Rate
on which Fixed Rate Distributions are payable in accordance Distributions are payable in accordance with the foregoing, a
with the foregoing, a "Fixed Rate Distribution Date"). The "Floating Rate Distribution Date"). The record date will be
record date will be the 15th day of the month in which the the 15th day of the month in which the relevant Floating Rate
relevant Fixed Rate Distribution Date occurs. Fixed Rate Distribution Date occurs. Floating Rate Distributions will
Distributions will accumulate from the date of original accumulate from the date of original issuance. The first payment
issuance. The first payment of Fixed Rate Distributions for of Floating Rate Distributions for the Floating Rate
the Fixed Rate Preferred Securities will be June 30, 1997. The Preferred Securities will be June 30, 1997. The amount of
amount of Fixed Rate Distributions payable for any period will Floating Rate Distributions payable for any period will be
be computed on the basis of a 360-day year of twelve 30-day computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which Fixed Rate Distri- months. In the event that any date on which Floating Rate
butions are payable on the Fixed Rate Preferred Securities is Distributions are payable on the Floating Rate Preferred
not a Business Day, then payment of the Fixed Rate Securities is not a Business Day, then payment of the Floating
Distributions payable on such date will be made on the next Rate Distributions payable on such date will be made on the
succeeding day that is a Business Day (and without any next succeeding day that is a Business Day (and without any
additional Fixed Rate Distributions, interest or other payment additional Floating Rate Distributions, interest or other
in respect of any such delay) with the same force and effect payment in respect of any such delay) with the same force and
as if made on the date such payment was originally due and effect as if made on the date such payment was originally due
payable. "Business Day" means any day other than a Saturday and payable. "Business Day" means any day other than a
or a Sunday, a day on which banking institutions in The City Saturday or a Sunday, a day on which banking institutions in
of New York are authorized or required by law or executive The City of New York are authorized or required by law or
order to remain closed or a day on which the corporate trust executive order to remain closed or a day on which the
office of the Fixed Rate Property Trus-
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
21
<PAGE> 27
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
tee or the Fixed Rate Debenture Trustee is closed for corporate trust office of the Floating Rate Property
business. Trustee or the Floating Rate Debenture Trustee is closed
for business.
DETERMINATION OF 3-MONTH TREASURY. The Floating Distribution
Rate for the period beginning on (and including) the date of
original issuance, and ending on (but excluding) March 31,
1997 in respect of the Floating Rate Preferred Securities
will be 7.50% and the Floating Distribution Rate for
each successive period beginning on (and including)
March 31, 1997 and each succeeding Floating Rate Distribution
Date, and ending on (but excluding) the next succeeding
Floating Rate Distribution Date (each, a "Floating Rate
Distribution Period") in respect of the Floating Rate
Preferred Securities will be a rate per annum determined by
reference to the sum of the 3-Month Treasury, determined as
described below, plus 2.25%. "3-Month Treasury" means
the yield on United States of America Treasury constant
maturities, adjusted to a constant maturity of three (3)
months, reported by the Federal Reserve. 3-Month Treasury,
with respect to any Floating Rate Distribution Period (other
than the Floating Rate Distribution Period ending on (but
excluding) March 31, 1997) will be determined by the Floating
Rate Debenture Trustee as follows:
(a) On the second Business Day preceding the commencement of
such Floating Rate Distribution Period (each, a "Floating
Rate Determination Date"), the 3-Month Treasury will be
[This Column Intentionally Blank] the current yield for United States of America Treasury
constant maturities, adjusted to a constant maturity of
three (3) months, which appears on the applicable Federal
Reserve Statistical Release Series H.15 (519) which
includes data for such Floating Rate Determination Date,
or as then currently furnished or made available by the
Federal Reserve if such Series is no longer published.
(b) If, with respect to any Floating Rate Determination Date,
the Floating Rate Debenture Trustee is required but unable
to determine the 3-Month Treasury in the manner provided in
paragraph (a) above, the 3-Month Treasury for such Floating
Rate Distribution Period will be the 3-Month Treasury as
determined on the previous Floating Rate Determination
Date.
The Floating Distribution Rate for any Floating Rate
Distribution Period will at no time be higher than the maximum
rate then permitted by Indiana law as the same may be
modified by United States law.
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
22
<PAGE> 28
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
All percentages resulting from any calculations referred to
above will be rounded, if necessary, to the nearest multiple
of 1/100 of 1%.
DETERMINATION OF DISTRIBUTION RATE AND CALCULATION OF
DISTRIBUTION AMOUNT. The Floating Rate Debenture Trustee will,
on each Floating Rate Determination Date, determine the
Floating Distribution Rate and calculate the amount of
Floating Rate Distributions payable in respect of the
following Floating Rate Distribution Period (the "Floating
Rate Distribution Amount"). The Floating Rate Distribution
Amount will be calculated by applying the Floating Rate
Distribution Rate to the Floating Rate Liquidation Amount of
each Floating Rate Preferred Security outstanding at the
commencement of the Floating Rate Distribution Period, and
multiplying each such amount by the actual number of days
(based upon a 30-day month) in the Floating Rate Distribution
Period concerned, and dividing by 360. The determination of the
Floating Distribution Rate and the Floating Rate Distribution
Amount by the Floating Rate Debenture Trustee will (in the
absence of willful default, bad faith or manifest error) be
final, conclusive and binding on all concerned.
[This Column Intentionally Blank]
Upon the request of a holder of a Floating Rate Preferred
Security, the Floating Rate Debenture Trustee will provide the
Floating Distribution Rate then in effect and, if determined,
the Floating Rate Distribution Rate for the next Floating Rate
Distribution Period with respect to the Floating Rate
Preferred Securities. Each such Floating Distribution Rate may
be obtained by telephoning the Floating Rate Debenture Trustee
at (617) 664-5500.
NOTIFICATION OF DISTRIBUTION RATE AND DISTRIBUTION DATE. The
Floating Rate Debenture Trustee will notify the Floating Rate
Property Trustee and any securities exchange or interdealer
quotation system on which the Floating Rate Preferred
Securities are listed of the Floating Distribution Rate and
the Floating Rate Distribution Date for each Floating Rate
Distribution Period, in each case as soon as practicable after
the determination thereof but in no event later than the
seventh Business Day of the relevant Floating Rate
Distribution Period. Failure to notify the Floating Rate
Property Trustee or any applicable securities exchange or
interdealer quotation system, or any defect in said notice,
shall not affect the obligation of the Company to make payment
on the Floating Rate Debentures at the applicable Floating
Distribution Rate. Any error in the calculation of the Floating
Distribution Rate by the
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
23
<PAGE> 29
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
Floating Rate Debenture Trustee may be corrected at any time by
notice delivered as above provided.
CERTIFICATES TO BE FINAL. All certificates, communications,
[This Column Intentionally Blank] opinions, determinations, calculations, quotations and
decisions given, expressed, made or obtained for the purposes
of the provisions relating to the payment and calculation of
Floating Rate Distributions on the Floating Rate Preferred
Securities by the Floating Rate Debenture Trustee will (in the
absence of willful default, bad faith or manifest error) be
binding on 1st Capital II, the Company, and all of the holders
of the Floating Rate Preferred Securities, and no liability
will (in the absence of willful default, bad faith or manifest
error) attach to the Floating Rate Debenture Trustee or the
Floating Rate Property Trustee in connection with the exercise
or non-exercise by either of them of their respective powers,
duties and discretion.
</TABLE>
EXTENSION PERIOD. The Company has the right under the Indenture, so long as
no Debenture Event of Default has occurred and is continuing, to defer the
payment of interest on the Subordinated Debentures at any time, or from time to
time (each, an "Extended Interest Payment Period"), which, if exercised,
would defer quarterly Distributions on the Preferred Securities during any such
Extended Interest Payment Period. Distributions to which holders of the
Preferred Securities are entitled will accumulate additional Distributions
thereon at the rate per annum of 9.00% thereof (in the case of the Fixed Rate
Preferred Securities) or at the Floating Distribution Rate (in the case of the
Floating Rate Preferred Securities), compounded quarterly from the relevant
Distribution Date. "Distributions," as used herein, includes any such
additional Distributions. The right to defer the payment of interest on the
Subordinated Debentures is limited, however, to a period, in each instance, not
exceeding 20 consecutive quarters and no Extended Interest Payment Period may
extend beyond the Stated Maturity of the Subordinated Debentures. During any
such Extended Interest Payment Period, the Company, may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock (other
than (a) dividends or distributions in common stock of the Company, any
declaration of a non-cash dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
and (b) purchases of common stock of the Company related to the rights under
any of the Company's benefit plans for its directors, officers or employees),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks pari passu with or junior
in interest to the Subordinated Debentures (other than payments under the
Guarantee), or (iii) redeem, purchase or acquire less than all of the
Subordinated Debentures or any of the Preferred Securities. Although the Company
may exercise the rights described herein with regard to the Fixed Rate
Subordinated Debentures independent of such rights with regard to the Floating
Rate Subordinated Debentures, the Fixed Rate Subordinated Debentures and the
Floating Rate Subordinated Debentures will rank pari passu and, therefore, if
the Company elects to defer the payment of interest on one, it would not be
permitted to make interest payments with respect to the other. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further defer the payment of interest; provided that such Extended Interest
Payment Period may not exceed 20 consecutive quarters or extend beyond the
Stated Maturity of the Subordinated Debentures. Upon the termination of any
such Extended Interest Payment Period and the payment of all amounts then due,
the Company may elect to begin a new Extended Interest Payment Period, subject
to the above requirements. Subject to the foregoing, there is no limitation on
the number of times that the Company may elect to begin an Extended Interest
Payment Period.
24
<PAGE> 30
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
SOURCE OF DISTRIBUTIONS. The funds of 1st Capital available for
distribution to holders of its Preferred Securities will be limited to payments
under the Subordinated Debentures in which 1st Capital will invest the proceeds
from the issuance and sale of its Trust Securities. See "Description of the
Subordinated Debentures." Distributions will be paid through the Property
Trustee who will hold amounts received in respect of the Subordinated
Debentures in the Property Account for the benefit of the holders of the Trust
Securities. Holders of Floating Rate Preferred Securities have no claim or
right to amounts received in respect of the Fixed Rate Subordinated Debentures
in the Fixed Rate Property Account, and holders of Fixed Rate Preferred
Securities have no claim or right to amounts received in respect of the
Floating Rate Subordinated Debentures in the Floating Rate Property Account. If
the Company does not make interest payments on the Subordinated Debentures, the
Property Trustee will not have funds available to pay Distributions on the
Preferred Securities. The payment of Distributions (if and to the extent 1st
Capital has funds legally available for the payment of such Distributions and
cash sufficient to make such payments) is guaranteed by the Company. See
"Description of the Guarantee." Distributions on the Preferred Securities
will be payable to the holders thereof as they appear on the register of
holders of the Preferred Securities on the relevant record dates, which will be
the 15th day of the month in which the relevant Distribution Date occurs.
