<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-28279
333-28279-01
PROSPECTUS
$100,000,000
FIRST EMPIRE CAPITAL TRUST II
8.277% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
FIRST EMPIRE STATE CORPORATION
------------
THE CAPITAL SECURITIES OFFERED HEREBY REPRESENT PREFERRED UNDIVIDED
BENEFICIAL INTERESTS IN THE ASSETS OF FIRST EMPIRE CAPITAL TRUST II, A STATUTORY
BUSINESS TRUST CREATED UNDER THE LAWS OF THE STATE OF DELAWARE (THE "ISSUER
TRUST"). FIRST EMPIRE STATE CORPORATION (THE "COMPANY") WILL INITIALLY BE THE
HOLDER OF ALL OF THE BENEFICIAL INTERESTS REPRESENTED BY COMMON SECURITIES OF
THE ISSUER TRUST (THE "COMMON SECURITIES" AND, TOGETHER WITH THE CAPITAL
SECURITIES, THE "TRUST SECURITIES"). THE ISSUER TRUST EXISTS FOR THE SOLE
PURPOSE OF ISSUING THE TRUST SECURITIES AND INVESTING THE PROCEEDS THEREOF IN
8.277% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (THE "JUNIOR
SUBORDINATED DEBENTURES," AND TOGETHER WITH THE TRUST SECURITIES, THE
"SECURITIES") TO BE ISSUED BY THE COMPANY. THE JUNIOR SUBORDINATED DEBENTURES
WILL MATURE ON JUNE 1, 2027 (THE "STATED MATURITY"). THE CAPITAL SECURITIES WILL
HAVE A PREFERENCE UNDER CERTAIN CIRCUMSTANCES OVER THE COMMON SECURITIES WITH
RESPECT TO CASH DISTRIBUTIONS AND AMOUNTS PAYABLE ON LIQUIDATION, REDEMPTION OR
OTHERWISE. SEE "DESCRIPTION OF CAPITAL SECURITIES--SUBORDINATION OF COMMON
SECURITIES."
(CONTINUED ON NEXT PAGE)
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR CERTAIN INFORMATION RELEVANT
TO AN INVESTMENT IN THE CAPITAL SECURITIES.
-----------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO COMMISSIONS AND ISSUER
PUBLIC(1) DISCOUNT(2) TRUST(3)(4)
---------------- ---------------- -----------------
<S> <C> <C> <C>
PER CAPITAL SECURITY............................................ $1,000 (3) $1,000
TOTAL........................................................... $100,000,000 (3) $100,000,000
</TABLE>
- ------------------------
(1) PLUS ACCRUED DISTRIBUTIONS, IF ANY, FROM JUNE 6, 1997.
(2) THE COMPANY AND THE ISSUER TRUST HAVE EACH AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES UNDER THE SECURITIES ACT OF 1933.
SEE "UNDERWRITING."
(3) IN VIEW OF THE FACT THAT THE PROCEEDS OF THE SALE OF THE CAPITAL SECURITIES
WILL BE USED TO PURCHASE THE JUNIOR SUBORDINATED DEBENTURES, THE COMPANY HAS
AGREED TO PAY TO THE UNDERWRITERS, AS COMPENSATION FOR THEIR ARRANGING THE
INVESTMENT THEREIN OF SUCH PROCEEDS, $10 PER CAPITAL SECURITY (OR $1,000,000
IN AGGREGATE). SEE "UNDERWRITING."
(4) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $250,000.
-------------------
THE CAPITAL SECURITIES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF
ISSUED TO AND ACCEPTED BY THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL
OF CERTAIN LEGAL MATTERS BY CRAVATH, SWAINE & MOORE, COUNSEL FOR THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE CAPITAL SECURITIES WILL BE
MADE IN BOOK-ENTRY FORM THROUGH THE BOOK-ENTRY FACILITIES OF THE DEPOSITORY
TRUST COMPANY ON OR ABOUT JUNE 6, 1997 AGAINST PAYMENT THEREFOR IN IMMEDIATELY
AVAILABLE FUNDS.
-------------------
MORGAN STANLEY DEAN WITTER MERRILL LYNCH & CO.
KEEFE, BRUYETTE & WOODS, INC.
--------------
JUNE 5, 1997
2
<PAGE>
(COVER PAGE CONTINUED)
THE CAPITAL SECURITIES WILL BE REPRESENTED BY ONE OR MORE GLOBAL SECURITIES
REGISTERED IN THE NAME OF A NOMINEE OF THE DEPOSITORY TRUST COMPANY, AS
DEPOSITARY (THE "DEPOSITORY" OR "DTC"). BENEFICIAL INTERESTS IN THE GLOBAL
SECURITIES WILL BE SHOWN ON, AND TRANSFER THEREOF WILL BE EFFECTED ONLY THROUGH,
RECORDS MAINTAINED BY THE DEPOSITORY AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED
UNDER "DESCRIPTION OF CAPITAL SECURITIES," CAPITAL SECURITIES IN DEFINITIVE FORM
WILL NOT BE ISSUED AND OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL SECURITIES
WILL NOT BE CONSIDERED HOLDERS OF THE CAPITAL SECURITIES.
HOLDERS OF THE CAPITAL SECURITIES WILL BE ENTITLED TO RECEIVE PREFERENTIAL
CUMULATIVE CASH DISTRIBUTIONS ACCUMULATING FROM JUNE 6, 1997 AND PAYABLE
SEMI-ANNUALLY IN ARREARS ON THE FIRST DAY OF JUNE AND DECEMBER OF EACH YEAR,
COMMENCING DECEMBER 1, 1997, AT THE ANNUAL RATE OF 8.277% OF THE LIQUIDATION
AMOUNT OF $1,000 PER CAPITAL SECURITY ("DISTRIBUTIONS"). THE COMPANY HAS THE
RIGHT TO DEFER PAYMENT OF INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES AT ANY
TIME OR FROM TIME TO TIME FOR A PERIOD NOT EXCEEDING 10 CONSECUTIVE SEMI-ANNUAL
PERIODS WITH RESPECT TO EACH DEFERRAL PERIOD (EACH, AN "EXTENSION PERIOD"),
PROVIDED THAT NO EXTENSION PERIOD MAY EXTEND BEYOND THE STATED MATURITY OF THE
JUNIOR SUBORDINATED DEBENTURES. NO INTEREST SHALL BE DUE AND PAYABLE DURING ANY
EXTENSION PERIOD, EXCEPT AT THE END THEREOF. UPON THE TERMINATION OF ANY SUCH
EXTENSION PERIOD AND THE PAYMENT OF ALL AMOUNTS THEN DUE, THE COMPANY MAY ELECT
TO BEGIN A NEW EXTENSION PERIOD SUBJECT TO THE REQUIREMENTS SET FORTH HEREIN. IF
INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES ARE SO DEFERRED,
DISTRIBUTIONS ON THE CAPITAL SECURITIES WILL ALSO BE DEFERRED AND THE COMPANY
WILL NOT BE PERMITTED, SUBJECT TO CERTAIN EXCEPTIONS DESCRIBED HEREIN, TO
DECLARE OR PAY ANY CASH DISTRIBUTIONS WITH RESPECT TO THE COMPANY'S CAPITAL
STOCK OR WITH RESPECT TO DEBT SECURITIES OF THE COMPANY THAT RANK PARI PASSU IN
ALL RESPECTS WITH OR JUNIOR TO THE JUNIOR SUBORDINATED DEBENTURES. DURING AN
EXTENSION PERIOD, INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES WILL CONTINUE
TO ACCRUE (AND THE AMOUNT OF DISTRIBUTIONS TO WHICH HOLDERS OF THE CAPITAL
SECURITIES ARE ENTITLED WILL ACCUMULATE) AT THE RATE OF 8.277% PER ANNUM,
COMPOUNDED SEMI-ANNUALLY, AND HOLDERS OF CAPITAL SECURITIES WILL BE REQUIRED TO
ACCRUE INTEREST INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. SEE
"DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES--OPTION TO EXTEND INTEREST
PAYMENT PERIOD" AND "CERTAIN FEDERAL INCOME TAX CONSEQUENCES-- INTEREST INCOME
AND ORIGINAL ISSUE DISCOUNT."
THE COMPANY HAS, THROUGH THE GUARANTEE, THE TRUST AGREEMENT, THE JUNIOR
SUBORDINATED DEBENTURES AND THE JUNIOR SUBORDINATED INDENTURE (EACH AS DEFINED
HEREIN), TAKEN TOGETHER, FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED ALL
THE ISSUER TRUST'S OBLIGATIONS UNDER THE CAPITAL SECURITIES AS DESCRIBED BELOW.
SEE "RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE--FULL AND UNCONDITIONAL GUARANTEE." THE GUARANTEE
OF THE COMPANY GUARANTEES THE PAYMENT OF DISTRIBUTIONS AND PAYMENTS ON
LIQUIDATION OR REDEMPTION OF THE CAPITAL SECURITIES, BUT ONLY IN EACH CASE TO
THE EXTENT OF FUNDS HELD BY THE ISSUER TRUST, AS DESCRIBED HEREIN (THE
"GUARANTEE"). SEE "DESCRIPTION OF GUARANTEE." IF THE COMPANY DOES NOT MAKE
PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES HELD BY THE ISSUER TRUST, THE
ISSUER TRUST MAY HAVE INSUFFICIENT FUNDS TO PAY DISTRIBUTIONS ON THE CAPITAL
SECURITIES. THE GUARANTEE DOES NOT COVER PAYMENT OF DISTRIBUTIONS WHEN THE
ISSUER TRUST DOES NOT HAVE SUFFICIENT FUNDS TO PAY SUCH DISTRIBUTIONS. IN SUCH
EVENT, A HOLDER OF CAPITAL SECURITIES MAY INSTITUTE A LEGAL PROCEEDING DIRECTLY
AGAINST THE COMPANY TO ENFORCE PAYMENT OF SUCH DISTRIBUTIONS TO SUCH HOLDER. SEE
"DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES--ENFORCEMENT OF CERTAIN RIGHTS BY
HOLDERS OF CAPITAL SECURITIES." THE OBLIGATIONS OF THE COMPANY UNDER THE
GUARANTEE AND THE JUNIOR SUBORDINATED DEBENTURES ARE SUBORDINATE AND JUNIOR IN
RIGHT OF PAYMENT TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN "DESCRIPTION OF
JUNIOR SUBORDINATED DEBENTURES--SUBORDINATION") OF THE COMPANY, AND WILL BE PARI
PASSU WITH $150 MILLION OF OBLIGATIONS OF THE COMPANY ASSOCIATED WITH THE 8.234%
CAPITAL SECURITIES ISSUED BY FIRST EMPIRE CAPITAL TRUST I (THE "OUTSTANDING
CAPITAL SECURITIES").
THE CAPITAL SECURITIES ARE SUBJECT TO MANDATORY REDEMPTION (I) IN WHOLE, BUT
NOT IN PART, UPON REPAYMENT OF THE JUNIOR SUBORDINATED DEBENTURES AT STATED
MATURITY OR THEIR EARLIER REDEMPTION IN WHOLE UPON THE OCCURRENCE OF A TAX
EVENT, AN INVESTMENT COMPANY EVENT OR A CAPITAL TREATMENT EVENT (EACH AS DEFINED
HEREIN) AND (II) IN WHOLE OR IN PART AT ANY TIME ON OR AFTER JUNE 1, 2007
CONTEMPORANEOUSLY WITH THE OPTIONAL REDEMPTION BY THE COMPANY OF THE JUNIOR
SUBORDINATED DEBENTURES IN WHOLE OR IN PART. THE JUNIOR SUBORDINATED DEBENTURES
ARE REDEEMABLE PRIOR TO MATURITY AT THE OPTION OF THE COMPANY (I) ON OR AFTER
JUNE 1 , 2007, IN WHOLE AT ANY TIME OR IN PART FROM TIME TO TIME, OR (II) IN
WHOLE, BUT NOT IN PART, AT ANY TIME WITHIN 90 DAYS FOLLOWING THE OCCURRENCE AND
CONTINUATION OF A TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT
EVENT, IN EACH CASE AT A REDEMPTION PRICE SET FORTH HEREIN, WHICH INCLUDES THE
ACCRUED AND UNPAID INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES SO REDEEMED TO
THE DATE FIXED FOR REDEMPTION. THE ABILITY OF THE COMPANY TO EXERCISE ITS RIGHTS
TO REDEEM THE JUNIOR SUBORDINATED DEBENTURES OR TO CAUSE THE REDEMPTION OF THE
CAPITAL SECURITIES PRIOR TO THE STATED MATURITY MAY BE SUBJECT TO PRIOR
REGULATORY APPROVAL
3
<PAGE>
BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (THE "FEDERAL RESERVE"),
IF THEN REQUIRED UNDER APPLICABLE FEDERAL RESERVE CAPITAL GUIDELINES OR
POLICIES. SEE "DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES--REDEMPTION" AND
"DESCRIPTION OF CAPITAL SECURITIES--LIQUIDATION DISTRIBUTION UPON DISSOLUTION."