REDEMPTION OR EXCHANGE
GENERAL. The Subordinated Debentures will mature on March 31, 2027. The
Company will have the right to redeem the Subordinated Debentures (i) on or
after March 31, 2002, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), within 180 days following the
occurrence of a Tax Event, Capital Treatment Event or an Investment Company
Event, in each case subject to receipt of prior approval by the Federal Reserve
if then required under applicable capital guidelines or policies of the Federal
Reserve. The Company will not have the right to purchase the Subordinated
Debentures, in whole or in part, from 1st Capital until after March 31, 2002.
The Company may exercise the rights described herein with regard to the Fixed
Rate Subordinated Debentures independent of such rights with regard to the
Floating Rate Subordinated Debentures, and vice versa. It is also possible
that a Tax Event, Capital Treatment Event or Investment Company Event could
occur with respect to the Fixed Rate Subordinated Debentures but not with
respect to the Floating Rate Subordinated Debentures, and vice versa.
See "Description of the Subordinated Debentures--General."
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in
part, of any Subordinated Debentures, whether at Stated Maturity or upon
earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption will be applied by the Property Trustee to redeem a
Like Amount (as defined herein) of the Trust Securities, upon not less than 30
nor more than 60 days notice, at a redemption price (the "Redemption Price")
equal to the aggregate Liquidation Amount of such Trust Securities plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date"). See "Description of the Subordinated
Debentures--Redemption or Exchange." If less than all of the Subordinated
Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds
from such repayment or redemption will be allocated to the redemption of the
Trust Securities pro rata.
DISTRIBUTION OF SUBORDINATED DEBENTURES. Subject to the Company having
received prior approval of the Federal Reserve if so required under applicable
capital guidelines or policies of the Federal Reserve, the Company will have
the right at any time to dissolve, wind-up or terminate 1st Capital and, after
satisfaction of the liabilities of creditors of 1st Capital as provided by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of Trust Securities in liquidation of 1st Capital. See "--Liquidation
Distribution Upon Termination."
TAX EVENT REDEMPTION, CAPITAL TREATMENT EVENT REDEMPTION OR INVESTMENT
COMPANY EVENT REDEMPTION. If a Tax Event, Capital Treatment Event or an
Investment Company Event in respect of the Trust Securities occurs and is
continuing, the Company has the right to redeem the Subordinated Debentures in
whole (but not in part) and thereby cause a mandatory redemption of such Trust
Securities in whole (but not in part) at the Redemption Price within 180 days
following the occurrence of such Tax Event, Capital Treatment Event or
Investment Company Event. In the event a Tax Event, Capital Treatment Event or
an Investment Company Event in respect of the Trust Securities has occurred and
the Company does not elect to redeem the Subordinated Debentures and thereby
cause a mandatory redemption of such Trust Securities or to liquidate 1st
Capital and cause the Subordinated Debentures to be
25
<PAGE> 31
distributed to holders of such Trust Securities in liquidation of 1st Capital as
described below under "--Liquidation Distribution Upon Termination," such
Preferred Securities will remain outstanding and Additional Interest (as defined
herein) may be payable on the Subordinated Debentures.
"Additional Interest" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by 1st Capital on
the outstanding Trust Securities will not be reduced as a result of any
additional taxes, duties and other governmental charges to which 1st Capital
has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture, which will be used to pay the Redemption Price
of such Trust Securities, and (ii) with respect to a distribution of
Subordinated Debentures to holders of Trust Securities in connection with a
dissolution or liquidation of 1st Capital, Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Subordinated Debentures are distributed. Each Subordinated
Debenture distributed pursuant to clause (ii) above will carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Subordinated Debentures.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
After the liquidation date fixed for any distribution of Subordinated
Debentures for Preferred Securities (i) such Preferred Securities will no
longer be deemed to be outstanding, and (ii) any certificates representing
Preferred Securities will be deemed to represent the Subordinated Debentures
having a principal amount equal to the Liquidation Amount of such Preferred
Securities, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on the Preferred Securities, until such
certificates are presented to the Administrative Trustees or their agent for
transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution and liquidation of 1st Capital were
to occur. The Preferred Securities that an investor may purchase, or the
Subordinated Debentures that an investor may receive on dissolution and
liquidation of 1st Capital, may, therefore, trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
Redemption Date only to the extent that 1st Capital has funds on hand available
for the payment of such Redemption Price. The Fixed Rate Preferred Securities
may be redeemed independent of the Floating Rate Preferred Securities, and
vice versa. See "--Subordination of Common Securities."
If 1st Capital gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, eastern standard time, on the Redemption Date,
to the extent funds are available, the Property Trustee will irrevocably
deposit with the paying agent for the Preferred Securities funds sufficient to
pay the aggregate Redemption Price and will give the paying agent for the
Preferred Securities irrevocable instructions and authority to pay the
Redemption Price to the holders thereof upon surrender of their certificates
evidencing such Preferred Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Preferred
Securities called for redemption will be payable to the holders of such
Preferred Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption will have been given and funds deposited as
required, then upon the date of such deposit, all rights of the holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Preferred Securities will
cease to be outstanding. In the event that any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the Redemption
Price payable on such date will be made on the next succeeding day which is a
Business Day (and without any additional Distribution, interest or other
payment in respect of any such delay) with the same force and effect as if made
on such date. In the event that payment of the Redemption Price in respect of
Preferred Securities called for redemption is improperly
26
<PAGE> 32
withheld or refused and not paid either by 1st Capital, or by the Company
pursuant to the Guarantee, Distributions on such Preferred Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by 1st Capital for such Preferred Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating the
Redemption Price. See "Description of the Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law) and, further provided, that the Company has not and is
not continuing to exercise its right to defer interest payments, the Company or
its subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Subordinated Debentures to holders of Preferred Securities will
be made to the applicable recordholders thereof as they appear on the register
for the Preferred Securities on the relevant record date, which date will be
the date 15 days prior to the Redemption Date or liquidation date, as
applicable.
If less than all of the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Liquidation Amount of such Trust Securities to be
redeemed will be allocated pro rata to the Trust Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed will be selected by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, by such
method as the Property Trustee deems fair and appropriate and which may provide
for the selection for redemption of portions (equal to $25 or an integral
multiple of $25 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $25. The Property Trustee will
promptly notify the registrar for the Preferred Securities in writing of the
Preferred Securities selected for redemption and, in the case of any Preferred
Securities selected for partial redemption, the Liquidation Amount thereof to
be redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities will relate to the portion of the aggregate Liquidation Amount of
Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the redemption price on the Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on such Subordinated Debentures
or portions thereof (and Distributions will cease to accrue on the related
Preferred Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, will be made pro rata based on
the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default has occurred and is 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, will be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Preferred
Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all of the outstanding Preferred Securities then called for
redemption, will have been made or provided for, and all funds available to the
Property Trustee will first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Preferred Securities then due and
payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company 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
Trust Agreement until the effect of all such Events of Default with respect to
the Preferred Securities have been cured, waived or otherwise eliminated. Until
any such Events of Default under the Trust Agreement with respect to the
Preferred Securities has been so cured, waived or otherwise eliminated, the
Property Trustee will act solely on behalf of the holders of the Preferred
Securities and not on behalf of the Company, as holder of the Common
Securities, and only the holders of the Preferred Securities will have the
right to direct the Property Trustee to act on their behalf.
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<PAGE> 33
LIQUIDATION DISTRIBUTION UPON TERMINATION
The Company will have the right at any time to dissolve, wind-up or
terminate 1st Capital and cause the Subordinated Debentures to be distributed
to the holders of the Preferred Securities. Such right is subject, however,
to the Company having received prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal
Reserve. The Company may dissolve, wind-up or terminate 1st Capital I and
cause the Fixed Rate Subordinated Debentures to be distributed to the holders
of the Fixed Rate Preferred Securities without dissolving, winding-up or
terminating 1st Capital II and causing the Floating Rate Subordinated
Debentures to be distributed to the holders of the Floating Rate Preferred
Securities, and vice versa.
Pursuant to the Trust Agreement, 1st Capital will automatically terminate
upon expiration of its term and will terminate earlier on the first to occur of
(i) certain events of bankruptcy, dissolution or liquidation of the Company,
(ii) the distribution of a Like Amount of the Subordinated Debentures to the
holders of its Trust Securities, if the Company, as depositor, has given
written direction to the Property Trustee to terminate 1st Capital (which
direction is optional and wholly within the discretion of the Company, as
depositor), (iii) redemption of all of the Preferred Securities as described
under "--Redemption or Exchange--Mandatory Redemption," or (iv) the entry of
an order for the dissolution of 1st Capital by a court of competent
jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv) of
the preceding paragraph, 1st Capital will be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of 1st Capital as provided by
applicable law, to the holders of such Trust Securities a Like Amount of the
Subordinated Debentures, unless such distribution is determined by the Property
Trustee not to be practical, in which event such holders will be entitled to
receive out of the assets of 1st Capital available for distribution to holders,
after satisfaction of liabilities to creditors of 1st Capital as provided by
applicable law, an amount equal to, in the case of holders of Preferred
Securities, the aggregate of the Liquidation Amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid
only in part because 1st Capital has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by 1st Capital on the Preferred Securities will be paid on a pro rata basis.
The Company, as the holder of the Common Securities, will be entitled to
receive distributions upon any such liquidation pro rata with the holders of
the Preferred Securities, except that, if a Debenture Event of Default has
occurred and is continuing, the Preferred Securities will have a priority over
the Common Securities. See "--Subordination of Common Securities."