THE HOLDERS OF THE OUTSTANDING COMMON SECURITIES HAVE THE RIGHT AT ANY TIME
TO DISSOLVE THE ISSUER TRUST AND, AFTER SATISFACTION OF LIABILITIES TO CREDITORS
OF THE ISSUER TRUST AS PROVIDED BY APPLICABLE LAW, TO CAUSE THE JUNIOR
SUBORDINATED DEBENTURES TO BE DISTRIBUTED TO THE HOLDERS OF THE CAPITAL
SECURITIES AND COMMON SECURITIES IN LIQUIDATION OF THE ISSUER TRUST. THE ABILITY
OF THE COMPANY TO DISSOLVE THE ISSUER TRUST MAY BE SUBJECT TO PRIOR REGULATORY
APPROVAL OF THE FEDERAL RESERVE, IF THEN REQUIRED UNDER APPLICABLE FEDERAL
RESERVE CAPITAL GUIDELINES OR POLICIES. SEE "DESCRIPTION OF CAPITAL
SECURITIES--LIQUIDATION DISTRIBUTION UPON DISSOLUTION."
IN THE EVENT OF THE DISSOLUTION OF THE ISSUER TRUST, AFTER SATISFACTION OF
LIABILITIES TO CREDITORS OF THE ISSUER TRUST AS PROVIDED BY APPLICABLE LAW, THE
HOLDERS OF THE CAPITAL SECURITIES WILL BE ENTITLED TO RECEIVE A LIQUIDATION
AMOUNT OF $1,000 PER CAPITAL SECURITY PLUS ACCUMULATED AND UNPAID DISTRIBUTIONS
THEREON TO THE DATE OF PAYMENT, SUBJECT TO CERTAIN EXCEPTIONS, WHICH MAY BE IN
THE FORM OF A DISTRIBUTION OF SUCH AMOUNT IN JUNIOR SUBORDINATED DEBENTURES. SEE
"DESCRIPTION OF CAPITAL SECURITIES--LIQUIDATION DISTRIBUTION UPON DISSOLUTION."
THE JUNIOR SUBORDINATED DEBENTURES ARE UNSECURED AND SUBORDINATED TO ALL
SENIOR INDEBTEDNESS OF THE COMPANY. SEE "DESCRIPTION OF JUNIOR SUBORDINATED
DEBENTURES--SUBORDINATION."
NO EMPLOYEE BENEFIT OR OTHER PLAN OR INDIVIDUAL RETIREMENT ACCOUNT SUBJECT
TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN
ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A "PLAN ASSET
ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD
THE CAPITAL SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASE OR HOLDING
IS COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY U.S. DEPARTMENT OF LABOR
PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1 OR
84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR HOLDING.
ANY PURCHASER OR HOLDER OF THE CAPITAL SECURITIES OR ANY INTEREST THEREIN THAT
IS A PLAN OR A PLAN ASSET ENTITY OR IS PURCHASING SUCH SECURITIES ON BEHALF OF
OR WITH "PLAN ASSETS" WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND
HOLDING THEREOF THAT (A) THE PURCHASE AND HOLDING OF THE CAPITAL SECURITIES IS
COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY PTCE 96-23, 95-60, 91-38, 90-1 OR
84-14 OR ANOTHER APPLICABLE EXEMPTION, (B) THE COMPANY AND THE ADMINISTRATORS
ARE NOT "FIDUCIARIES" WITHIN THE MEANING OF SECTION 3(21) OF ERISA AND THE
REGULATIONS THEREUNDER, WITH RESPECT TO SUCH PERSON'S INTEREST IN THE CAPITAL
SECURITIES OR THE JUNIOR SUBORDINATED DEBENTURES, AND (C) IN PURCHASING THE
CAPITAL SECURITIES SUCH PERSON APPROVES THE PURCHASE OF THE JUNIOR SUBORDINATED
DEBENTURES AND THE APPOINTMENT OF THE ISSUER TRUSTEES (AS DEFINED HEREIN). SEE
"CERTAIN ERISA CONSIDERATIONS."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
-------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING CAPITAL SECURITIES AND
BIDDING FOR AND PURCHASING SUCH CAPITAL SECURITIES AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE ISSUER
TRUST OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE ISSUER TRUST SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information...................................................................................... 5
Incorporation of Certain Documents by Reference............................................................ 5
Summary.................................................................................................... 6
Risk Factors............................................................................................... 9
First Empire State Corporation............................................................................. 15
Selected Consolidated Financial Data and Other Information................................................. 16
Recent Financial Results................................................................................... 17
First Empire Capital Trust II.............................................................................. 17
Use of Proceeds............................................................................................ 18
Capitalization............................................................................................. 19
Accounting Treatment....................................................................................... 20
Description of Capital Securities.......................................................................... 20
Description of Junior Subordinated Debentures.............................................................. 34
Description of Guarantee................................................................................... 43
Relationship Among the Capital Securities, the Junior Subordinated Debentures and the Guarantee............ 45
Certain Federal Income Tax Consequences.................................................................... 47
Certain ERISA Considerations............................................................................... 51
Supervision, Regulation and Other Matters.................................................................. 53
Underwriting............................................................................................... 55
Validity of Securities..................................................................................... 56
Experts.................................................................................................... 57
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material also may be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov. In
addition, such reports, proxy statements and other information concerning the
Company can be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York 10006. This Prospectus does not contain all
the information set forth in the Registration Statement and exhibits thereto,
which the Company has filed with the Commission under the Securities Act of
1933, as amended (the "Securities Act") and to which reference is hereby made.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Capital Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"First Empire Capital Trust II," "Description of Capital Securities,"
"Description of Junior Subordinated Debentures" and "Description of Guarantee."
In addition, the Company does not expect that the Issuer Trust will be filing
reports under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, and the Company's Current Reports on Form 8-K dated as of January 9,
1997, January 31, 1997, February 19, 1997 and June 2, 1997 previously filed by
the Company with the Commission pursuant to Section 13 of the Exchange Act.
In addition, all reports and definitive proxy or information statements
filed pursuant to Sections 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 any
offering of securities made by this Prospectus shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
of such documents. Any statement contained herein, or in any document all or a
portion of which is incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of the
Registration Statement and 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 the Registration
Statement or this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents).
Written requests should be directed to the Corporate Finance Department, First
Empire State Corporation, One M&T Plaza, Buffalo, New York 14240. Telephone
requests may be directed to (716) 842-5445 .
5
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
AS USED HEREIN, (I) THE "JUNIOR SUBORDINATED INDENTURE" MEANS THE JUNIOR
SUBORDINATED INDENTURE, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, BETWEEN
THE COMPANY AND BANKERS TRUST COMPANY, AS TRUSTEE (THE "DEBENTURE TRUSTEE"),
PURSUANT TO WHICH THE JUNIOR SUBORDINATED DEBENTURES ARE ISSUED, (II) THE "TRUST
AGREEMENT" MEANS THE AMENDED AND RESTATED TRUST AGREEMENT RELATING TO THE ISSUER
TRUST, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, AMONG THE COMPANY, AS
DEPOSITOR, BANKERS TRUST COMPANY, AS PROPERTY TRUSTEE (THE "PROPERTY TRUSTEE")
AND BANKERS TRUST (DELAWARE), AS DELAWARE TRUSTEE (THE "DELAWARE TRUSTEE")
(COLLECTIVELY, THE "ISSUER TRUSTEES") AND (III) THE "GUARANTEE" MEANS THE
GUARANTEE AGREEMENT RELATING TO THE CAPITAL SECURITIES, AS AMENDED AND
SUPPLEMENTED FROM TIME TO TIME, BETWEEN THE COMPANY AND BANKERS TRUST COMPANY,
AS GUARANTEE TRUSTEE.
FIRST EMPIRE STATE CORPORATION
The Company is a New York corporation with its principal office in Buffalo,
New York. The Company is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and
engages directly and through its banking and nonbanking subsidiaries in
providing a wide range of commercial banking, retail banking, trust and
investment services to customers. As of March 31, 1997, the Company had
consolidated total assets of $13.1 billion, total deposits of $10.5 billion and
total stockholders' equity of $912 million. The Company's banking subsidiaries
are Manufacturers and Traders Trust Company ("M&T Bank") and M&T Bank, National
Association ("M&T Bank, N.A.," together with M&T Bank, the "Banks"). The Company
merged M&T Bank and The East New York Savings Bank ("East New York") effective
May 24, 1997. At March 31, 1997, M&T Bank would represent 97% of the
consolidated total assets of the Company, after giving effect to the merger of
M&T Bank and East New York. See "First Empire State Corporation--General."
FIRST EMPIRE CAPITAL TRUST II
The Issuer Trust is a statutory business trust created under Delaware law on
May 30, 1997. The Issuer Trust will be governed by the Trust Agreement. The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of the Trust Securities
to acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........... $100,000,000 aggregate Liquidation Amount of 8.277% Capital
Securities (Liquidation Amount $1,000 per Capital Security).
Offering Price............... $1,000 per Capital Security (Liquidation Amount $1,000),
plus accumulated Distributions, if any, from June 6, 1997.
Distribution Dates........... June 1 and December 1 of each year, commencing December 1,
1997.
Extension Periods............ Distributions on Capital Securities may be deferred for the
duration of any Extension Period selected by the Company
with respect to the payment of interest on the Junior
Subordinated Debentures. No Extension Period will exceed 10
consecutive semi-annual periods or extend beyond the Stated
Maturity. See "Description of Junior
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Subordinated Debentures--Option to Extend Interest Payment
Period" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
Ranking...................... The Capital Securities will rank PARI PASSU and payments
thereon will be made pro rata, with the Common Securities
except as described under "Description of Capital
Securities--Subordination of Common Securities." The Junior
Subordinated Debentures will be unsecured and subordinate
and junior in right of payment to the extent and in the
manner set forth in the Junior Subordinated Indenture to all
Senior Indebtedness (as defined herein) and will be PARI
PASSU with the Company's obligations associated with the
Outstanding Capital Securities. See "Description of Junior
Subordinated Debentures." The Guarantee will constitute an
unsecured obligation of the Company and will rank
subordinate and junior in right of payment to the extent and
in the manner set forth in the Guarantee to all Senior
Indebtedness and will be PARI PASSU with the Company's
obligations associated with the Outstanding Capital
Securities. As of March 31, 1997, there was no Senior
Indebtedness of the Company outstanding. See "Description of
Guarantee."
Redemption................... The Trust Securities are subject to mandatory redemption (i)
in whole, but not in part, at the Stated Maturity upon
repayment of the Junior Subordinated Debentures, (ii) in
whole, but not in part, contemporaneously with the optional
redemption at any time by the Company of the Junior
Subordinated Debentures upon the occurrence and continuation
of a Tax Event, Investment Company Event or Capital
Treatment Event and (iii) in whole or in part, at any time
on or after June 1, 2007, contemporaneously with the
optional redemption by the Company of the Junior
Subordinated Debentures in whole or in part, in each case at
the applicable Redemption Price. See "Description of Capital
Securities--Redemption."
Rating....................... The Capital Securities have been rated "a3" by Moody's
Investors Service, Inc. and "BBB-" by Standard & Poor's
Ratings Services. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating
organization.
ERISA Considerations......... Prospective purchasers must carefully consider the
information set forth under "Certain ERISA Considerations."
Absence of Market for the
Capital Securities......... The Capital Securities will be a new issue of securities for
which there currently is no market. The Company and the
Issuer Trust do not intend to apply for listing of the
Capital Securities on any national securities exchange.
Although the Underwriters have informed the Issuer Trust and
the Company that they each currently intend to make a market
in the Capital Securities, the Underwriters are not
obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of
any market for the Capital Securities. See "Underwriting."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds.............. All the proceeds to the Issuer Trust from the sale of the
Capital Securities will be invested by the Issuer Trust in
the Junior Subordinated Debentures. All the net proceeds to
be received by the Company from the sale of the Junior
Subordinated Debentures will be used for general corporate
purposes. See "Use of Proceeds." The proceeds from the
Capital Securities will qualify as Tier 1 or core capital of
the Company under the current risk-based capital guidelines
of the Federal Reserve.
</TABLE>
For additional information regarding the Capital Securities, see
"Description of Capital Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee," "Relationship Among the Capital
Securities, the Junior Subordinated Debentures and the Guarantee" and "Certain
Federal Income Tax Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 9.
8
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE CAPITAL SECURITIES SHOULD CAREFULLY REVIEW THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY
CONSIDER THE FOLLOWING MATTERS. CERTAIN STATEMENTS IN THIS PROSPECTUS AND
DOCUMENTS INCORPORATED HEREIN BY REFERENCE ARE FORWARD-LOOKING AND ARE
IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS OR PHRASES SUCH AS "INTENDED,"
"WILL BE POSITIONED," "EXPECTS," IS OR ARE "EXPECTED," "ANTICIPATES," AND
"ANTICIPATED." THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S
CURRENT EXPECTATIONS. TO THE EXTENT ANY OF THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS CONSTITUTES A "FORWARD-LOOKING
STATEMENT" AS DEFINED IN SECTION 21A(I)(1) OF THE SECURITIES ACT, THE RISK
FACTORS SET FORTH BELOW ARE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENT.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Capital Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness and PARI PASSU with the Company's obligations associated
with the Outstanding Capital Securities. At March 31, 1997, there was no Senior
Indebtedness of the Company. None of the Junior Subordinated Indenture, the
Guarantee or the Trust Agreement places any limitation on the amount of secured
or unsecured debt, including Senior Indebtedness, that may be incurred by the
Company. Because the Company is a holding company, the Junior Subordinated
Debentures and the Guarantee are effectively subordinated to all indebtedness
and other liabilities of its subsidiaries. See "Description of Guarantee--Status
of the Guarantee" and "Description of Junior Subordinated
Debentures--Subordination."
The ability of the Issuer Trust to pay amounts due on the Capital Securities
is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
STATUS OF THE COMPANY AS A BANK HOLDING COMPANY
The Company is a legal entity separate and distinct from the Banks and its
other subsidiaries, although the principal source of the Company's cash revenues
is dividends from the Banks. The right of the Company to participate in the
assets of any subsidiary upon the latter's liquidation, reorganization or
otherwise (and thus the ability of the holders of Capital Securities to benefit
indirectly from any such distribution) will be subject to the claims of the
subsidiaries' creditors, which will take priority except to the extent to which
the Company may itself be a creditor with a recognized claim. As of March 31,
1997, the Company's subsidiaries had indebtedness and other liabilities of
approximately $12.2 billion.
Payment of dividends by the Company's banking subsidiaries is restricted by
various legal and regulatory limitations. At March 31, 1997, approximately
$121,741,000 was available for payment of dividends to the Company from banking
subsidiaries without prior regulatory approval.
The Banks are also subject to restrictions under federal law which limit the
transfer of funds by any of the Banks to the Company and its nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments,
asset purchases or otherwise. Such transfers by any Bank to the Company or any
of the Company's nonbanking subsidiaries are limited in amount to 10% of such
Bank's capital and surplus and, with respect to the Company and all such
nonbanking subsidiaries, to an aggregate of 20% of such Bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specified amounts.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the
9
<PAGE>
Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures--Debenture Events of Default." As
a consequence of any such deferral, semi-annual Distributions on the Capital
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon during any Extension Period at
the rate of 8.277% per annum, compounded semi-annually from the relevant payment
date for such Distributions, computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period.
Additional Distributions payable for each full Distribution period will be
computed by dividing the rate per annum by two. The term "Distribution" as used
herein shall include any such additional Distributions. During any such
Extension Period, the Company may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank PARI PASSU in all respects with or
junior in interest to the Junior Subordinated Debentures, including the
Company's obligations associated with the Outstanding Capital Securities (other
than (a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks PARI PASSU with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 10 consecutive semi-annual periods
or extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the annual rate of 8.277%,
compounded semi-annually, to the extent permitted by applicable law), the
Company may elect to begin a new Extension Period subject to the above
conditions. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Issuer Trustees notice of
its election of such Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Capital Securities would have
been payable but for the election to begin such Extension Period and (ii) the
date the Property Trustee is required to give notice to holders of the Capital
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The Property
Trustee will give notice of the Company's election to begin a new Extension
Period to the holders of the Capital Securities. Subject to the foregoing, there
is no limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Capital Securities--Distributions" and
"Description of Junior Subordinated Debentures-- Option to Extend Interest
Payment Period."
10
<PAGE>
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect of
its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust for United States federal income tax purposes. As a result, a holder of
Capital Securities will 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 the Issuer Trust if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount" and "--Sales of Capital Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. In addition, as a result
of the existence of the Company's right to defer interest payments, the market
price of the Capital Securities (which represent preferred undivided beneficial
interests in the assets of the Issuer Trust) may be more volatile than the
market prices of other securities on which original issue discount or interest
accrues that are not subject to such deferrals.
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time within
90 days following the occurrence of such Tax Event, Investment Company Event or
Capital Treatment Event and thereby cause a mandatory redemption of the Capital
Securities. Any such redemption shall be at a price equal to the liquidation
amount of the Capital Securities, together with accumulated Distributions to but
excluding the date fixed for redemption. The ability of the Company to exercise
its rights to redeem the Junior Subordinated Debentures prior to the stated
maturity may be subject to prior regulatory approval by the Federal Reserve, if
then required under applicable Federal Reserve capital guidelines or policies.
See "Description of Junior Subordinated Debentures--Redemption" and "Description
of Capital Securities--Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities, there is more than an insubstantial risk
that (i) the Issuer Trust is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a DE MINIMIS amount of other taxes, duties or other governmental
charges.
See "Certain Federal Income Tax Consequences--Possible Tax Law Changes
Affecting the Capital Securities" for a discussion of certain legislative
proposals that, if adopted, could give rise to a Tax Event, which may permit the
Company to cause a redemption of the Capital Securities prior to June 1, 2007.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or
11
<PAGE>
regulation or a written change (including any announced prospective change) in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, there is more than an
insubstantial risk that the Issuer Trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), which change or prospective
change becomes effective or would become effective, as the case may be, on or
after the date of the issuance of the Capital Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve or the New
York State Banking Department (the "Banking Department"), as then in effect and
applicable to the Company.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company to dissolve the Issuer Trust may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Capital
Securities--Liquidation Distribution Upon Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Capital Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Capital Securities. See
"Certain Federal Income Tax Consequences."
RIGHTS UNDER THE GUARANTEE
Bankers Trust Company will act as the trustee under the Guarantee and will
hold the Guarantee for the benefit of the holders of the Capital Securities.
Bankers Trust Company will also act as Debenture Trustee for the Junior
Subordinated Debentures and as Property Trustee under the Trust Agreement.
Bankers Trust (Delaware) will act as Delaware Trustee under the Trust Agreement.
The Guarantee guarantees to the holders of the Capital Securities the following
payments, to the extent not paid by or on behalf of the Issuer Trust: (i) any
accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Issuer Trust (unless
the Junior Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (b) the
amount of assets of the Issuer Trust remaining available for distribution to
holders of the Capital Securities on liquidation of the Issuer Trust.
12
<PAGE>
The Guarantee is subordinated as described under "--Ranking of Subordinated
Obligations Under the Guarantee and the Junior Subordinated Debentures" and
"Description of Guarantee--Status of the Guarantee." The holders of not less
than a majority in aggregate Liquidation Amount of the outstanding Capital
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of the Capital Securities may
institute a legal proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding against the
Issuer Trust, the Guarantee Trustee or any other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Capital Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder (a "Direct Action").
In connection with such Direct Action, the Company will have a right of set-off
under the Junior Subordinated Indenture to the extent of any payment made by the
Company to such holder of Capital Securities in the Direct Action. Except as
described herein, holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Junior Subordinated Debentures--
Enforcement of Certain Rights by Holders of Capital Securities," "--Debenture
Events of Default" and "Description of Guarantee." The Trust Agreement provides
that each holder of Capital Securities by acceptance thereof agrees to the
provisions of the Guarantee and the Junior Subordinated Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement and described
herein. The Property Trustee and the holders of all the Common Securities may,
subject to certain conditions, amend the Trust Agreement without the consent of
holders of Capital Securities to cure any ambiguity or make other provisions not
inconsistent with other provisions under the Trust Agreement or to ensure that
the Issuer Trust (i) will not be taxable as a corporation for United States
federal income tax purposes, or (ii) will not be required to register as an
"investment company" under the Investment Company Act. See "Description of
Capital Securities--Voting Rights; Amendment of Trust Agreement" and "--Removal
of Issuer Trustees; Appointment of Successors."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities, or
the market prices for Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a liquidation of the Issuer Trust occurs.
Accordingly, the Capital Securities or the Junior Subordinated Debentures that a
holder of Capital Securities may receive on liquidation of the Issuer Trust may
trade at a discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures on dissolution of the Issuer Trust, prospective
purchasers of Capital Securities are also making an investment decision with
regard to the Junior
13
<PAGE>
Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein. See "Description
of Junior Subordinated Debentures."
ABSENCE OF PUBLIC MARKET
There is no existing market for the Capital Securities and there can be no
assurance as to the liquidity of any markets that may develop for the Capital
Securities, the ability of the holders to sell their Capital Securities or at
what price holders of the Capital Securities will be able to sell their Capital
Securities. Future trading prices of the Capital Securities will depend on many
factors including, among other things, prevailing interest rates, the Company's
operating results, and the market for similar securities. The Company and the
Issuer Trust do not intend to apply for listing of the Capital Securities on any
national securities exchange. The Underwriters have informed the Issuer Trust
and the Company that the Underwriters intend to make a market in the Capital
Securities offered hereby; however, the Underwriters are not obligated to do so
and any such market making activity will be subject to the limits imposed by
applicable law and may be discontinued at any time without notice. Therefore,
there can be no assurance that an active trading market for the Capital
Securities will develop. If a trading market for the Capital Securities does
develop, the Capital Securities may trade at a discount from their initial
offering price depending upon prevailing interest rates, the market for similar
securities, the performance of the Company and other factors.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the tax proposals therein (the "Tax Proposal") would
generally deny corporate issuers a deduction for interest on certain debt
obligations that have a maximum term in excess of 15 years and are not shown as
indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. As currently
drafted, the Tax Proposal would be effective generally for instruments issued on
or after the date of first Congressional committee action. Although it is not
clear from the President's proposals as to what constitutes Congressional
"committee action" with respect to the Tax Proposal, it appears that, as
drafted, the Tax Proposal would not apply retroactively to the Junior
Subordinated Debentures. However, if the Tax Proposal (or similar legislation)
is enacted with retroactive effect with respect to the Junior Subordinated
Debentures, the Company would not be entitled to an interest deduction with
respect to the Junior Subordinated Debentures. There can be no assurance that
the Tax Proposal, if enacted, will not apply retroactively to the Junior
Subordinated Debentures 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 Junior Subordinated Debentures. Accordingly, there can
be no assurance that a Tax Event will not occur. See "Description of the Capital
Securities--Redemption" and "Description of the Junior Subordinated
Debentures--Proposed Tax Law Changes."