Under current United States federal income tax law and interpretations and
assuming, as expected, that 1st Capital is treated as a grantor trust, a
distribution of the Subordinated Debentures should not be a taxable event to
holders of the Preferred Securities. Should there be a change in law, a change
in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Certain Federal Income Tax Consequences--Receipt of Subordinated
Debentures or Cash Upon Liquidation of 1st Capital." If the Company elects
neither to redeem the Subordinated Debentures prior to maturity nor to
liquidate 1st Capital and distribute the Subordinated Debentures to holders of
the Preferred Securities, the Preferred Securities will remain outstanding
until the repayment of the Subordinated Debentures.
If the Company elects to liquidate 1st Capital and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred
Securities in liquidation of 1st Capital, the Company will continue to have the
right to shorten or extend the maturity of such Subordinated Debentures,
subject to certain conditions. See "Description of the Subordinated
Debentures--General."
LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Preferred
Securities in the event of any liquidation of 1st Capital is $25 per Preferred
Security plus accrued and unpaid Distributions thereon to the date of payment,
which may be in the form of a distribution of such amount in Subordinated
Debentures, subject to certain exceptions. See "--Liquidation Distribution
Upon Termination."
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<PAGE> 34
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether voluntary
or involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of the Subordinated Debentures--Debenture Events of Default"); or
(ii) default by 1st Capital in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of
30 days; or
(iii) default by 1st Capital in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clauses (ii) or (iii) above), and continuation of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Trustee(s) by the holders of at
least 25% in aggregate Liquidation Amount of the outstanding Preferred
Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company 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 will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default has been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
termination of 1st Capital. See "--Liquidation Distribution Upon
Termination." The existence of an Event of Default does not entitle the
holders of Preferred Securities to accelerate the maturity thereof.
The Fixed Rate Preferred Securities and the Floating Rate Preferred
Securities are not cross-defaulted. An Event of Default under the Fixed Rate
Trust Agreement will not constitute an Event of Default under the Floating Rate
Trust Agreement, and vice versa.
REMOVAL OF 1ST CAPITAL TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the holder of the Common Securities. If a
Debenture Event of Default has occurred and is continuing, the Property Trustee
and the Delaware Trustee may be removed at such time by the holders of a
majority in Liquidation Amount of the outstanding Preferred Securities. In no
event, however, will the holders of the Preferred Securities have the right to
vote to appoint, remove or replace the Administrative Trustees, which voting
rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee will be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default has occurred and is 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 Property (as defined
in the Trust Agreement) may at the time be located, the Company, as the holder
of the Common Securities, will have
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<PAGE> 35
power to appoint one or more Persons (as defined in the Trust Agreement) either
to act as a co-trustee, jointly with the Property Trustee, of all or any part of
such Trust Property, or to act as separate trustee of any such Trust 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 Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone will 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 merger,
conversion or consolidation to which such Trustee is a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF 1ST CAPITAL
1st Capital 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 Person, except as described below. 1st
Capital may, at the request of the Company, with the consent of the
Administrative Trustees and without the consent of the holders of the Preferred
Securities, the Property Trustee or the Delaware Trustee, 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; provided, that (i) such successor entity either
(a) expressly assumes all of the obligations of 1st Capital with respect to the
Preferred Securities, or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as
the Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) the Company expressly
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee in its capacity as the holder of the
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed (including, if applicable, The Nasdaq Stock Market's
National Market), if any, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Preferred Securities
(including any Successor Securities) in any material respect, (v) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Company has received an opinion from independent counsel to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither 1st Capital nor such successor entity will be required to register as
an "investment company" under the Investment Company Act, and (vi) the
Company owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding
the foregoing, 1st Capital will not, except with the consent of holders of 100%
in Liquidation Amount of the Preferred Securities, consolidate, amalgamate,
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to any other Person or
permit any other Person to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause 1st Capital or the successor entity
to be classified as other than a grantor trust for United States federal income
tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the
Guarantee--Amendments and Assignment" and as otherwise required by the Trust
Act and the Trust Agreement, the holders of the Preferred Securities will have
no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) with respect to acceptance
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<PAGE> 36
of appointment by a successor trustee, (ii) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement (provided such amendment is not
inconsistent with the other provisions of the Trust Agreement), or (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as is necessary to ensure that 1st Capital will be classified for United
States federal income tax purposes as a grantor trust at all times that any
Trust Securities are outstanding or to ensure that 1st Capital will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (ii), such action may not
adversely affect in any material respect the interests of any holder of Trust
Securities, and any amendments of such Trust Agreement will become effective
when notice thereof is given to the holders of Trust Securities. The Trust
Agreement may be amended by the Trustees and the Company with (i) the consent of
holders representing not less than a majority in the aggregate Liquidation
Amount of the outstanding Trust Securities, and (ii) 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 affect
1st Capital's status as a grantor trust for United States federal income tax
purposes or 1st Capital's exemption from status as an "investment company" under
the Investment Company Act. Notwithstanding anything in this paragraph to the
contrary, without the consent of each holder of Trust Securities, the Trust
Agreement may not be amended to (a) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date, or (b) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
The Trustees will not, so long as any Subordinated Debentures are held by
the Property Trustee, (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Property Trustee with respect to the
Subordinated Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debentures will be due and payable, or (iv)
consent to any amendment, modification or termination of the Indenture or the
Subordinated Debentures, where such consent is required, without, in each case,
obtaining the prior approval of the holders of a majority in aggregate
Liquidation Amount of all outstanding Preferred Securities; provided, however,
that where a consent under the Indenture requires the consent of each holder of
Subordinated Debentures affected thereby, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Preferred
Securities. The Trustees may not revoke any action previously authorized or
approved by a vote of the holders of the Preferred Securities except by
subsequent vote of the holders of the Preferred Securities. The Property
Trustee will notify each holder of Preferred Securities of any notice of
default with respect to the Subordinated Debentures. In addition to obtaining
the foregoing approvals of the holders of the Preferred Securities, prior to
taking any of the foregoing actions, the Trustees must obtain an opinion of
counsel experienced in such matters to the effect that 1st Capital will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be taken,
to be given to each holder of record of Preferred Securities in the manner set
forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for 1st Capital to redeem and cancel its Preferred Securities in accordance
with the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made by check
mailed to the address of the holder entitled thereto as such address will
appear on the register of holders of the Preferred Securities. The paying agent
for the Preferred Securities will initially be the Property Trustee and
any co-paying agent chosen by the Property Trustee and
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acceptable to the Administrative Trustees and the Company. The paying agent for
the Preferred Securities may resign as paying agent upon 30 days' written notice
to the Property Trustee and the Company. In the event that the Property Trustee
no longer is the paying agent for the Preferred Securities, the Administrative
Trustees will appoint a successor (which must be a bank or trust company
acceptable to the Administrative Trustees and the Company) to act as paying
agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of 1st Capital, but upon
payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. 1st Capital will not be required to
register or cause to be registered the transfer of Preferred Securities after
such Preferred Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. 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 Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee will take such action as is directed by the Company and if not so
directed, will take such action as it deems advisable and in the best interests
of the holders of the Trust Securities and will have no liability except for
its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate 1st Capital in such a way that 1st Capital 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 and so that the Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. The Company and the Administrative Trustees are
authorized, in this connection, to take any action, not inconsistent with
applicable law, the certificate of trust of 1st Capital or the Trust Agreement,
that the Company and the Administrative Trustees determine in their discretion
to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
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<TABLE>
DESCRIPTION OF THE SUBORDINATED DEBENTURES
<C> <C>
(FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES)
Concurrently with the issuance of the Fixed Rate Preferred Concurrently with the issuance of the Floating Rate Preferred
Securities, 1st Capital I will invest the proceeds thereof, Securities, 1st Capital II will invest the proceeds thereof,
together with the consideration paid by the Company for the together with the consideration paid by the Company for the
Fixed Rate Common Securities, in the Fixed Rate Subordinated Floating Rate Common Securities, in the Floating Rate
Debentures issued by the Company. The Fixed Rate Subordinated Subordinated Debentures issued by the Company. The Floating
Debentures will be issued as unsecured debt under the Rate Subordinated Debentures will be issued as unsecured debt
Indenture, to be dated as of March 21, 1997 (the under the Indenture, to be dated as of March 21, 1997
"Fixed Rate Indenture"), between the Company and State (the "Floating Rate Indenture"), between the Company and
Street Bank and Trust Company, as trustee (the "Fixed Rate State Street Bank and Trust Company, as trustee (the
Debenture Trustee"). The Fixed Rate Indenture will be "Floating Rate Debenture Trustee"). The Floating Rate
qualified as an indenture under the Trust Indenture Indenture will be qualified as an indenture under
Act. The following summary of the material terms and the Trust Indenture Act. The following summary of
provisions of the Fixed Rate Subordinated Debentures and the the material terms and provisions of the Floating Rate
Fixed Rate Indenture does not purport to be complete and is Subordinated Debentures and the Floating Rate Indenture does
subject to, and is qualified in its entirety by reference to, not purport to be complete and is subject to, and is qualified
the Fixed Rate Indenture and to the Trust Indenture Act. in its entirety by reference to, the Floating Rate Indenture
Wherever particular defined terms of the Fixed Rate Indenture and to the Trust Indenture Act. Wherever particular defined
are referred to, but not defined herein, such defined terms terms of the Floating Rate Indenture are referred to, but not
are incorporated herein by reference. The form of the Fixed defined herein, such defined terms are incorporated herein by
Rate Indenture has been filed as an exhibit to the reference. The form of the Floating Rate Indenture has been
Registration Statement of which this Prospectus forms a part. filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL GENERAL
The Fixed Rate Subordinated Debentures will be limited in The Floating Rate Subordinated Debentures will be limited in
aggregate principal amount to approximately $25,774,000 (or aggregate principal amount to approximately $15,463,925 (or
$28,350,525 if the option described under the heading $17,783,525 if the option described under the heading
"Underwriting" is exercised by the Underwriters), such "Underwriting" is exercised by the Underwriters), such
amount being the sum of the aggregate stated Fixed Rate amount being the sum of the aggregate stated Floating Rate
Liquidation Amount of the Fixed Rate Trust Securities. The Liquidation Amount of the Floating Rate Trust Securities. The
Fixed Rate Subordinated Debentures will bear interest at the Floating Rate Subordinated Debentures will bear interest at
annual rate of 9.00% of the principal amount thereof, payable the annual rate equal to the sum of the 3-Month Treasury
quarterly in arrears on March 31, June 30, September 30, and (determined in the same manner as the Floating Distribution
December 31 of each year (each, a "Fixed Rate Interest Rate, as described under "Description of the Preferred Secur-
Payment Date"), beginning June 30, 1997, to the Person (as ities--Distributions--Determination of 3-Month Treasury") plus
defined in the Fixed Rate Indenture) in whose name each Fixed 2.25% (the "Floating Interest Rate") of the principal amount
Rate Subordinated Debenture is registered, subject to certain thereof, payable quarterly in arrears on March 31, June 30,
exceptions, at the close of business on the fifteenth day of September 30, and December 31 of each year (each, a "Floating
the last month of the calendar quarter. It is anticipated Rate Interest Payment Date"), beginning June 30, 1997, to the
that, until the liquidation of 1st Capital I, the Fixed Rate Person (as defined in the Floating Rate Indenture) in whose name
Subordinated Debentures will be held in the name of the Fixed each Floating Rate Subordinated Debenture is registered, subject
Rate Property Trustee in trust for the benefit of the holders to certain exceptions, at the close of business on the fifteenth
of the Fixed Rate Preferred Securities. The amount of interest day of the last month of the calendar quarter. The Floating
payable for any period will be computed on the Interest Rate for the period beginning on (and
basis of a 360-day year of twelve 30-day months. In the including) the
(FIXED RATE PREFERRED SECURITIES--continued on next page) (FLOATING RATE PREFERRED SECURITIES--continued on next page)
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<PAGE> 39
(FIXED RATE PREFERRED SECURITIES--continued from previous (FLOATING RATE PREFERRED SECURITIES--continued from previous
page) page)
event that any date on which interest is payable on the date of issuance and ending on (but excluding) March 31, 1997,
Fixed Rate Subordinated Debentures is not a Business Day, will, notwithstanding the foregoing, be 7.50%. It is anticipated
then payment of the interest payable on such date will that, until the liquidation of 1st Capital II, the Floating
be made on the next succeeding day that is a Business Rate Subordinated Debentures will be held in the name of
Day (and without any interest or other payment in the Floating Rate Property Trustee in trust for the benefit
respect of any such delay) with the same force and of the holders of the Floating Rate Preferred Securities.