14
<PAGE>
FIRST EMPIRE STATE CORPORATION
GENERAL
The Company is a New York corporation incorporated in 1969 and is registered
as a bank holding company under the Bank Holding Company Act. As of March 31,
1997, the Company had consolidated total assets of $13.1 billion, total deposits
of $10.5 billion and total stockholders' equity of $912 million. At that date,
the Company's banking subsidiaries were M&T Bank, East New York and M&T Bank,
N.A. The Company merged M&T Bank and East New York effective May 24, 1997. At
March 31, 1997, M&T Bank represented 97% of the total consolidated assets of the
Company after giving effect to the merger of M&T Bank and East New York.
As of May 30, 1997, M&T Bank had 173 banking offices throughout the State of
New York, plus an office in Nassau, The Bahamas. As of June 30, 1996, the most
recent date for which comparative deposit data have been published by the
Federal Deposit Insurance Corporation (the "FDIC"), M&T Bank held approximately
30% of total deposits of commercial banks and thrift institutions in the Buffalo
Banking Market. M&T Bank, N.A. conducts its operations out of a single office in
Oakfield, New York.
Collectively, the Banks offer a wide range of commercial banking, retail
banking, trust and investment services to their customers. M&T Mortgage
Corporation, a subsidiary of M&T Bank, conducts residential mortgage origination
operations in New York, Arizona, Massachusetts, Ohio, Colorado, Utah, Oregon and
Washington. Another subsidiary of M&T Bank, M&T Securities, Inc., is a
registered broker-dealer and provides general securities brokerage and
investment advisory services. M&T Bank, N.A. currently offers consumer banking
products, primarily credit cards, home equity loans and lines of credit, and
markets certificates of deposits nationwide.
The Company maintains its principal executive offices at One M&T Plaza,
Buffalo, New York 14240, telephone (716) 842-5445.
NEITHER THE CAPITAL SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES ARE
OBLIGATIONS OF OR GUARANTEED BY ANY BANK.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following unaudited table presents the consolidated ratios of earnings
to fixed charges and earnings to combined fixed charges and preferred stock
dividends of the Company. The consolidated ratio of earnings to fixed charges
has been computed by dividing income before income taxes and fixed charges by
fixed charges. The consolidated ratio of earnings to combined fixed charges and
preferred stock dividends has been computed by dividing income before income
taxes and fixed charges by fixed charges and preferred stock dividends. Fixed
charges represent all interest expense (ratios are presented both excluding and
including interest on deposits) and the portion of net rental expense which is
deemed to be equivalent to interest on debt. Preferred stock dividends are
increased to an amount representing the pretax earnings which would be required
to cover such dividend requirements. Interest expense (other than on deposits)
includes interest on notes and debentures, federal funds purchased and
securities sold under agreements to repurchase, mortgages, and other funds
borrowed.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
Earnings to Fixed Charges:
Excluding interest on deposits.................................... 4.35x 3.46x 4.19x 3.22x 3.30x
Including interest on deposits.................................... 1.56 1.52 1.53 1.50 1.69
Earnings to Combined Fixed Charges and Preferred Stock Dividends:
Excluding interest on deposits.................................... 4.35 3.26 4.11 3.03 3.08
Including interest on deposits.................................... 1.56 1.50 1.52 1.48 1.65
<CAPTION>
<S> <C> <C>
1993 1992
--------- ---------
Earnings to Fixed Charges:
Excluding interest on deposits.................................... 3.53x 4.80x
Including interest on deposits.................................... 1.63 1.50
Earnings to Combined Fixed Charges and Preferred Stock Dividends:
Excluding interest on deposits.................................... 3.24 4.21
Including interest on deposits.................................... 1.60 1.47
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
Presented below is selected unaudited consolidated financial information for
the Company for the periods specified. The consolidated financial information is
not necessarily indicative of the results for any future period and is qualified
in its entirety by the detailed information available in the Company's reports
as described under "Incorporation of Certain Documents by Reference."
FIRST EMPIRE STATE CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ---------
<CAPTION>
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT:
Interest income.......... $ 255,766 $ 243,777 $ 997,432 $ 928,154 $ 747,346 $ 740,629 $ 756,477
Interest expense......... 119,321 114,185 466,408 441,730 279,206 269,873 323,598
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net interest income...... 136,445 129,592 531,024 486,424 468,140 470,756 432,879
Provision for possible
credit losses.......... 11,000 9,675 43,325 40,350 60,536 79,958 84,989
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net interest income after
provision.............. 125,445 119,917 487,699 446,074 407,604 390,798 347,890
Noninterest income....... 45,923 36,251 170,248 149,538 123,739 110,544 126,226
Noninterest expense...... 104,284 96,317 408,978 374,439 336,862 327,819 311,338
---------- ---------- ---------- ---------- ---------- ---------- ---------
Income before income
taxes.................. 67,084 59,851 248,969 221,173 194,481 173,523 162,778
Applicable income
taxes.................. 25,825 23,698 97,866 90,137 77,186 71,531 64,841
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net income............... $ 41,259 $ 36,153 $ 151,103 $ 131,036 $ 117,295 $ 101,992 $ 97,937
---------- ---------- ---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------- ---------- ---------
Dividends declared on
preferred stock.......... -- $ 900 $ 900 $ 3,600 $ 3,600 $ 3,600 $ 3,600
CONSOLIDATED AVERAGE BALANCES:
Total assets............. $12,866,278 $12,140,991 $12,478,666 $11,484,754 $10,025,421 $10,390,030 $9,553,875
Loans, net of unearned
discount............... 10,715,345 9,672,172 10,113,947 8,857,222 7,427,021 6,982,289 6,571,259
Deposits................. 10,453,977 9,495,774 10,160,112 9,020,992 7,365,879 7,591,473 7,695,328
Long-term debt........... 277,985 192,293 189,316 146,019 77,297 75,639 7,086
Common stockholders'
equity................. 917,197 810,051 853,515 742,520 683,202 630,449 542,569
Stockholders' equity..... 917,197 848,732 863,133 782,520 723,202 670,449 582,569
CONSOLIDATED RATIOS:
Return on average assets
(1).................... 1.30% 1.20% 1.21% 1.14% 1.17% 0.98% 1.03%
Return on average common
stockholders' equity
(1).................... 18.24% 17.50% 17.60% 17.16% 16.64% 15.61% 17.39%
Return on average total
stockholders' equity
(1).................... 18.24% 17.13% 17.51% 16.75% 16.22% 15.21% 16.81%
Average total
stockholders' equity to
average total assets... 7.13% 6.99% 6.92% 6.81% 7.21% 6.45% 6.10%
Period end capital to
risk adjusted assets:
Tier 1................. 9.76% 8.36% 8.40% 8.53% 8.91% 9.33% 8.58%
Total.................. 12.66% 11.39% 11.32% 11.62% 11.07% 11.58% 10.87%
Period end leverage
ratio.................. 8.15% 6.83% 6.99% 6.91% 7.31% 6.63% 6.06%
Net interest margin
(taxable equivalent
basis) (1)............. 4.48% 4.49% 4.45% 4.43% 4.89% 4.76% 4.79%
Net charge-offs to
average loans and
leases net of unearned
discount (1)........... 0.30% 0.21% 0.35% 0.24% 0.22% 0.51% 0.70%
Period end nonperforming
assets to period end
loans, net of unearned
discount and other real
estate (2)............. 0.98% 0.91% 0.99% 1.05% 1.06% 1.30% 1.86%
Period end allowance to
period end loans, net
of unearned discount... 2.53% 2.69% 2.52% 2.75% 2.96% 2.70% 2.17%
Period end allowance to
period end
nonperforming loans
(2).................... 282% 323% 276% 282% 314% 238% 134%
</TABLE>
- ------------------------
(1) Ratios for the three month periods are annualized.
(2) Nonperforming loans and nonperforming assets include loans past due 90 days
or more but still accruing.
16
<PAGE>
RECENT FINANCIAL RESULTS
Net income for the quarter ended March 31, 1997, totaled $41.3 million, up
14% from $36.2 million in the year-earlier quarter.
Taxable-equivalent net interest income rose to $137.7 million in the first
quarter of 1997 from $130.5 million in the corresponding 1996 quarter. Average
loans outstanding totaled $10.7 billion in the first quarter of 1997, an 11%
increase from $9.7 billion in 1996's first quarter. The Company's net interest
margin, or taxable-equivalent net interest income expressed as an annualized
percentage of average earning assets, was 4.48% in 1997's first quarter,
compared with 4.49% in the year-earlier quarter.
The provision for possible credit losses was $11.0 million in the first
quarter of 1997, compared with $9.7 million in the corresponding 1996 quarter.
Net charge-offs for the first quarter were $7.9 million or 0.30% of average
loans compared with $5.1 million or 0.21% in the year-earlier quarter. As a
result, the allowance for possible credit losses was $273.6 million or 2.53% of
loans outstanding at March 31, 1997, compared with $266.9 million or 2.69% at
the end of the prior year's first quarter. Nonaccrual loans totaled $57.4
million or 0.53% of loans outstanding at the recent quarter-end, compared with
$67.1 million or 0.68% at March 31, 1996. Loans past due ninety days or more and
accruing interest totaled $36.9 million at March 31, 1997, up from $15.5 million
a year earlier. The increase was mainly due to the inclusion at March 31, 1997,
of $13.9 million of one-to-four family residential mortgage loans serviced by
First Empire and repurchased during 1996 from the Government National Mortgage
Association. These loans are covered by guarantees of government agencies. Total
nonperforming loans were $97.0 million at March 31, 1997, compared with $82.6
million at March 31, 1996. The ratio of the allowance for possible credit losses
to nonperforming loans was 282% and 323% at March 31, 1997 and 1996,
respectively. Assets taken in foreclosure of defaulted loans were $8.7 million
and $7.5 million at March 31, 1997 and 1996, respectively.
Non-interest income in the first quarter of 1997 totaled $45.9 million, up
27% from $36.3 million in the year-earlier quarter. Higher revenues from
mortgage banking, credit card and trading account and foreign exchange
activities contributed to this increase. Non-interest expense increased 8% to
$104.3 million in the recent quarter from $96.3 million in 1996's initial
quarter. Contributing to this increase were expenses associated with
incentive-based compensation arrangements and expansion of First Empire's credit
card business.
The annual rates of return on average total assets and average common
stockholders' equity were 1.30% and 18.24%, respectively, for the first quarter
of 1997, compared with 1.20% and 17.50%, respectively, in the year-earlier
quarter.
At March 31, 1997, the Company had total assets of $13.1 billion, compared
with $12.7 billion a year earlier. Loans and leases, net of unearned discount,
increased 9% to $10.8 billion from $9.9 billion a year earlier. Deposits were
$10.5 billion at the recent quarter-end, compared with $9.7 billion at March 31,
1996. Total stockholders' equity was $912 million at March 31, 1997, up 8% from
$847 million a year earlier.
FIRST EMPIRE CAPITAL TRUST II
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on May 30, 1997. The Issuer Trust will be governed by the Trust Agreement
among the Company, as Depositor, Bankers Trust (Delaware), as Delaware Trustee,
and Bankers Trust Company, as Property Trustee. Two individuals will be selected
by the holders of the Common Securities to act as administrators with respect to
the Issuer Trust (the "Administrators"). The Company, while holder of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as the Administrators. See "Description
of Capital Securities--Miscellaneous." The Issuer Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities, (ii) using the
proceeds from the sale of the Trust Securities to acquire the
17
<PAGE>
Junior Subordinated Debentures and (iii) engaging in only those other activities
necessary, convenient or incidental thereto (such as registering the transfer of
the Trust Securities). Accordingly, the Junior Subordinated Debentures will be
the sole assets of the Issuer Trust, and payments under the Junior Subordinated
Debentures will be the sole source of revenue of the Issuer Trust.