effect as if made on the date such payment was The amount of interest payable for any period will be computed
originally due and payable. Accrued interest that is not on the basis of a 360-day year of twelve 30-day months. In the
paid on the applicable Fixed Rate Interest Payment Date will event that any date on which interest is payable on the Floating
bear additional interest on the amount thereof (to the extent Rate Subordinated Debentures is not a Business Day, then payment
permitted by law) at the rate per annum of 9.00%, thereof, of the interest payable on such date will be made on the next
compounded quarterly. The term "interest," as used herein, succeeding day that is a Business Day (and without any
includes quarterly interest payments, interest on quarterly interest or other payment in respect of any such
interest payments not paid on the applicable Fixed Rate delay) with the same force and effect as if made on the date
Interest Payment Date and Additional Interest, as applicable. such payment was originally due and payable. Accrued interest
that is not paid on the applicable Floating Rate Interest
Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the Floating
Interest Rate compounded quarterly. The term "interest," as
used herein, includes quarterly interest payments, interest on
quarterly interest payments not paid on the applicable
Floating Rate Interest Payment Date and Additional Interest,
as applicable.
</TABLE>
The Subordinated Debentures will mature on March 31, 2027 (such date, as it
may be shortened or extended as hereinafter described, the "Stated
Maturity"). Such date may be shortened at any time by the Company to any date
not earlier than March 31, 2002, subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. Such date may also be extended
at any time at the election of the Company but in no event to a date later than
March 31, 2046, provided that at the time such election is made and at the time
of extension (i) the Company is not in bankruptcy, otherwise insolvent or in
liquidation, (ii) the Company is not in default in the payment of any interest
or principal on the Subordinated Debentures, and (iii) 1st Capital is not in
arrears on payments of Distributions on the Preferred Securities and no
deferred Distributions are accumulated. The Company may exercise the rights
described herein with regard to the Fixed Rate Subordinated Debentures
independent of such rights with regard to the Floating Rate Subordinated
Debentures, and vice versa. In the event that the Company elects to shorten or
extend the Stated Maturity of the Subordinated Debentures, it will give notice
thereof to the Debenture Trustee, 1st Capital and to the holders of the
Subordinated Debentures no more than 180 days and no less than 90 days prior to
the effectiveness thereof. The Company will not have the right to purchase the
Subordinated Debentures, in whole or in part, from 1st Capital until after March
31, 2002, except if a Tax Event, a Capital Treatment Event or an Investment
Company Event has occurred and is continuing.
The Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of the Bank, upon the Bank's liquidation or reorganization or otherwise (and
thus the ability of holders of the Subordinated Debentures to benefit
indirectly from such distribution), is subject to the prior claim of creditors
of the Bank, except to the extent that the Company may itself be recognized as
a creditor of the Bank. The Subordinated Debentures will, therefore, be
effectively subordinated to all existing and future liabilities of the Bank,
and holders of Subordinated Debentures should look only to the assets of the
Company for payments on the Subordinated Debentures. The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company, including Senior Debt,
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Subordinated Debt and Additional Senior Obligations, whether under the Indenture
or any existing indenture or other indenture that the Company may enter into in
the future or otherwise. See "--Subordination."
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture at any time during the term
of the Subordinated Debentures, so long as no Debenture Event of Default has
occurred and is continuing, to defer the payment of interest at any time, or
from time to time (each, an "Extended Interest Payment Period"). The right to
defer the payment of interest on the Subordinated Debentures is limited,
however, to a period, in each instance, not exceeding 20 consecutive quarters
and no Extended Interest Payment Period may extend beyond the Stated Maturity
of the Subordinated Debentures. At the end of each Extended Interest Payment
Period, the Company must pay all interest then accrued and unpaid (together
with interest thereon at the Interest Rate, compounded quarterly, to the extent
permitted by applicable law). During an Extended Interest Payment Period,
interest will continue to accrue and holders of Subordinated Debentures (or the
holders of Preferred Securities if such securities are then outstanding) will
be required to accrue
and recognize income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences--Potential Extension of Interest
Payment Period and Original Issue Discount."
During any such Extended Interest Payment Period, the Company may not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock (other than (a) dividends or distributions in common stock of the
Company, any declaration of a non-cash dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, and (b) purchases of common stock of the Company related to
the rights under any of the Company's benefit plans for its directors, officers
or employees), (ii) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
pari passu with or junior in interest to the Subordinated Debentures or make
any guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
or junior in interest to the Subordinated Debentures (other than payments under
the Guarantee), or (iii) redeem, purchase or acquire less than all of the
Subordinated Debentures or any of the Preferred Securities. Although the
Company may exercise the rights described herein with regard to the Fixed Rate
Subordinated Debentures independent of such rights with regard to the
Floating Rate Subordinated Debentures, the Fixed Rate Subordinated
Debentures and the Floating Rate Subordinated Debentures will rank pari
passu and, therefore, if the Company elects to defer the payment of
interest on one, it would not be permitted to make interest payments with
respect to the other. Prior to the termination of any such Extended Interest
Payment Period, the Company may further defer the payment of interest; provided
that no Extended Interest Payment Period may exceed 20 consecutive quarters or
extend beyond the Stated Maturity of the Subordinated Debentures. Upon the
termination of any such Extended Interest Payment Period and the payment of all
amounts then due on any Interest Payment Date, the Company may elect to begin a
new Extended Interest Payment Period subject to the above requirements. No
interest will be due and payable during an Extended Interest Payment Period,
except at the end thereof. The Company has no present intention of exercising
its rights to defer payments of interest on the Subordinated Debentures. The
Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of such Extended Interest Payment
Period at least two Business Days prior to the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities would have been
payable except for the election to begin such Extended Interest Payment Period,
or (ii) the date 1st Capital is required to give notice of the record date, or
the date such Distributions are payable, to The Nasdaq Stock Market's National
Market (or other applicable self-regulatory organization) or to holders of the
Preferred Securities, but in any event at least one Business Day before such
record date. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extended Interest Payment Period.
ADDITIONAL SUMS
If 1st Capital or the Property Trustee is required to pay any additional
taxes, duties or other governmental charges as a result of the occurrence of a
Tax Event, the Company will pay as additional amounts (referred to herein
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<PAGE> 41
as "Additional Interest") on the Subordinated Debentures such additional amounts
as may be required so that the net amounts received and retained by 1st Capital
after paying any such additional taxes, duties or other governmental charges
will not be less than the amounts 1st Capital would have received had such
additional taxes, duties or other governmental charges not been imposed.
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Subordinated Debentures prior
to maturity (i) on or after March 31, 2002, in whole at any time or in part
from time to time, or (ii) at any time in whole (but not in part), within 180
days following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event, in each case at a redemption price equal to the
accrued and unpaid interest on the Subordinated Debentures so redeemed to the
date fixed for redemption, plus 100% of the principal amount thereof. Any such
redemption prior to the Stated Maturity will be subject to prior approval of
the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. The Company may exercise the rights described
herein with regard to the Fixed Rate Subordinated Debentures independent of such
rights with regard to the Floating Rate Subordinated Debentures, and vice versa.
It is also possible that a Tax Event, Capital Treatment Event or Investment
Company Event could occur with respect to the Fixed Rate Subordinated Debentures
but not the Floating Rate Subordinated Debentures, and vice versa.
"Tax Event" means the receipt by 1st Capital of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) interest payable by the Company on the Subordinated
Debentures is not, or within 90 days of the date of such opinion will not be,
deductible by the Company, in whole or in part, for United States federal income
tax purposes, (ii) 1st Capital is, or will be within 90 days after the date of
such opinion of counsel, subject to United States federal income tax with
respect to income received or accrued on the Subordinated Debentures, or (iii)
1st Capital is, or will be within 90 days after the date of such opinion of
counsel, subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges. The Company must request and receive
an opinion with regard to such matters within a reasonable period of time after
it becomes aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
A "Capital Treatment Event" means the receipt by 1st Capital of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the Company's ability to treat the
aggregate Liquidation Amount of the Preferred Securities (or any substantial
portion thereof) as "Tier 1 Capital" (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
"Investment Company Event" means the receipt by 1st Capital of an opinion
of counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, 1st Capital is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Subordinated Debentures to
be redeemed at its registered address. Unless the Company defaults in payment
of the redemption price for the Subordinated Debentures, on and after the
redemption date interest ceases to accrue on such Subordinated Debentures or
portions thereof called for redemption.