All of the Common Securities will initially be owned by the Company. The
Common Securities will rank PARI PASSU, and payments will be made thereon pro
rata, with the Capital Securities, except that upon the occurrence and during
the continuation of a Debenture Event of Default arising as a result of any
failure by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Capital
Securities. See "Description of Capital Securities--Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee is Bankers Trust
(Delaware), 1001 Jefferson Street, Wilmington, Delaware 19801, telephone number
(302) 576-3301. The address of the Property Trustee, the Guarantee Trustee and
the Debenture Trustee is Bankers Trust Company, Four Albany Street, 4th Floor,
New York, New York 10006, telephone number (212) 250-2500.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Capital Securities
will be invested by the Issuer Trust in the Junior Subordinated Debentures. The
proceeds from the Capital Securities will qualify as Tier 1 or core capital with
respect to the Company under the current risk-based capital guidelines
established by the Federal Reserve. All the net proceeds to be received by the
Company from the sale of the Junior Subordinated Debentures will be used for
general corporate purposes, which may include the repayment of indebtedness,
repurchase of outstanding common stock of the Company, investments in or
extensions of credit to its subsidiaries and the financing of possible
acquisitions. Pending such use, the net proceeds may be temporarily invested.
The precise amounts and timing of the application of proceeds will depend upon
the funding requirements of the Company and its subsidiaries and the
availability of other funds. In view of anticipated funding requirements, the
Company may from time to time engage in additional financings of a character and
in amounts to be determined.
18
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1997 and as adjusted to give effect to the
consummation of the offering of the Capital Securities. The following data
should be read in conjunction with the Company's reports filed with the
Commission under the Exchange Act. See "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Subordinated notes of M&T Bank:
8 1/8% due 2002................................................................... $ 75,000 $ 75,000
7% due 2005....................................................................... 100,000 100,000
Advances from Federal Home Loan Bank of New York.................................... 2,371 2,371
Other............................................................................... 589 589
Existing Guaranteed preferred beneficial interests in Company's 8.234% junior
subordinated debentures held by First Empire Capital Trust I (1).................... 150,000 150,000
Additional Guaranteed preferred beneficial interests in Company's Junior Subordinated
Debentures to be held by First Empire Capital Trust II (2).......................... -- 100,000
------------ ------------
327,960 427,960
------------ ------------
Stockholders' Equity:
Common stock, $5 par; authorized 15,000,000, 8,097,472 shares issued................ 40,487 40,487
Additional paid-in capital.......................................................... 98,150 98,150
Retained earnings................................................................... 972,978 972,978
Unrealized investment losses, net................................................... (8,486) (8,486)
Treasury stock, at cost--1,455,170 shares........................................... (190,946) (190,946)
------------ ------------
Total stockholders' equity...................................................... 912,183 912,183
------------ ------------
Total Capitalization........................................................ $ 1,240,143 $ 1,340,143
------------ ------------
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets (3).......................................... 9.76% 10.60%
Regulatory minimum.................................................................. 4.00 4.00
Total capital to risk-adjusted assets (3)........................................... 12.66 13.48
Regulatory minimum.................................................................. 8.00 8.00
Leverage ratio...................................................................... 8.15 8.86
Regulatory minimum.................................................................. 3.00 3.00
</TABLE>
- ------------------------
(1) On January 31, 1997, the Company issued $154,640,000 principal amount of
8.234% junior subordinated debentures to First Empire Capital Trust I in
connection with the issuance by First Empire Capital Trust I of the
Outstanding Capital Securities. The 8.234% junior subordinated debentures
will mature on February 1, 2027. The Company owns all of the Common
Securities of First Empire Capital Trust I.
(2) As described herein, the sole assets of the Issuer Trust will be
$103,093,000 principal amount of Junior Subordinated Debentures issued by
the Company to the Issuer Trust. The Junior Subordinated Debentures will
bear interest at a fixed rate of 8.277% and will mature on June 1, 2027. The
Company will own all the Common Securities of the Issuer Trust. The Junior
Subordinated Debentures will rank PARI PASSU with the outstanding 8.234%
junior subordinated debentures referred to in footnote (1).
(3) Assumes net proceeds of the offering of the Capital Securities are invested
in assets with a 100% risk weighting under the risk-based capital rules of
the Federal Reserve.
19
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Capital Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Capital Securities, the Guarantee
and the Junior Subordinated Debentures will be included in the notes to the
consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Capital Securities will be recorded in the
consolidated statements of income of the Company.
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer Trustees on behalf
of the Issuer Trust will issue the Capital Securities and the Common Securities.
The Capital Securities will represent preferred undivided beneficial interests
in the assets of the Issuer Trust and the holders thereof will be entitled to a
preference in certain circumstances with respect to Distributions and amounts
payable on redemption or liquidation over the Common Securities, as well as
other benefits as described in the Trust Agreement. This summary of certain
provisions of the Capital Securities and the Trust Agreement does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein of
certain terms. Wherever particular defined terms of the Trust Agreement are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of the Trust Agreement is available upon request from the
Issuer Trustees.
GENERAL
The Capital Securities will be limited to $100,000,000 aggregate Liquidation
Amount outstanding. The Capital Securities will rank PARI PASSU, and payments
will be made thereon pro rata, with the Common Securities except as described
under "--Subordination of Common Securities." The Junior Subordinated
Debentures will be registered in the name of the Issuer Trust and held by the
Property Trustee in trust for the benefit of the holders of the Capital
Securities and Common Securities. The Guarantee will be a guarantee on a
subordinated basis with respect to the Capital Securities but will not guarantee
payment of Distributions or amounts payable on redemption or liquidation of such
Capital Securities when the Issuer Trust does not have funds on hand available
to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
The Capital Securities represent preferred undivided beneficial interests in
the assets of the Issuer Trust, and Distributions on each Capital Security will
be payable at the annual rate of 8.277% of the stated Liquidation Amount of
$1,000, payable semi-annually in arrears on the first day of June and December
of each year (each a "Distribution Date"), to the holders of the Capital
Securities at the close of business on the 15th day of May and November (whether
or not a Business Day (as defined below)) next preceding the relevant
Distribution Date. Distributions on the Capital Securities will be cumulative.
Distributions will accumulate from June 6, 1997. The first Distribution Date for
the Capital Securities will be December 1, 1997. The amount of Distributions
payable for any period less than a full Distribution period will be computed on
the basis of a 360-day year of twelve 30-day months and the actual days elapsed
in a partial month in such period. Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by two. If
any date on which Distributions are payable on the Capital Securities is not a
Business Day, then payment of the Distributions payable on such date will be
made on the next succeeding day that is a Business Day (without any additional
Distributions or other payment in respect of any such delay), with the same
force and effect as if made on the date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the
20
<PAGE>
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral, semi-annual Distributions on the Capital Securities by the Issuer
Trust will be deferred during any such Extension Period. Distributions to which
holders of the Capital Securities are entitled will accumulate additional
Distributions thereon at the rate of 8.277% per annum, compounded semi-annually
from the relevant payment date for such Distributions, computed on the basis of
a 360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. Additional Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by two. The
term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company may not (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures,
including the Company's obligations associated with the Outstanding Capital
Securities (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks PARI PASSU with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company must give the Issuer
Trustees notice of its election of such Extension Period at least one Business
Day prior to the earlier of (i) the date the Distributions on the Capital
Securities would have been payable but for the election to begin such Extension
Period and (ii) the date the Property Trustee is required to give notice to
holders of the Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Property Trustee will give notice of the Company's
election to begin a new Extension Period to the holders of the Capital
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See "Description
of Junior Subordinated Debentures--Option To Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Issuer Trust will invest the proceeds from the issuance
and sale of the Capital Securities. See "Description of Junior Subordinated
Debentures." If the Company does not make payments on the Junior Subordinated
Debentures, the Issuer Trust may not have funds available to pay Distributions
or other amounts payable on the Capital Securities.
21
<PAGE>
The payment of Distributions and other amounts payable on the Capital Securities
(if and to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Capital Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Capital Securities plus accumulated but
unpaid Distributions thereon to the date of redemption (the "Redemption Date")
and the related amount of the premium, if any, paid by the Company upon the
concurrent redemption of such Junior Subordinated Debentures. See "Description
of Junior Subordinated Debentures--Redemption." If less than all the Junior
Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then
the proceeds from such repayment or redemption shall be allocated to the
redemption pro rata of the Capital Securities and the Common Securities. The
amount of premium, if any, paid by the Company upon the redemption of all or any
part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Capital
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after June 1, 2007, in whole at any time or in part from time to time, or
(ii) in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event, Investment Company Event
or Capital Treatment Event (each as defined below), in each case subject to
possible regulatory approval. See "--Liquidation Distribution Upon Dissolution."
A redemption of the Junior Subordinated Debentures would cause a mandatory
redemption of a Like Amount of the Capital Securities and Common Securities at
the Redemption Price.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices, expressed in percentages of the Liquidation Amount
(as defined below), together with accumulated Distributions to but excluding the
date fixed for redemption, if redeemed during the 12-month period beginning June
1:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2007........................................................................ 104.139%
2008........................................................................ 103.725
2009........................................................................ 103.311
2010........................................................................ 102.897
2011........................................................................ 102.483
2012........................................................................ 102.069
2013........................................................................ 101.655
2014........................................................................ 101.242
2015........................................................................ 100.828
2016........................................................................ 100.414
</TABLE>
and at 100% on or after June 1, 2017.
The Redemption Price, in the case of a redemption on or after June 1, 2007
following a Tax Event, Investment Company Event or Capital Treatment Event shall
equal the Redemption Price then applicable to a redemption under (i) above. The
Redemption Price, in the case of a redemption prior to June 1, 2007 following a
Tax Event, Investment Company Event or Capital Treatment Event as described
under (ii) above, will equal for each Capital Security the Make-Whole Amount for
a corresponding $1,000 principal amount of Junior Subordinated Debentures
together with accumulated Distributions to but excluding the date fixed for
redemption. The "Make-Whole Amount" will be equal to the greater of (i) 100% of
the
22
<PAGE>
principal amount of such Junior Subordinated Debentures and (ii) as determined
by a Quotation Agent (as defined below), the sum of the present value of 100% of
the principal amount that would be payable with respect to such Junior
Subordinated Debentures on June 1, 2027, together with the present values of
scheduled payments of interest from the Redemption Date to June 1, 2027 (the
"Remaining Life"), in each case discounted to the Redemption Date on a
semi-annual basis (assuming a 360-day year consisting of 30-day months) at the
Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate plus (i) 110 basis points if such Redemption Date occurs on or
before June 1, 1998 or (ii) 50 basis points if such Redemption Date occurs after
June 1, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the week immediately prior to the calculation date, appearing in the
most recently published statistical release designated "H.15(519)" or any
successor publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
Business Day preceding the Redemption Date.
"Comparable Treasury Issue" means with respect to any Redemption Date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after June 1, 2027, the two most
closely corresponding United States Treasury securities shall be used as the
Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Quotation Agent" means Morgan Stanley & Co. Incorporated and its
successors; provided, however, that if the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any other
Primary Treasury Dealer selected by the Debenture Trustee after consultation
with the Company.
"Comparable Treasury Price" means (A) the average of five Reference Treasury
Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (B) if the Debenture
Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Debenture Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such Redemption Date.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on
which banking institutions in the City of New York or the City of Buffalo, New
York are authorized or required by law or
23
<PAGE>
executive order to remain closed, or (c) a day on which the Property Trustee's
Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is
closed for business.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Capital Securities based upon the
relative Liquidation Amounts of such classes and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Issuer Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities, there is more than an insubstantial risk
that (i) the Issuer Trust is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a DE MINIMIS amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Capital Securities.
"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or decision
is announced on or after the date of issuance of the Capital Securities, there
is more than an insubstantial risk that the Company will not be entitled to
treat an amount equal to the Liquidation Amount of the Capital Securities as
"Tier 1 Capital" (or the then equivalent thereof) for purposes of the risk-based
capital adequacy guidelines of the Federal Reserve or the Banking Department, as
then in effect and applicable to the Company.