The Subordinated Debentures will not be subject to any sinking fund.
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<PAGE> 42
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities--Liquidation
Distribution Upon Termination," under certain circumstances involving the
termination of 1st Capital, the Subordinated Debentures may be distributed to
the holders of the Preferred Securities in liquidation of 1st Capital after
satisfaction of liabilities to creditors of 1st Capital as provided by
applicable law. The rights described herein may be exercised by the Company
with regard to 1st Capital I and the Fixed Rate Preferred Securities and the
Fixed Rate Subordinated Debentures independent of such rights with regard to
1st Capital II and the Floating Rate Preferred Securities and the Floating Rate
Subordinated Debentures, and vice versa. Any such distribution will be subject
to receipt of prior approval by the Federal Reserve if then required under
applicable policies or guidelines of the Federal Reserve. If the Subordinated
Debentures are distributed to the holders of Preferred Securities upon the
liquidation of 1st Capital, the Company will use its best efforts to list the
Subordinated Debentures on The Nasdaq Stock Market's National Market or such
stock exchanges, if any, on which the Preferred Securities are then listed.
There can be no assurance as to the market price of any Subordinated Debentures
that may be distributed to the holders of Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there has occurred a Debenture Event of Default, (ii)
the Company is in default with respect to its obligations under the Guarantee,
or (iii) the Company has given notice of its election of an Extended Interest
Payment Period as provided in the Indenture with respect to the Subordinated
Debentures and has not rescinded such notice, or such Extended Interest Payment
Period, or any extension thereof, is continuing, the Company will not (1)
declare or pay any dividends or distributions on, or redeem, purchase, acquire,
or make a liquidation payment with respect to, any of the Company's capital
stock (other than (a) dividends or distributions in common stock of the
Company, any declaration of a non-cash dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, and (b) purchases of common stock of the Company related to
the rights under any of the Company's benefit plans for its directors, officers
or employees), (2) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities of the
Company that rank pari passu with or junior in interest to the Subordinated
Debentures or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu or junior in interest to the Subordinated Debentures
(other than payments under the Guarantee), or (3) redeem, purchase or acquire
less than all of the Subordinated Debentures or any of the Preferred
Securities. The Fixed Rate Subordinated Debentures and the Floating Rate
Subordinated Debentures will rank pari passu.
SUBORDINATION
The Indenture provides that the Subordinated Debentures issued thereunder
are subordinated and junior in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company. 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 proceedings of the Company, the holders of Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company will first be entitled to
receive payment in full of principal of (and premium, if any) and interest, if
any, on such Senior Debt, Subordinated Debt and Additional Senior Obligations
of the Company before the holders of Subordinated Debentures will be entitled
to receive or retain any payment in respect of the principal of or interest on
the Subordinated Debentures.
In the event of the acceleration of the maturity of any Subordinated
Debentures, the holders of all Senior Debt, Subordinated Debt and Additional
Senior Obligations of the Company 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
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Subordinated Debentures.
No payments on account of principal or interest in respect of the
Subordinated Debentures may be made if there has occurred and is continuing a
default in any payment with respect to Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company or an event of default with
respect to any Senior Debt, Subordinated
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Debt or Additional Senior Obligations of the Company resulting in the
acceleration of the maturity thereof, or if any judicial proceeding is pending
with respect to any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such Person, and (vi) and
every obligation of the type referred to in clauses (i) through (v) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise.
"Senior Debt" means, with respect to the Company, the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Subordinated Debentures
or to other Debt which is pari passu with, or subordinated to, the Subordinated
Debentures; provided, however, that Senior Debt will not be deemed to include
(i) any Debt of the Company which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (ii) any Debt of the Company to
any of its subsidiaries, (iii) any Debt to any employee of the Company, (iv)
any Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the extent
that payments made to the holders of such Debt by the holders of the
Subordinated Debentures as a result of the subordination provisions of the
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders 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,
and (v) Debt which constitutes Subordinated Debt.
"Subordinated Debt" means, with respect to the Company, the principal of
(and premium, if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating
to the Company whether or not such claim for post-petition interest is allowed
in such proceeding), on Debt, whether incurred on or prior to the date of the
Indenture or thereafter incurred, which is by its terms expressly provided to
be junior and subordinate to other Debt of the Company (other than the
Subordinated Debentures).
"Additional Senior Obligations" means, with respect to the Company, all
indebtedness, whether incurred on or prior to the date of the Indenture or
thereafter incurred, for claims in respect of derivative products such as
interest and foreign exchange rate contracts, commodity contracts and similar
arrangements; provided, however, that Additional Senior Obligations do not
include claims in respect of Senior Debt or Subordinated Debt or obligations
which, by their terms, are expressly stated to be not superior in right of
payment to the Subordinated Debentures or to rank pari passu in right of
payment with the Subordinated Debentures. "Claim," as used herein, has the
meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code
of 1978, as amended.
The Indenture places no limitation on the amount of additional Senior Debt,
Subordinated Debt or Additional Senior Obligations that may be incurred by the
Company. The Company expects from time to time to incur additional indebtedness
constituting Senior Debt, Subordinated Debt and Additional Senior Obligations.
As of December 31, 1996, the Company had aggregate Senior Debt, Subordinated
Debt and Additional Senior Obligations of approximately $18.6 million. Because
the Company is a holding company, the Subordinated Debentures are effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, including obligations to depositors of the Bank.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Subordinated Debentures
will be made at the office of the Debenture Trustee in Boston, Massachusetts,
except that, at the option of the Company, payment of any interest may
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be made (i) by check mailed to the address of the Person entitled thereto as
such address appears in the register of holders of the Subordinated Debentures,
or (ii) by transfer to an account maintained by the Person entitled thereto as
specified in the register of holders of the Subordinated Debentures, provided
that proper transfer instructions have been received by the regular record
date. Payment of any interest on Subordinated Debentures will be made to the
Person in whose name such Subordinated Debenture is registered at the close of
business on the regular record date for such interest, except in the case of
defaulted interest. The Company may at any time designate additional paying
agents for the Subordinated Debentures or rescind the designation of any paying
agent for the Subordinated Debentures; however, the Company will at all times
be required to maintain a paying agent in each place of payment for the
Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent for the
Subordinated Debentures, or then held by the Company in trust, for the payment
of the principal of or interest on the Subordinated Debentures and remaining
unclaimed for two years after such principal or interest has become due and
payable will be repaid to the Company on May 31 of each year or (if then held
in trust by the Company) will be discharged from such trust and the holder of
such Subordinated Debenture will thereafter look, as a general unsecured
creditor, only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee will act as the registrar and the transfer agent for
the Subordinated Debentures. Subordinated Debentures may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed) at the office of
the registrar in Boston, Massachusetts. The Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts. The Company may at any time
designate additional transfer agents with respect to the Subordinated
Debentures. In the event of any redemption, neither the Company nor the
Debenture Trustee will be required to (i) issue, register the transfer of or
exchange Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption, or (ii) transfer or exchange any Subordinated
Debentures so selected for redemption, except, in the case of any Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
MODIFICATION OF INDENTURE
The Company and the Debenture Trustee may, from time to time without the
consent of the holders of the Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The
Indenture contains provisions permitting the Company and the Debenture Trustee,
with the consent of the holders of not less than a majority in principal amount
of the outstanding Subordinated Debentures, to modify the Indenture; provided,
that no such modification may, without the consent of the holder of each
outstanding Subordinated Debenture affected by such proposed modification, (i)
extend the fixed maturity of the Subordinated Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or (ii) reduce the percentage of principal amount of
Subordinated Debentures, the holders of which are required to consent to any
such modification of the Indenture; provided that so long as any of the
Preferred Securities remain outstanding, no such modification may be made that
requires the consent of the holders of the Subordinated Debentures, and no
termination of the Indenture may occur, and no waiver of any Debenture Event of
Default may be effective, without the prior consent of the holders of at least
a majority of the aggregate Liquidation Amount of the Preferred Securities and
that if the consent of the holder of each Subordinated Debenture is required,
such modification will not be effective until each holder of Trust Securities
has consented thereto.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures that has occurred and is
continuing constitutes an event of default (each, a "Debenture Event of
Default") with respect to the Subordinated Debentures:
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(i) failure for 30 days to pay any interest on the Subordinated
Debentures, when due (subject to the deferral of any due date in the case
of an Extended Interest Payment Period); or
(ii) failure to pay any principal on the Subordinated Debentures when
due whether at maturity, upon redemption by declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee.
The Debenture Trustee, or the holders of not less than 25% in aggregate
outstanding principal amount of the Subordinated Debentures, may declare the
principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Should the holders of the Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Preferred Securities will have such right.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default has occurred and is continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such Subordinated Debentures, and any other amounts payable under
the Indenture, to be forthwith due and payable and to enforce its other rights
as a creditor with respect to such Subordinated Debentures.
The Fixed Rate Subordinated Debentures and the Floating Rate Subordinated
Debentures are not cross-defaulted. A Debenture Event of Default under the
Fixed Rate Indenture will not constitute a Debenture Event of Default under the
Floating Rate Indenture, and Vice Versa.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest on or
principal of the Subordinated Debentures on the payment date on which such
payment is due and payable, then a holder of Preferred Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder (a "Direct Action"). In connection with
such Direct Action, the Company will have a right of set-off under the
Indenture to the extent of any payment made by the Company to such holder of
Preferred Securities in the Direct Action. The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities. If the
right to bring a Direct Action is removed, 1st Capital may become subject to
the reporting obligations under the Exchange Act. The Company has the right
under the Indenture to set-off any payment made to such holder of Preferred
Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Subordinated Debentures unless there has been
an Event of Default under the Trust Agreement. See "Description of the
Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Company may not consolidate with or merge into any other Person or
convey or transfer its properties and assets substantially as an entirety to
any Person, and any Person may not consolidate with or merge into the Company
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or sell, convey, transfer or otherwise dispose of its properties and assets
substantially as an entirety to the Company, unless (i) in the event the
Company consolidates with or merges into another Person or conveys or transfers
its properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any State
or the District of Columbia, and such successor Person expressly assumes by
supplemental indenture the Company's obligations on the Subordinated Debentures
issued under the Indenture, (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time
or both, would become a Debenture Event of Default, has occurred and is
continuing, and (iii) certain other conditions as prescribed in the Indenture
are met.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to the
Company's obligations to pay certain sums due pursuant to the Indenture and to
provide certain officers' certificates and opinions of counsel described
therein) and the Company will be deemed to have satisfied and discharged the
Indenture when, among other things, all Subordinated Debentures not previously
delivered to the Debenture Trustee for cancellation (i) have become due and
payable, or (ii) will become due and payable at their Stated Maturity within
one year or are to be called for redemption within one year, and the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation, for the principal and interest to the date
of the deposit or to the Stated Maturity or redemption date, as the case may
be.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Indiana.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee has and is 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 Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which
might be incurred thereby. The Debenture Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
The Company has agreed, pursuant to the Indenture, for so long as Trust
Securities remain outstanding, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of 1st Capital (provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities), (ii) not to voluntarily
terminate, wind up or liquidate 1st Capital, except upon prior approval of the
Federal Reserve if then so required under applicable capital guidelines or
policies of the Federal Reserve, and (a) in connection with a distribution of
Subordinated Debentures to the holders of the Preferred Securities in
liquidation of 1st Capital, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, and (iii) to
use its reasonable efforts, consistent with the terms and provisions of the
Trust Agreement, to cause 1st Capital to remain classified as a grantor trust
and not as an association taxable as a corporation for United States federal
income tax purposes.
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DESCRIPTION OF THE GUARANTEE
<TABLE>
<C> <C>
(FIXED RATE PREFERRED SECURITIES) (FLOATING RATE PREFERRED SECURITIES)
The Preferred Securities Guarantee Agreement with respect The Preferred Securities Guarantee Agreement with respect to
to the Fixed Rate Preferred Securities (the "Fixed Rate the Floating Rate Preferred Securities (the "Floating Rate
Guarantee") will be executed and delivered by the Company Guarantee") will be executed and delivered by the Company
concurrently with the issuance of the Fixed Rate Preferred concurrently with the issuance of the Floating Rate Preferred
Securities for the benefit of the holders of the Fixed Rate Securities for the benefit of the holders of the Floating Rate
Preferred Securities. The Fixed Rate Guarantee will be Preferred Securities. The Floating Rate Guarantee will be
qualified as an indenture under the Trust Indenture Act. The qualified as an indenture under the Trust Indenture Act. The
Fixed Rate Guarantee Trustee, State Street Bank and Trust Floating Rate Guarantee Trustee, State Street Bank and Trust
Company, will act as indenture trustee under the Fixed Rate Company, will act as indenture trustee under the Floating Rate
Guarantee for purposes of complying with the provisions of the Guarantee for purposes of complying with the provisions of the
Trust Indenture Act and will hold the Fixed Rate Guarantee for Trust Indenture Act and will hold the Floating Rate Guarantee
the benefit of the holders of the Fixed Rate Preferred for the benefit of the holders of the Floating Rate Preferred
Securities. The following summary of the material terms and Securities. The following summary of the material terms and
provisions of the Fixed Rate Guarantee does not purport to be provisions of the Floating Rate Guarantee does not purport to
complete and is subject to, and qualified in its entirety by be complete and is subject to, and qualified in its entirety
reference to, all of the provisions of the Fixed Rate by reference to, all of the provisions of the Floating Rate
Guarantee and the Trust Indenture Act. Wherever particular Guarantee and the Trust Indenture Act. Wherever particular
defined terms of the Fixed Rate Guarantee are referred to, but defined terms of the Floating Rate Guarantee are referred to,
not defined herein, such defined terms are incorporated herein but not defined herein, such defined terms are incorporated
by reference. The form of the Fixed Rate Guarantee has been herein by reference. The form of the Floating Rate Guarantee
filed as an exhibit to the Registration Statement of which has been filed as an exhibit to the Registration Statement of
this Prospectus forms a part. which this Prospectus forms a part.
</TABLE>
GENERAL
The Company will, pursuant to the Guarantee, irrevocably agree to pay in
full on a subordinated basis, to the extent set forth therein, the Guarantee
Payments (as defined herein) to the holders of the Preferred Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that 1st
Capital may have or assert other than the defense of payment. The following
payments with respect to the Preferred Securities, to the extent not paid by or
on behalf of 1st Capital (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accrued and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that 1st Capital has funds available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption to the extent that 1st Capital has funds
available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of 1st Capital (other than in connection
with the distribution of Subordinated Debentures to the holders of Preferred
Securities or a redemption of all of the Preferred Securities), the lesser of
(a) the amount of the Liquidation Distribution, to the extent 1st Capital has
funds available therefor at such time, and (b) the amount of assets of 1st
Capital remaining available for distribution to holders of Preferred Securities
in liquidation of 1st Capital. The obligation of the Company to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Company to the holders of the Preferred Securities or by causing 1st
Capital to pay such amounts to such holders.
The Guarantee will not apply to any payment of Distributions except to the
extent 1st Capital has funds available therefor. If the Company does not make
interest payments on the Subordinated Debentures held by 1st Capital, 1st
Capital will not pay Distributions on the Preferred Securities and will not
have funds legally available therefor.
The Fixed Rate Guarantee will be executed by the Company for the sole
benefit of the holders of the Fixed Rate Preferred Securities and the Floating
Rate Guarantee will be executed by the Company for the sole benefit of the
holders of the Floating Rate Preferred Securities. Holders of Fixed Rate
Preferred Securities will, therefore, have no rights under the Floating Rate
Guarantee, and holders of Floating Rate Preferred Securities will have no rights
under the Fixed Rate Guarantee.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company in the same
manner as the Subordinated Debentures. The Guarantee does not place a
limitation on the amount of additional Senior Debt, Subordinated Debt or
Additional Senior Obligations that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Debt, Subordinated Debt and Additional Senior Obligations.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other Person). The Guarantee will
not be discharged except by payment of the Guarantee Payments in full to the
extent not paid by 1st Capital or upon distribution of the Subordinated
Debentures to the holders of the Preferred Securities. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of the Bank upon the Bank's liquidation or reorganization or otherwise
is subject to the prior claims of creditors of the Bank, except to the extent
the Company may itself be recognized as a creditor of the Bank. The Company's
obligations under the Guarantee, therefore, will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and
claimants should look only to the assets of the Company for payments
thereunder.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no 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
the outstanding Preferred Securities. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the Guarantee will bind the successors, assigns,
receivers, trustees and representatives of the Company and will inure to the
benefit of the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee. The Fixed Rate
Guarantee and the Floating Rate Guarantee are not cross-defaulted. A default
under the Fixed Rate Guarantee will not constitute a default under the Floating
Rate Guarantee, and vice versa.
Any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against 1st Capital, the Guarantee Trustee
or any other Person.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
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 such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Preferred Securities, unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (a)
full payment of the Redemption Price of the Preferred Securities, (b) full
payment of the amounts payable upon liquidation of 1st Capital, or (c)
distribution of the Subordinated Debentures to the holders of the Preferred
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 Preferred Securities must
restore payment of any sums paid under such Preferred Securities or the
Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Indiana.
EXPENSE AGREEMENT
The Company will enter into a separate Agreement as to Expenses and
Liabilities (each, an "Expense Agreement") under the Fixed Rate Trust Agreement
(relating only to the Fixed Rate Preferred Securities) and under the Floating
Rate Trust Agreement (relating only to the Floating Rate Preferred Securities).
The Company will, under each Expense Agreement, irrevocably and unconditionally
guarantee to each person or entity to whom 1st Capital becomes indebted or
liable, the full payment of any costs, expenses or liabilities of 1st Capital,
other than obligations of 1st Capital to pay to the holders of the Preferred
Securities or other similar interests in 1st Capital of the amounts due such
holders pursuant to the terms of the Preferred Securities or such other similar
interests, as the case may be. Third party creditors of 1st Capital may proceed
directly against the Company under the Expense Agreement, regardless of whether
such creditors had notice of the Expense Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent 1st Capital has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." The Company and 1st Capital
believe that, taken together, the obligations of the Company under the
Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of Distributions
and other amounts due on the Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes 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 obligations of 1st Capital under the Preferred Securities. If
and to the extent that the Company does not make payments on the Subordinated
Debentures, 1st Capital will not pay Distributions or other amounts due on the
Preferred Securities. The Guarantee does not cover payment of Distributions when
1st Capital does not have sufficient funds to pay such Distributions. In such
event, the remedy of a holder of Preferred Securities is to institute a legal
proceeding directly against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because (i) the aggregate principal amount of the Subordinated Debentures will
be equal to the sum of the aggregate stated Liquidation Amount of the Trust
Securities, (ii) the interest rate and interest and other payment dates on the
Subordinated Debentures will match the Distribution rate and Distribution and
other payment dates for the Preferred Securities, (iii) the Company will pay
for all and any costs, expenses and liabilities of 1st Capital (except the
obligations of 1st Capital to holders of the Preferred Securities), and (iv)
the Trust Agreement further provides that 1st Capital will not engage in any
activity that is not consistent with the limited purposes of 1st Capital.
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ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, 1st Capital
or any other Person. A default or event of default under any Senior Debt,
Subordinated Debt or Additional Senior Obligations of the Company would not
constitute a default or Event of Default. In the event, however, of payment
defaults under, or acceleration of, Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company, the subordination provisions of
the Indenture provide that no payments may be made in respect of the
Subordinated Debentures until such Senior Debt, Subordinated Debt or Additional
Senior Obligations has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on the Subordinated
Debentures would constitute an Event of Default.