PAYMENT OF ADDITIONAL SUMS. If a Tax Event described in clause (i) or (iii)
of the definition of Tax Event above has occurred and is continuing and the
Issuer Trust is the holder of all the Junior Subordinated Debentures, the
Company will pay Additional Sums (as defined below), if any, on the Junior
Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on the
outstanding Capital Securities and Common
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Securities of the Issuer Trust will not be reduced as a result of any additional
taxes, duties and other governmental charges to which the Issuer Trust has
become subject as a result of a Tax Event.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "--Subordination of
Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Capital Securities. With respect to Capital Securities not held in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Capital Securities funds sufficient to pay
the applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of the Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit all
rights of the holders of such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Capital Securities will cease to be outstanding. If any date fixed for
redemption of Capital Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Issuer Trust or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Capital Securities will
continue to accumulate at the then applicable rate, from the Redemption Date
originally established by the Issuer Trust for such Capital Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Capital Securities to be
redeemed shall be selected on a pro rata basis not more than 60 days prior to
the Redemption Date by the Property Trustee from the outstanding Capital
Securities not previously called for redemption, or if the Capital Securities
are then held in the form of a Global Capital Security (as defined below), in
accordance with DTC's customary procedures, provided, in each case, that each
holder of any Capital Securities has at least 100 Capital Securities remaining
after the redemption. The Property Trustee shall promptly notify the securities
registrar for the Trust Securities in writing of the Capital Securities selected
for redemption and, in the case of any Capital 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
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relating to the redemption of Capital Securities shall relate, in the case of
any Capital Securities redeemed or to be redeemed only in part, to the portion
of the aggregate Liquidation Amount of Capital Securities which has been or is
to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either by
the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Capital Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of such Capital Securities and Common Securities.
However, if on any Distribution Date or Redemption Date a Debenture Event of
Default has occurred and is continuing as a result of any failure by the Company
to pay any amounts in respect of the Junior Subordinated Debentures when due, no
payment of any Distribution on, or Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of such Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all the outstanding
Capital Securities for all Distribution periods terminating on or prior thereto,
or in the case of payment of the Redemption Price the full amount of such
Redemption Price on all the outstanding Capital Securities then called for
redemption, shall have been made or provided for, and all funds available to the
Property Trustee shall first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Capital Securities then due and
payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Capital Securities have been cured, waived or otherwise eliminated. See
"--Events of Default; Notice" and "Description of Junior Subordinated
Debentures--Debenture Events of Default." Until all such Events of Default under
the Trust Agreement with respect to the Capital Securities have been so cured,
waived or otherwise eliminated, the Property Trustee will act solely on behalf
of the holders of the Capital Securities and not on behalf of the holders of the
Common Securities, and only the holders of the Capital Securities will have the
right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any liquidation
of the Issuer Trust is $1,000 per Capital Security plus accumulated and unpaid
Distributions, subject to certain exceptions, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's
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capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
In the event the Company, while a holder of Common Securities, dissolves the
Issuer Trust prior to the stated maturity of the Capital Securities and the
dissolution of the Issuer Trust is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it obtain
the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Capital Securities
in connection with the redemption of all the Trust Securities as described under
"--Redemption" and (iv) the entry of an order for the dissolution of the Issuer
Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer Trust available for distribution to holders, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, an
amount equal to, in the case of holders of Capital Securities, the aggregate of
the Liquidation Amount plus accumulated and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Issuer Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer Trust on its
Capital Securities shall be paid on a pro rata basis. The holders of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Capital Securities, except that if a Debenture
Event of Default has occurred and is continuing as a result of any failure by
the Company to pay any amounts in respect of the Junior Subordinated Debentures
when due, the Capital Securities shall have a priority over the Common
Securities. See "--Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures (i) the Capital Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the registered holder of Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Capital Securities.
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There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a dissolution and liquidation of the Issuer Trust were to
occur. Accordingly, the Capital Securities that an investor may purchase, or the
Junior Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Issuer Trust, may trade at a discount to the price that the
investor paid to purchase the Capital Securities offered hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of
30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Company by the holders of at least 25% in aggregate Liquidation Amount
of the outstanding Capital Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not been
appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
the Capital Securities as described above. See "--Subordination of Common
Securities," "-- Liquidation Distribution Upon Dissolution" and "Description of
Junior Subordinated Debentures-- Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding Capital
Securities, the successor may be appointed by the holders of at least 25% in
Liquidation Amount of Capital Securities. If an Issuer Trustee resigns, such
Trustee will appoint its successor. If an Issuer Trustee fails to appoint a
successor, the holders of at least 25% in Liquidation Amount of the outstanding
Capital
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Securities may appoint a successor. If a successor has not been appointed by the
holders, any holder of Capital Securities or Common Securities or the other
Issuer Trustee may petition a court in the State of Delaware to appoint a
successor. Any Delaware Trustee must meet the applicable requirements of
Delaware law. Any Property Trustee must be a national or state-chartered bank,
and at the time of appointment have securities rated in one of the three highest
rating categories by a nationally recognized statistical rating organization and
have capital and surplus of at least $50,000,000. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities have
the same priority as the Capital Securities with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) a trustee of such
successor entity, possessing the same powers and duties as the Property Trustee,
is appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trust has
received an opinion from independent counsel experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act, and (vii) the Company or
any permitted successor or assignee owns all the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Issuer Trust may not, except with the consent
of holders of 100% in aggregate Liquidation Amount of the Capital Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to, any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the
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Issuer Trust or the successor entity to be taxable as a corporation for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Capital Securities, (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, provided that any such amendment
does not adversely affect in any material respect the interests of any holder of
Trust Securities, or (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as may be necessary to ensure that the Issuer
Trust will not be taxable as a corporation for United States federal income tax
purposes at any time that any Trust Securities are outstanding or to ensure that
the Issuer Trust will not be required to register as an "investment company"
under the Investment Company Act, and any amendments of the Trust Agreement will
become effective when notice of such amendment is given to the holders of Trust
Securities. The Trust Agreement may be amended by the holders of a majority of
the Common Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Capital Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will not
affect the Issuer Trust's not being taxable as a corporation for United States
federal income tax purposes or the Issuer Trust's exemption from status as an
"investment company" under the Investment Company Act, except that, without the
consent of each holder of Trust Securities affected thereby, the Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 513 of the Junior Subordinated Indenture, (iii) exercise any right
to rescind or annul a declaration that the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Junior Subordinated Indenture or the Junior Subordinated Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the holders of at least a majority in aggregate Liquidation Amount
of the outstanding Capital Securities, except that, if a consent under the
Junior Subordinated Indenture would require the consent of each holder of Junior
Subordinated Debentures affected thereby, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Capital
Securities. The Property Trustee may not revoke any action previously authorized
or approved by a vote of the holders of the Capital Securities except by
subsequent vote of the holders of the Capital Securities. The Property Trustee
will notify each holder of Capital Securities of any notice of default with
respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Capital Securities, before taking any
of the foregoing actions, the Property Trustee will obtain an opinion of counsel
experienced in such matters to the effect that the Issuer Trust will not be
taxable as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a
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notice of any meeting at which holders of Capital Securities are entitled to
vote, or of any matter upon which action by written consent of such holders is
to be taken, to be given to each registered holder of Capital Securities in the
manner set forth in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Capital Securities) and all
costs and expenses of the Issuer Trust (including costs and expenses relating to
the organization of the Issuer Trust, the fees and expenses of the Trustees and
the costs and expenses relating to the operation of the Issuer Trust) and to pay
any and all taxes and all costs and expenses with respect thereto (other than
United States withholding taxes) to which the Issuer Trust might become subject.
The foregoing obligations of the Company under the Indenture are for the benefit
of, and shall be enforceable by, any person to whom any such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
the Company directly against the Company, and the Company has irrevocably waived
any right or remedy to require that any such Creditor take any action against
the Issuer Trust or any other person before proceeding against the Company. The
Company has also agreed in the Indenture to execute such additional agreements
as may be necessary or desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Capital Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, the
Depository and registered in the name of the Depository's nominee. Unless and
until it is exchangeable in whole or in part for the Capital Securities in
definitive form, a global security may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with the Depository or its nominee ("Participants")
or persons that may hold interests through Participants. The Company expects
that, upon the issuance of a global security, the Depository will credit, on its
book-entry registration and transfer system, the Participants' accounts with
their respective principal amounts of the Capital Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by the Depository (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
Persons held through Participants). Beneficial owners will not receive written
confirmation from the Depository of their purchase, but are expected to receive
written confirmations from the Participants through which the beneficial owner
entered into the transaction. Transfers of ownership interests will be
accomplished by entries on the books of Participants acting on behalf of the
beneficial owners.
So long as the Depository, or its nominee, is the registered owner of a
global security, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the Capital Securities represented by
such global security for all purposes under the Junior Subordinated Indenture.
Except as provided below, owners of beneficial interests in a global security
will not be entitled to receive physical delivery of the Capital Securities in
definitive form and will not be considered the owners or holders thereof under
the Junior Subordinated Indenture. Accordingly, each person owning a beneficial
interest in
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<PAGE>
such a global security must rely on the procedures of the Depository and, if
such person is not a Participant, on the procedures of the participant through
which such person owns its interest, to exercise any rights of a holder under
the Junior Subordinated Indenture. The Company understands that, under the
Depository's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, the Depository would authorize the Participants
holding the relevant beneficial interests to take such action, and such
Participants would authorize beneficial owners owning through such Participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them. Redemption notices will also be sent to the
Depository. If less than all of the Capital Securities are being redeemed, the
Company understands that it is the Depository's existing practice to determine
by lot the amount of the interest of each Participant to be redeemed.
Distributions on the Capital Securities registered in the name of the
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner of the global security representing such
Capital Securities. None of the Company, the Trustees, any Paying Agent or any
other agent of the Company or the Trustees will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global security for such Capital
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Disbursements of Distributions to
Participants shall be the responsibility of the Depository. The Depository's
practice is to credit Participants' accounts on a payable date in accordance
with their respective holdings shown on the Depository's records unless the
Depository has reason to believe that it will not receive payment on such
payable date. Payments by Participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of the
Depository, the Company, the Trustees, the Paying Agent or any other agent of
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time.
The Depository may discontinue providing its services as securities
depository with respect to the Capital Securities at any time by giving
reasonable notice to the Company or the Trustee. If the Depository notifies the
Company that it is unwilling to continue as such, or if it is unable to continue
or ceases to be a clearing agency registered under the Exchange Act and a
successor depository is not appointed by the Company within ninety days after
receiving such notice or becoming aware that the Depository is no longer so
registered, the Company will issue the Capital Securities in definitive form
upon registration of transfer of, or in exchange for, such global security. In
addition, the Company may at any time and in its sole discretion determine not
to have the Capital Securities represented by one or more global securities and,
in such event, will issue Capital Securities in definitive form in exchange for
all of the global securities representing such Capital Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the Underwriters. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
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<PAGE>
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are not held by DTC, such payments will be made by
check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust company reasonably acceptable to the
Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Capital Securities after the Capital Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically set
forth in the Trust Agreement and, after such Event of Default, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Company, see "Description of Junior Subordinated
Debentures--Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with the
laws of the State of Delaware.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Capital Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures issued
by the Company. The Junior Subordinated Debentures will bear interest, accruing
from June 6, 1997, at the annual rate of 8.277% of the principal amount thereof,
payable semi-annually in arrears on the first day of June and December of each
year (each, an "Interest Payment Date"), commencing December 1, 1997, to the
person in whose name each Junior Subordinated Debenture is registered at the
close of business on the 15th day of May or November (whether or not a Business
Day) next preceding such Interest Payment Date. It is anticipated that, until
the liquidation, if any, of the Issuer Trust, each Junior Subordinated Debenture
will be registered in the name of the Issuer Trust and held by the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
amount of interest payable for any period less than a full interest period will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. The amount of interest
payable for any full interest period will be computed by dividing the rate per
annum by two. If any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (without any interest or other payment in respect of any such delay), with
the same force and effect as if made on the date such payment was originally
payable. Accrued interest that is not paid on the applicable Interest Payment
Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of 8.277%, compounded semi-annually and
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by two. The term "interest" as used herein includes semi-annual
interest payments, interest on semi-annual interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Junior Subordinated Debentures will mature on June 1, 2027.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the Company
and PARI PASSU with the Company's obligations associated with the Outstanding
Capital Securities. The Junior Subordinated Debentures will not be subject to a
sinking fund. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"--Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 10 consecutive semi-annual periods with respect to
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<PAGE>
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. At the end of such
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of 8.277%, compounded semi-
annually and computed on the basis of a 360-day year of twelve 30-day months and
the actual days elapsed in a partial month in such period, to the extent
permitted by applicable law). The amount of additional interest payable for any
full interest period will be computed by dividing the rate per annum by two.