LIMITED PURPOSE OF 1ST CAPITAL
The Preferred Securities evidence a preferred undivided beneficial interest
in the assets of 1st Capital. 1st Capital exists for the sole purpose of
issuing the Trust Securities and investing the proceeds thereof in Subordinated
Debentures. A principal difference between the rights of a holder of a
Preferred Security and the rights of a holder of a Subordinated Debenture is
that a holder of a Subordinated Debenture is entitled to receive from the
Company the principal amount of and interest accrued on Subordinated Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions from 1st Capital (or from the Company under the Guarantee) if and
to the extent 1st Capital has funds available for the payment of such
Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
1st Capital involving the liquidation of the Subordinated Debentures, the
holders of the Preferred Securities will be entitled to receive, out of assets
held by 1st Capital, the Liquidation Distribution in cash. See "Description of
the Preferred Securities--Liquidation Distribution Upon Termination." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the Property
Trustee, as holder of the Subordinated Debentures, would be a subordinated
creditor of the Company, subordinated in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company (as set
forth in the Indenture), but entitled to receive payment in full of principal
and interest before any shareholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of 1st Capital (other
than the obligations of 1st Capital to the holders of its Preferred
Securities), the positions of a holder of the Preferred Securities and a holder
of the Subordinated Debentures relative to other creditors and to shareholders
of the Company in the event of liquidation or bankruptcy of the Company are
expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income tax
considerations that may be relevant to the purchasers of Preferred Securities
which has been passed upon by Lewis, Rice & Fingersh, L.C., counsel to the
Company and 1st Capital insofar as it relates to matters of law and legal
conclusions. The conclusions expressed herein are based upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change at any time, with possible retroactive effect. Subsequent
changes may cause tax consequences to vary substantially from the consequences
described below. Furthermore, the authorities on which the following summary is
based are subject to various interpretations, and it is therefore possible that
the United States federal income tax treatment of the purchase, ownership, and
disposition of Preferred Securities may differ from the treatment described
below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Preferred
Securities. Moreover, the discussion generally focuses on holders of Preferred
Securities who are individual citizens or residents of the United States and
who acquire Preferred Securities on their original issue at their offering
price and hold Preferred Securities as capital assets. The discussion has only
limited application to dealers in securities, corporations, estates, trusts or
nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
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<PAGE> 51
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors, or persons that will hold the Preferred Securities as a position in
a "straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. The following summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. dollar or the
tax consequences to shareholders, partners or beneficiaries of a holder of
Preferred Securities. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the Preferred
Securities. Accordingly, each prospective investor should consult, and should
rely exclusively on, such investor's own tax advisors in analyzing the federal,
state, local and foreign tax consequences of the purchase, ownership or
disposition of Preferred Securities.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
The Company intends to take the position that the Subordinated Debentures
will be classified for United States federal income tax purposes as
indebtedness of the Company under current law, and, by acceptance of a
Preferred Security, each holder covenants to treat the Subordinated Debentures
as indebtedness and the Preferred Securities as evidence of an indirect
beneficial ownership interest in the Subordinated Debentures. No assurance can
be given, however, that such position of the Company will not be challenged by
the Internal Revenue Service or, if challenged, that such a challenge will not
be successful. The remainder of this discussion assumes that the Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company.
CLASSIFICATION OF 1ST CAPITAL
Under current law and assuming full compliance with the terms of the Trust
Agreement and Indenture (and certain other documents described herein), 1st
Capital will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each holder of Preferred
Securities generally will be treated as owning an undivided beneficial interest
in the Subordinated Debentures, and each holder will be required to include in
its gross income any OID accrued with respect to its allocable share of the
Subordinated Debentures whether or not cash is actually distributed to such
holder.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Subordinated
Debentures, to defer (so long as no Debenture Event of Default has occurred and
is continuing) payments of interest by extending interest payment periods for
up to 20 consecutive quarters, all of the stated interest payments on the
Subordinated Debentures will be treated as OID. Holders of debt instruments
issued with OID must include that discount in income on an economic accrual
basis before the receipt of cash attributable to the interest, regardless of
their method of tax accounting. Generally, all of a holder's taxable interest
income with respect to the Subordinated Debentures will be accounted for as OID.
Actual payments and distributions of stated interest will not, however, be
separately reported as taxable income. The amount of OID that accrues in any
quarter will approximately equal the amount of the interest that accrues on the
Subordinated Debentures in that quarter at the stated interest rate. In the
event that the interest payment period is extended, holders will continue to
accrue OID approximately equal to the amount of the interest payment due at the
end of the extended interest payment period on an economic accrual basis over
the length of the extended interest payment period.
Because income on the Preferred Securities will constitute interest income
generally and OID specifically, corporate holders of Preferred Securities will
not be entitled to a dividends-received deduction with respect to any income
recognized with respect to the Preferred Securities.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interests in the Subordinated Debentures with "market
discount" or "acquisition premium" as such phrases are defined for United
States federal income tax purposes. Such
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holders are advised to consult their tax advisors as to the income tax
consequences of the acquisition, ownership and disposition of the Preferred
Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF 1ST CAPITAL
Under certain circumstances, as described under "Description of the
Preferred Securities--Redemption or Exchange" and "--Liquidation Distribution
Upon Termination," the Subordinated Debentures may be distributed to holders
of Preferred Securities upon a liquidation of 1st Capital. Under current United
States federal income tax law, such a distribution would be treated as a
nontaxable event to each such holder and would result in such holder having an
aggregate tax basis in the Subordinated Debentures received in the liquidation
equal to such holder's aggregate tax basis in the Preferred Securities
immediately before the distribution. A holder's holding period in the
Subordinated Debentures so received in liquidation of 1st Capital would include
the period for which such holder held the Preferred Securities.
If, however, a Tax Event occurs which results in 1st Capital being treated
as an association taxable as a corporation, the distribution would likely
constitute a taxable event to holders of the Preferred Securities. Under
certain circumstances described herein, the Subordinated Debentures may be
redeemed for cash and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Under current law, such a redemption
would, for United States federal income tax purposes, constitute a taxable
disposition of the redeemed Preferred Securities, and a holder would recognize
gain or loss as if the holder sold such Preferred Securities for cash. See
"Description of the Preferred Securities--Redemption or Exchange" and
"--Liquidation Distribution Upon Termination."
DISPOSITION OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between the amount realized on the sale of the Preferred
Securities and the holder's adjusted tax basis in such Preferred Securities. A
holder's adjusted tax basis in the Preferred Securities generally will be its
initial purchase price increased by OID previously includible in such holder's
gross income to the date of disposition and decreased by payments received on
the Preferred Securities to the date of disposition. Such gain or loss will
generally be a capital gain or loss and will be a long-term capital gain or
loss if the Preferred Securities have been held for more than one year at the
time of sale.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder that disposes of its Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Subordinated Debentures through the
date of disposition in income as ordinary income, and to add such amount to its
adjusted tax basis in its pro rata share of the underlying Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which basis will include, in the form of OID, all
accrued but unpaid interest), a holder will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
EFFECT OF PROPOSED CHANGES IN TAX LAWS
On March 19, 1996, President Clinton proposed certain tax law changes that
would, among other things, generally deny corporate issuers a deduction for
interest in respect of certain debt obligations issued on or after December 7,
1995 (the "1996 Proposed Legislation") if such debt obligations have a
maximum term in excess of 20 years and are not shown as indebtedness on the
issuer's applicable consolidated balance sheet. On March 29, 1996, Senate
Finance Committee Chairman William V. Roth, Jr. and House Ways and Means
Committee Chairman Bill Archer issued a joint statement (the "Joint
Statement") indicating their intent that certain legislative proposals
initiated by the Clinton administration, including the 1996 Proposed
Legislation, that may be adopted by either of the tax-writing committees of
Congress would have an effective date that is no earlier than the date of
"appropriate Congressional action." In addition, subsequent to the
publication of the Joint Statement, Senator Daniel Patrick Moynihan and
Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury
Department officials concurring with the views expressed in the Joint
Statement. Neither the 1996 Proposed Legislation nor similar legislation was
enacted during the 104th Congress. On February 6, 1997, President Clinton
proposed in the administration's fiscal year 1998 budget certain tax law
changes (the "1997 Proposed Legislation") that would, among
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other things, generally deny corporate issuers a deduction for interest or OID
in respect of certain debt obligations if such debt obligations have a maximum
term in excess of 15 years and are not shown as indebtedness on the issuer's
applicable consolidated balance sheet. The 1997 Proposed Legislation also
contains a provision that would deny a deduction to corporate issuers for
interest or OID with respect to debt instruments that have a maximum term of
more than 40 years (including rights to extend, renew or relend), or are payable
in stock of the issuer or a related party. The U.S. Treasury Department's
summary of the 1997 Proposed Legislation states that the above provisions
regarding the deduction of interest would generally be effective for instruments
issued on or after the date of first Congressional committee action with respect
to the 1997 Proposed Legislation. The Ways and Means Committee began a full
committee hearing on the President's fiscal 1998 budget on February 11, 1997.
There can be no assurance that the effective date guidance in the 1997 Proposed
Legislation will be adopted if the proposed change to the tax law is enacted, or
that other legislation enacted after the date hereof will not otherwise
adversely affect the ability of the Company to deduct the interest payable on
the Subordinated Debentures. Consequently, there can be no assurance that a Tax
Event will not occur. A Tax Event would permit the Company, upon approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve, to cause a redemption of the Preferred Securities
before, as well as after, March 31, 2002. See "Description of the Subordinated
Debentures--Redemption or Exchange" and "Description of the Preferred
Securities--Redemption or Exchange--Tax Event Redemption, Capital Treatment
Event Redemption or Investment Company Event Redemption."
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of OID accrued on the Preferred Securities held of record by
individual citizens or residents of the United States, or certain trusts,
estates, and partnerships, will be reported to the Internal Revenue Service on
Forms 1099, which forms should be mailed to such holders of Preferred
Securities by January 31 following each calendar year. Payments made on, and
proceeds from the sale of, the Preferred Securities may be subject to a
"backup" withholding tax (currently at 31%) unless the holder complies with
certain identification and other requirements. Any amounts withheld under the
backup withholding rules will be allowed as a credit against the holder's
United States federal income tax liability, provided the required information
is provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans"), generally may purchase Preferred Securities, subject to the
investing fiduciary's determination that the investment in Preferred Securities
satisfies ERISA's fiduciary standards and other requirements applicable to
investments by the Plan.
In any case, the Company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of ERISA) or a "disqualified
person" (within the meaning of Section 4975 of the Code) with respect to
certain plans (generally, Plans maintained or sponsored by, or contributed to
by, any such persons with respect to which the Company or an affiliate is a
fiduciary or Plans for which the Company or an affiliate provides services).
The acquisition and ownership of Preferred Securities by a Plan (or by an
individual retirement arrangement or other Plans described in Section
4975(e)(1) of the Code) with respect to which the Company or any of its
affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless such Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in
48
<PAGE> 54
accordance with an applicable exemption. Any other Plans or other entities whose
assets include Plan assets subject to ERISA or Section 4975 of the Code
proposing to acquire Preferred Securities should consult with their own counsel.
UNDERWRITING
The Underwriters named below, represented by Stifel, Nicolaus & Company,
Incorporated (the "Representative"), have severally agreed, subject to the
terms and conditions set forth in the separate Underwriting Agreements to be
executed with respect to the Fixed Rate Preferred Securities and the Floating
Rate Preferred Securities, the forms of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part, to purchase from
1st Capital the number of Preferred Securities set forth opposite their
respective names below. The several Underwriters have agreed in each
Underwriting Agreement, subject to the terms and conditions set forth therein,
to purchase all the Preferred Securities covered by such Underwriting Agreement
and offered hereby if any of the Preferred Securities coverered by such
Underwriting Agreement are purchased. In the event of default by an Underwriter
under an Underwriting Agreement, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the nondefaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
FIXED RATE FLOATING RATE
UNDERWRITER PREFERRED SECURITIES PREFERRED SECURITIES
----------- -------------------- --------------------
<S> <C> <C>
Stifel, Nicolaus & Company, Incorporated ......... 790,000 463,500
ABN AMRO Chicago Corporation ..................... 17,500 10,500
Advest, Inc. ..................................... 17,500 10,500
Chicago Capital, Inc. ............................ 0 10,500
City Securities Corporation ...................... 17,500 10,500
EVEREN Securities, Inc. .......................... 17,500 10,500
Howe Barnes Investments, Inc. .................... 17,500 10,500
McDonald & Company Securities, Inc. .............. 17,500 10,500
NatCity Investments, Inc. ........................ 17,500 10,500
The Robinson-Humphrey Company, Inc. .............. 17,500 10,500
Roney & Co. LLC .................................. 17,500 10,500
Ryan, Beck & Co. ................................. 17,500 10,500
Stephens Inc. .................................... 17,500 10,500
Sutro & Co. Incorporated ......................... 17,500 10,500
--------- -------
Total......................................... 1,000,000 600,000
========= =======
</TABLE>
The Representative has advised 1st Capital that it proposes initially to
offer the Preferred Securities to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $0.50 per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $0.10 per Preferred Security to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the Company,
the Underwriting Agreements provide that the Company will pay as compensation
to the Underwriters arranging the investment therein of such proceeds, an
amount in immediately available funds of $0.7875 per Preferred Security (or
$787,500 in the aggregate for the Fixed Rate Preferred Securities and
$472,500 in the aggregate for the Floating Rate Preferred Securities) for
the accounts of the several Underwriters.
1st Capital I has granted the Underwriters an option to purchase up to an
additional 100,000 of its Fixed Rate Preferred Securities and 1st Capital II
has granted the Underwriters an option to purchase up to an additional 90,000
of its Floating Rate Preferred Securities, for a total of 190,000 Preferred
Securities, at the initial public offering price. Such options, which expire 30
days from the date of this Prospectus, may be exercised solely to cover
over-allotments. To the extent that the Underwriters exercise either or both of
such options, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage of the
additional Preferred Securities that the number of Preferred Securities to be
purchased initially by the Underwriter is of the Preferred Securities initially
purchased by the Underwriters.
49
<PAGE> 55
To the extent that the Underwriters exercise either or both of their
options to purchase additional Preferred Securities, either or both of 1st
Capital I and 1st Capital II, as the case may be, will issue and sell to the
Company additional Common Securities in such aggregate Liquidation Amount as is
required for the Company to continue to hold Common Securities in an Aggregate
Liquidation amount equal to at least 3% of the total capital of such entity and
the Company will issue and sell to either or both of 1st Capital I and 1st
Capital II, as the case may be, Subordinated Debentures in an aggregate
principal amount equal to the total aggregate Liquidation Amount of the
additional Preferred Securities being purchased pursuant to the option and the
additional Common Securities.
During a period of 30 days from the date of this Prospectus, neither 1st
Capital nor the Company will, subject to certain exceptions, without the prior
written consent of the Representative, directly or indirectly, sell, offer to
sell, grant any option for sale of, or otherwise dispose of, any Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Preferred Securities or Subordinated Debentures or any debt securities
substantially similar to the Subordinated Debentures or equity securities
substantially similar to the Preferred Securities (except for Subordinated
Debentures and the Preferred Securities offered hereby).
The Preferred Securities have been approved for quotation on The Nasdaq
Stock Market's National Market. The Representative has advised 1st Capital
that it presently intends to make a market in the Preferred Securities after
the commencement of trading on The Nasdaq Stock Market's National Market,
but no assurances can be made as to the liquidity of such Preferred
Securities or that an active and liquid trading market will develop or,
if developed, that it will continue. The offering price and distribution
rate have been determined by negotiations among representatives of the Company
and the Underwriters, and the offering price of the Preferred Securities may
not be indicative of the market price following the offering. The
Representative will have no obligation to make a market in the Preferred
Securities, however, and may cease market-making activities, if commenced, at
any time.
1st Capital and the Company have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of 1st
Capital will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and 1st Capital. Certain legal matters for the Company
and 1st Capital, including the validity of the Guarantee and the Subordinated
Debentures will be passed upon for the Company and 1st Capital by Lewis, Rice &
Fingersh, L.C., St. Louis, Missouri, counsel to the Company and 1st Capital.
Certain legal matters will be passed upon for the Underwriters by Bryan Cave
LLP, St. Louis, Missouri. Lewis, Rice & Fingersh, L.C. and Bryan Cave LLP will
rely on the opinion of Richards, Layton & Finger as to matters of Delaware law.
Certain matters relating to United States federal income tax considerations
will be passed upon for the Company by Lewis, Rice & Fingersh, L.C.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 have been audited by Coopers & Lybrand
L.L.P., independent certified public accountants, as stated in their report,
which report is incorporated herein by reference and has been so
incorporated in reliance upon the authority of said firm as experts in
accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document, previously filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to Section 13 of the
Exchange Act, is incorporated herein by reference:
The Company's Annual Report on Form 10-K for the year ended December
31, 1996.
All reports and any definitive proxy or information statements filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Preferred Securities offered hereby shall be
deemed to be incorporated by
50
<PAGE> 56
reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO LARRY E. LENTYCH, SENIOR VICE PRESIDENT, TREASURER AND CHIEF
FINANCIAL OFFICER, 1ST SOURCE CORPORATION, 100 NORTH MICHIGAN STREET, SOUTH
BEND, INDIANA 46601. TELEPHONE REQUESTS MAY BE DIRECTED TO (219) 235-2000.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company and 1st Capital with the Commission under the
Securities Act, with respect to the Preferred Securities and the Subordinated
Debentures. This Prospectus does not contain all of the information set forth
in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, although it does
include a summary of the material terms of the Indenture and the Trust
Agreement. Reference is made to such Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, 1st
Capital, the Preferred Securities and the Subordinated Debentures. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
or incorporated by reference herein are not necessarily complete, and, in each
instance, reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified
in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. 1st Capital is not currently subject to the
information reporting requirements of the Exchange Act and although 1st Capital
will become subject to such requirements upon the effectiveness of the
Registration Statement, it is not expected that 1st Capital will be filing
separate reports under the Exchange Act. The Company's reports, proxy
statements and other information can be inspected and copied at the following
public reference facilities maintained by the Commission: 450 Fifth Street,
N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New
York 10048; and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, upon payment of prescribed rates. The
Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers who file
electronically with the Commission. The address of that site is
http://www.sec.gov. In addition, reports, proxy statements and other
information concerning the Company may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
No separate financial statements of 1st Capital have been included herein.
The Company does not consider that such financial statements would be material
to holders of Preferred Securities because (i) all of the voting securities of
1st Capital will be owned by the Company, a reporting company under the
Exchange Act, (ii) 1st Capital has no independent operations but exists for the
exclusive purposes of issuing the Trust Securities representing undivided
beneficial interests in the assets of 1st Capital, investing the gross proceeds
of the Trust Securities in Subordinated Debentures issued by the Company and
engaging in only those other activities necessary, advisable, or incidental
thereto, and (iii) the obligations of the Company described herein to provide
certain indemnities in respect of and be responsible for certain costs,
expenses, debts and liabilities of 1st Capital under the Indenture and pursuant
to the Trust Agreement, the Guarantee issued by the Company with respect to the
Preferred Securities, the Subordinated Debentures purchased by 1st Capital and
the related Indenture, taken together, constitute, in the belief of the Company
and 1st Capital, a full and unconditional guarantee of payments due on the
Preferred Securities. See "Description of the Subordinated Debentures" and
"Description of the Guarantee."
51
<PAGE> 57
- -------------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................... 2
Selected Consolidated Financial Data......................... 11
Risk Factors................................................. 12
Use of Proceeds.............................................. 18
Market for the Preferred Securities.......................... 18
Accounting Treatment......................................... 18
Capitalization............................................... 19
Description of the Preferred Securities...................... 20
Description of the Subordinated Debentures................... 33
Description of the Guarantee................................. 42
Relationship Among the Preferred Securities, the Subordinated
Debentures and the Guarantee............................... 44
Certain Federal Income Tax Consequences...................... 45
ERISA Considerations......................................... 48
Underwriting................................................. 49
Validity of Securities....................................... 50
Experts...................................................... 50
Incorporation of Certain Documents by Reference.............. 50
Available Information........................................ 51
</TABLE>
------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY 1ST SOURCE
CORPORATION, 1ST SOURCE CAPITAL TRUST I, 1ST SOURCE CAPITAL TRUST II OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF 1ST SOURCE CORPORATION SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1st SOURCE(R)
CORPORATION
1,000,000 PREFERRED SECURITIES
1ST SOURCE
CAPITAL TRUST I
9.00% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
1ST SOURCE
CORPORATION
AND
$25,000,000
9.00% SUBORDINATED DEBENTURES
OF
1ST SOURCE
CORPORATION
-------------------
-------------------
600,000 PREFERRED SECURITIES
1ST SOURCE
CAPITAL TRUST II
FLOATING RATE CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
1ST SOURCE
CORPORATION
AND
$15,000,000
FLOATING RATE SUBORDINATED DEBENTURES
OF
1ST SOURCE
CORPORATION
-------------------
Prospectus
March 17, 1997
-------------------
STIFEL, NICOLAUS & COMPANY
INCORPORATED
- -------------------------------------------------------------------------------