During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (or holders of Capital Securities while
outstanding) will be required to accrue interest income for United States
federal income tax purposes. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures,
including the Company's obligations associated with the Outstanding Capital
Securities (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholders rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks PARI PASSU with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period subject to the above conditions. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company must give the Issuer Trustees notice of its election of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the Distributions on the Capital Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee will give
notice of the Company's election to begin a new Extension Period to the holders
of the Capital Securities. There is no limitation on the number of times that
the Company may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after June 1, 2007, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Capital
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<PAGE>
Securities--Redemption"), in each case at the redemption price described below.
The proceeds of any such redemption will be used by the Issuer Trust to redeem
the Capital Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company prior to
their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve. The redemption of the
Junior Subordinated Debentures also could be subject to the additional prior
approval of the Federal Reserve under its current risk-based capital guidelines.
The Redemption Price for Junior Subordinated Debentures in the case of a
redemption under (i) above shall equal the following prices, expressed in
percentages of the principal amount, together with accrued interest to but
excluding the date fixed for redemption, if redeemed during the 12-month period
beginning June 1:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2007........................................................................ 104.139%
2008........................................................................ 103.725
2009........................................................................ 103.311
2010........................................................................ 102.897
2011........................................................................ 102.483
2012........................................................................ 102.069
2013........................................................................ 101.655
2014........................................................................ 101.242
2015........................................................................ 100.828
2016........................................................................ 100.414
</TABLE>
and at 100% on or after June 1, 2017.
The Redemption Price in the case of a redemption on or after June 1, 2007
following a Tax Event, Investment Company Event or Capital Treatment Event shall
equal the Redemption Price then applicable to a redemption under (i) above. The
Redemption Price for Junior Subordinated Debentures, in the case of a redemption
prior to June 1, 2007 following a Tax Event, Investment Company Event or Capital
Treatment Event, as described under (ii) above, will equal the Make-Whole Amount
(as defined under "Description of Capital Securities--Redemption"), together
with accrued interest to but excluding the date fixed for redemption.
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if and
for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by the Issuer Trust will
not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Capital Securities--Redemption."
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<PAGE>
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Issuer Trust. If the Junior Subordinated Debentures are distributed to
holders of Capital Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "Description of
Capital Securities--Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "Description of the Capital
Securities--Book Entry, Delivery and Form." If Junior Subordinated Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Junior Subordinated Debentures will be registrable, and Junior
Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate trust office of the Debenture Trustee in New York, New York or at the
offices of any Paying Agent or transfer agent appointed by the Company, provided
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto. However, a holder of $1
million or more in aggregate principal amount of Junior Subordinated Debentures
may receive payments of interest (other than interest payable at the Stated
Maturity) by wire transfer of immediately available funds upon written request
to the Debenture Trustee not later than 15 calendar days prior to the date on
which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and premium,
if any) or interest on any Junior Subordinated Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall, at the request of the Company, be repaid to the Company
and the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to the Company for payment thereof.
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RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank PARI PASSU in all respects with or
junior in interest to the Junior Subordinated Debentures including the Company's
obligations associated with the Outstanding Capital Securities (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period or other event referred to below, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks PARI PASSU with or junior to
such stock), if at such time (i) there has occurred any event (a) of which the
Company has actual knowledge that with the giving of notice or the lapse of
time, or both, would constitute a Debenture Event of Default and (b) that the
Company has not taken reasonable steps to cure, (ii) if the Junior Subordinated
Debentures are held by the Issuer Trust, the Company is in default with respect
to its payment of any obligations under the Guarantee or (iii) the Company has
given notice of its election of an Extension Period as provided in the Junior
Subordinated Indenture and has not rescinded such notice, or such Extension
Period, or any extension thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
dissolve, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Capital Securities in liquidation of the Issuer Trust or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to: (1) evidence succession of another corporation or association to the Company
and the assumption by such person of the obligations of the Company under the
Junior Subordinated Debentures, (2) add further covenants, restrictions or
conditions for the protection of holders of the Junior Subordinated Debentures,
(3) cure ambiguities or correct the Junior Subordinated Debentures in the case
of defects or inconsistencies in the provisions thereof, so long as any such
cure or correction does not adversely affect the interest of the holders of the
Junior Subordinated Debentures in any material respect, (4) change the terms of
the Junior Subordinated Debentures to facilitate the issuance
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<PAGE>
of the Junior Subordinated Debentures in certificated or other definitive form,
(5) evidence or provide for the appointment of a successor Debenture Trustee, or
(6) qualify, or maintain the qualification of, the Junior Subordinated
Indentures under the Trust Indenture Act. The Junior Subordinated Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Junior Subordinated Debentures, to modify the Junior Subordinated Indenture in a
manner affecting the rights of the holders of the Junior Subordinated
Debentures, except that no such modification may, without the consent of the
holder of each outstanding Junior Subordinated Debenture so affected, (i) change
the Stated Maturity of the Junior Subordinated Debentures, or reduce the
principal amount thereof, the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or the
currency in which, any such amount is payable or impair the right to institute
suit for the enforcement of any Junior Subordinated Debenture or (ii) reduce the
percentage of principal amount of Junior Subordinated Debentures, the holders of
which are required to consent to any such modification of the Junior
Subordinated Indenture. Furthermore, so long as any of the Capital Securities
remain outstanding, no such modification may be made that adversely affects the
holders of such Capital Securities in any material respect, and no termination
of the Junior Subordinated Indenture may occur, and no waiver of any Debenture
Event of Default or compliance with any covenant under the Junior Subordinated
Indenture may be effective, without the prior consent of the holders of at least
a majority of the aggregate Liquidation Amount of the outstanding Capital
Securities unless and until the principal of (and premium, if any, on) the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Junior Subordinated Indenture for 90 days after
written notice to the Company from the Debenture Trustee or the holders of
at least 25% in aggregate outstanding principal amount of the outstanding
Junior Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Capital Securities--Events of
Default; Notice," the occurrence of a Debenture Event of Default will also
constitute an Event of Default in respect of the Trust Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in
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aggregate Liquidation Amount of the outstanding Capital Securities shall have
such right. The holders of a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures may annul such declaration and waive
the default if all defaults (other than the non-payment of the principal of
Junior Subordinated Debentures which has become due solely by such acceleration)
have been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee. Should the holders of Junior Subordinated Debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the outstanding Capital Securities shall have
such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture affected thereby. See "--Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Capital Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Capital
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Capital Securities by
the Company in connection with a Direct Action.
The holders of the Capital Securities would not be able to exercise directly
any remedies available to the holders of the Junior Subordinated Debentures
except under the circumstances described in the preceding paragraph. See
"Description of Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
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Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders of
the Junior Subordinated Debentures protection in the event of a highly leveraged
or other transaction involving the Company that may adversely affect holders of
the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
(1) all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (a) have become due and payable, (b) will become due
and payable at the Stated Maturity within one year, or (c) are to be called for
redemption within one year under arrangements satisfactory to the Debenture
Trustee for the giving of notice of redemption by the Debenture Trustee in the
name, and at the expense, of the Company, and the Company deposits or causes to
be deposited with the Debenture Trustee funds, in trust, for the purpose and in
an amount sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal (and premium, if any) and interest to the date
of the deposit or to the Stated Maturity or Redemption Date, as the case may be,
(2) the Company has paid or caused to be paid all other sums payable under the
Junior Subordinated Indenture by the Company, and (3) the Company has delivered
to the Debenture Trustee an officers' certificate and an opinion of counsel each
stating that all conditions precedent provided for in the Junior Subordinated
Indenture relating to the satisfaction and discharge of the Junior Subordinated
Indenture have been complied with, then the Junior Subordinated Indenture will
cease to be of further effect (except as to the Company's obligations to pay all
other sums due pursuant to the Junior Subordinated Indenture and to provide the
officers' certificates and opinions of counsel described therein), and the
Company will be deemed to have satisfied and discharged the Junior Subordinated
Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If the Company defaults
in the payment of any principal, premium, if any, or interest, if any, or any
other amount payable on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by setoff or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures. Because the
Company is a holding company, the Junior Subordinated Debentures and the
Guarantee are effectively subordinated to all indebtedness and other liabilities
of its subsidiaries. As of March 31, 1997, the Company's subsidiaries had
indebtedness and other liabilities of approximately $12.2 billion.
As used herein, "Senior Indebtedness" means, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person and all dividends of another person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable, directly or
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indirectly, as obligor or otherwise; provided that "Senior Indebtedness" shall
not include (i) any obligations which, by their terms, are expressly stated to
rank PARI PASSU in right of payment with, or to not be superior in right of
payment to, the Junior Subordinated Debentures, (ii) any Senior Indebtedness of
the Company which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to the Company, (iii) any indebtedness of the Company to any of
its subsidiaries, (iv) indebtedness to any employee of the Company, or (v) any
indebtedness in respect of debt securities issued to any trust, or a trustee of
such trust, partnership or other entity affiliated with the Company that is a
financing entity of the Company in connection with the issuance of such
financing entity of securities that are similar to the Capital Securities
including the Outstanding Capital Securities.
In the event of (i) certain events of bankruptcy, dissolution or liquidation
of the Company or the holder of the Common Securities, (ii) any proceeding for
the liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of a
default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
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Bankers Trust Company, the Debenture Trustee, may serve from time to time as
trustee under other indentures or trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Capital Securities by the Issuer Trust for the benefit of
the holders from time to time of the Capital Securities. Bankers Trust Company
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of the Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Capital Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Capital Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer Trust may have or assert other
than the defense of payment. The following payments with respect to the Capital
Securities, to the extent not paid by or on behalf of the Issuer Trust (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on such Capital Securities, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
(ii) the Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Issuer Trust has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution,
winding-up or liquidation of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital Securities), the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining available for distribution to holders of the Capital
Securities on liquidation of the Issuer Trust. The Company's obligation to make
a Guarantee Payment may be satisfied by direct payment of the required amounts
by the Company to the holders of the Capital Securities or by causing the Issuer
Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Capital Securities, but will apply only
to the extent that the Issuer Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "--Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed
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all the Issuer Trust's obligations under the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Capital Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "Description of the Capital Securities--Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Issuer Trust, the Guarantee
Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his
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or her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of the Capital Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
For information concerning the relationship between Bankers Trust Company,
the Guarantee Trustee, and the Company, see "Description of Junior Subordinated
Debentures--Information Concerning the Debenture Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Capital Securities, upon full payment of
the amounts payable with respect to the Capital Securities upon liquidation of
the Issuer Trust or upon distribution of Junior Subordinated Debentures to the
holders of the Capital Securities. The Guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time any holder of the
Capital Securities must restore payment of any sums paid under the Capital
Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee." Taken together, the Company's obligations under the
Junior Subordinated Debentures, the Junior Subordinated Indenture, the Trust
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all the other documents constitutes such guarantee.
It is only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the Issuer Trust's
obligations in respect of the Capital Securities. If and to the extent that the
Company does not make payments on the Junior Subordinated Debentures, the Issuer
Trust will not have sufficient funds to pay Distributions or other amounts due
on the Capital Securities. The Guarantee does not cover payment of amounts
payable with respect to the Capital Securities when the Issuer Trust does not
have sufficient funds to pay such amounts. In such event, the remedy of a holder
of the Capital Securities is to institute a legal proceeding directly against
the Company for enforcement of payment of the Company's obligations under Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Capital Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated Debentures,
such payments will be sufficient to cover Distributions and other payments
distributable on the Capital Securities, primarily because (i) the aggregate
principal amount of the Junior Subordinated Debentures will be equal to the sum
of the aggregate stated Liquidation Amount of the Capital Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
Junior Subordinated Debentures will match the
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Distribution rate, Distribution Dates and other payment dates for the Capital
Securities; (iii) the Company will pay for all and any costs, expenses and
liabilities of the Issuer Trust except the Issuer Trust's obligations to holders
of the Trust Securities; and (iv) the Trust Agreement further provides that the
Issuer Trust will not engage in any activity that is not consistent with the
limited purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Capital
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the Junior
Subordinated Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures--Subordination."
LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent preferred undivided beneficial interests in
the assets of the Issuer Trust, and the Issuer Trust exists for the sole purpose
of issuing its Capital Securities and Common Securities and investing the
proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Capital Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company payments on Junior Subordinated Debentures
held, while a holder of Capital Securities is entitled to receive Distributions
or other amounts distributable with respect to the Capital Securities from the
Issuer Trust (or from the Company under the Guarantee) only if and to the extent
the Issuer Trust has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Issuer Trust, other than any such dissolution, winding-up or liquidation
involving the distribution of the Junior Subordinated Debentures, after
satisfaction of liabilities to creditors of the Issuer Trust as required by
applicable law, the holders of the Capital Securities will be entitled to
receive, out of assets held by the Issuer Trust, the Liquidation Distribution in
cash. See "Description of Capital Securities--Liquidation Distribution Upon
Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of the
Company, the Issuer Trust, as registered holder of the Junior Subordinated
Debentures, would be a subordinated creditor of the Company, subordinated and
junior in right of payment to all Senior Indebtedness as set forth in the Junior
Subordinated Indenture, but entitled to receive payment in full of all amounts
payable with respect to the Junior Subordinated Debentures before any
stockholders of the Company receive payments or distributions. Since the Company
is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of the Capital Securities and a
holder of such Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Arnold & Porter, Washington, D.C., in its capacity as
special tax counsel to the Company ("Tax Counsel"), the following discussion
summarizes the material United States federal income tax consequences of the
purchase, ownership and disposition of the Capital Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions of Tax Counsel
are not binding on the Internal Revenue Service (the "IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought from the IRS with respect to the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with the Capital
Securities held as a capital asset by a holder who or which (i) purchased the
Capital Securities upon original issuance at their original offering price and
(ii) is a US Holder (as defined below). This summary does not address all the
tax consequences that may be relevant to a US Holder, nor does it address the
tax consequences, except as stated below, to holders that are not US Holders
("Non-US Holders") or to holders that may be subject to special tax treatment
(such as banks, thrift institutions, real estate investment trusts, regulated
investment companies, insurance companies, brokers and dealers in securities or
currencies, other financial institutions, tax-exempt organizations, persons
holding the Capital Securities as a position in a "straddle," as part of a
"synthetic security," "hedging," "conversion" or other integrated investment,
persons having a functional currency other than the U.S. Dollar and certain
United States expatriates). Further, this summary does not address (a) the
income tax consequences to shareholders in, or partners or beneficiaries of, a
holder of the Capital Securities, (b) the United States federal alternative
minimum tax consequences of the purchase, ownership or disposition of the
Capital Securities, or (c) any state, local or foreign tax consequences of the
purchase, ownership and disposition of Capital Securities.
A "US Holder" is a holder of the Capital Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States trustees have the authority to control all substantial
decisions of the trust.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
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.
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US HOLDERS
CHARACTERIZATION OF THE ISSUER TRUST. In connection with the issuance of
the Capital Securities, Tax Counsel will render its opinion generally to the
effect that, under then current law and based on the representations, facts and
assumptions set forth in this Prospectus, and assuming full compliance with the
terms of the Trust Agreement (and other relevant documents), and based on
certain assumptions and qualifications referenced in the opinion, the Issuer
Trust will be characterized for United States federal income tax purposes as a
grantor trust and will not be characterized as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of the Capital Securities generally will be considered the owner of an
undivided interest in the Junior Subordinated Debentures owned by the Issuer
Trust, and each US Holder will be required to include all income or gain
recognized for United States federal income tax purposes with respect to its
allocable share of the Junior Subordinated Debentures on its own income tax
return.
CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES. The Company and the
Issuer Trust have agreed to treat the Junior Subordinated Debentures as
indebtedness for all United States federal income tax purposes. In connection
with the issuance of the Junior Subordinated Debentures, Tax Counsel will render
its opinion generally to the effect that, under then current law and based on
the representations, facts and assumptions set forth in this Prospectus, and
assuming full compliance with the terms of the Junior Subordinated Indenture
(and other relevant documents), and based on certain assumptions and
qualifications referenced in the opinion, the Junior Subordinated Debentures
will be characterized for United States federal income tax purposes as debt of
the Company.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under the terms of the Junior
Subordinated Debentures the Company has the ability to defer payments of
interest from time to time by extending the interest payment period for a period
not exceeding 10 consecutive semi-annual periods, but not beyond the maturity of
the Junior Subordinated Debentures. Recently issued Treasury regulations under
Section 1273 of the Code provide that debt instruments like the Junior
Subordinated Debentures will not be considered issued with original issue
discount ("OID") by reason of the Company's ability to defer payments of
interest if the likelihood of such deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the date
of this Prospectus, the likelihood of deferring payments of interest under the
terms of the Junior Subordinated Debentures is "remote" within the meaning of
the applicable Treasury regulations, in part because exercising that option
would prevent the Company from declaring dividends on its stock and would
prevent the Company from making any payments with respect to debt securities
that rank PARI PASSU with or junior to the Junior Subordinated Debentures.
Therefore, the Junior Subordinated Debentures should not be treated as issued
with OID by reason of the Company's deferral option. Rather, stated interest on
the Junior Subordinated Debentures will generally be taxable to a US Holder as
ordinary income when paid or accrued in accordance with that holder's method of
accounting for income tax purposes. It should be noted, however, that these
Treasury regulations may in the future be analyzed and interpreted by the IRS in
rulings or other published documents. Accordingly, it is possible that the IRS
could take a position contrary to the interpretation described herein.
In the event the Company exercises its option to defer payments of interest,
the Junior Subordinated Debentures would be treated as redeemed and reissued for
OID purposes and the sum of the remaining interest payments (and any DE MINIMIS
OID) on the Junior Subordinated Debentures would thereafter be treated as OID,
which would accrue, and be includible in a US Holder's taxable income, on an
economic accrual basis (regardless of the US Holder's method of accounting for
income tax purposes) over the remaining term of the Junior Subordinated
Debentures (including any period of interest deferral), without regard to the
timing of payments under the Junior Subordinated Debentures. (Subsequent
distributions of interest on the Junior Subordinated Debentures generally would
not be taxable.) The amount of OID that
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would accrue in any period would generally equal the amount of interest that
accrued on the Junior Subordinated Debentures in that period at the stated
interest rate. Consequently, during any period of interest deferral, US Holders
will include OID in gross income in advance of the receipt of cash, and a US
Holder which disposes of a Capital Security prior to the record date for payment
of distributions on the Junior Subordinated Debentures following that period
will be subject to income tax on OID accrued through the date of disposition
(and not previously included in income), but will not receive cash from the
Issuer Trust with respect to the OID.
If the possibility of the Company's exercise of its option to defer payments
of interest is not treated as remote, the Junior Subordinated Debentures would
be treated as initially issued with OID in an amount equal to the aggregate
stated interest (plus any DE MINIMIS OID) over the term of the Junior
Subordinated Debentures. That OID would generally be includible in a US Holder's
taxable income, over the term of the Junior Subordinated Debentures, on an
economic accrual basis.
CHARACTERIZATION OF INCOME. Because the income underlying the Capital
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Capital Securities.
MARKET DISCOUNT AND BOND PREMIUM. Holders of the Capital Securities may be
considered to have acquired their undivided interests in the Junior Subordinated
Debentures with market discount, premium or acquisition premium (as each phrase
is defined for United States federal income tax purposes).
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
ISSUER TRUST. Under certain circumstances described herein (See "Description of
the Capital Securities--Liquidation Distribution Upon Dissolution"), the Issuer
Trust may distribute the Junior Subordinated Debentures to holders in exchange
for the Capital Securities and in liquidation of the Issuer Trust. Except as
discussed below, such a distribution would not be a taxable event for United
States federal income tax purposes, and each US Holder would have an aggregate
adjusted basis in its Junior Subordinated Debentures for United States federal
income tax purposes equal to such holder's aggregate adjusted basis in its
Capital Securities. For United States federal income tax purposes, a US Holder's
holding period in the Junior Subordinated Debentures received in such a
liquidation of the Issuer Trust would include the period during which the
Capital Securities were held by the holder. If, however, the relevant event is a
Tax Event which results in the Issuer Trust being treated as an association
taxable as a corporation, the distribution would likely constitute a taxable
event to US Holders of the Capital Securities for United States federal income
tax purposes.
Under certain circumstances described herein (see "Description of the
Capital Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Capital Securities. Such a redemption would be taxable for United States
federal income tax purposes, and a US Holder would recognize gain or loss as if
it had sold the Capital Securities for cash. See "--Sales of Capital Securities"
below.
SALES OF CAPITAL SECURITIES. A US Holder that sells Capital Securities will
recognize gain or loss equal to the difference between its adjusted basis in the
Capital Securities and the amount realized on the sale of such Capital
Securities. A US Holder's adjusted basis in the Capital Securities generally
will be its initial purchase price, increased by OID previously included (or
currently includible) in such holder's gross income to the date of disposition,
and decreased by payments received on the Capital Securities (other than any
interest received with respect to the period prior to the effective date of the
Company's first exercise of its option to defer payments of interest). Any such
gain or loss generally will be capital gain or loss, and generally will be a
long-term capital gain or loss if the Capital Securities have been held for more
than one year prior to the date of disposition.
A holder who disposes of its Capital Securities between record dates for
payments of Distributions thereon will be required to include accrued but unpaid
interest (or OID) on the Junior Subordinated
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Debentures through the date of disposition in its taxable income for United
States federal income tax purposes (notwithstanding that the holder may receive
a separate payment from the purchaser with respect to accrued interest), and to
deduct that amount from the sales proceeds received (including the separate
payment, if any, with respect to accrued interest) for the Capital Securities
(or as to OID only, to add such amount to such holder's adjusted tax basis in
its Capital Securities). To the extent the selling price is less than the
holder's adjusted tax basis (which will include accrued but unpaid OID, if any),
a holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
PROPOSED TAX LAW CHANGES
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. The Tax Proposal would generally deny corporate issuers a
deduction for interest on certain debt obligations that have a maximum term in
excess of 15 years and are not shown as indebtedness on the separate balance
sheet of the issuer or, where the instrument is issued to a related party (other
than a corporation), where the holder or some other related party issues a
related instrument that is not shown as indebtedness on the issuer's
consolidated balance sheet. As currently drafted, the Tax Proposal would be
effective generally for instruments issued on or after the date of first
Congressional committee action. Although it is not clear from the President's
proposals as to what constitutes Congressional "committee action" with respect
to the Tax Proposal, it appears that, as drafted, the Tax Proposal would not
apply retroactively to the Junior Subordinated Debentures. However, if the Tax
Proposal (or similar legislation) is enacted with retroactive effect with
respect to the Junior Subordinated Debentures, the Company would not be entitled
to an interest deduction with respect to the Junior Subordinated Debentures.
There can be no assurance that the Tax Proposal, if enacted, will not apply
retroactively to the Junior Subordinated Debentures 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 Junior Subordinated
Debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. See "Description of the Capital Securities--Redemption."
NON-US HOLDERS
The following discussion applies to a Non-US Holder.
Payments to a holder of a Capital Security which is a Non-US Holder will
generally not be subject to withholding of income tax, provided that (a) the
beneficial owner of the Capital Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Capital Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Capital Securities certifies to the Issuer Trust or its
agent, under penalties of perjury, that it is a Non-US Holder and provides its
name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Capital
Security in such capacity, certifies to the Issuer Trust or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or by another Financial Institution between it and the
beneficial owner in the chain of ownership, and furnishes the Issuer Trust or
its agent with a copy thereof.
As discussed above (see "--Proposed Tax Law Changes"), changes in
legislation affecting the income tax consequences of the Junior Subordinated
Debentures are possible, and could adversely affect the ability of the Company
to deduct the interest payable on the Junior Subordinated Debentures. Moreover,
any such legislation could adversely affect Non-US Holders by characterizing
income derived from the Junior Subordinated Debentures as dividends, generally
subject to a 30% income tax (on a withholding basis) when paid to a Non-US
Holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a Non-US Holder.
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A Non-US Holder of a Capital Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a Capital Security.
A Non-US Holder which holds the Capital Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Junior Subordinated Debentures.
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Capital Securities held by a noncorporate
US Holder within the United States. In addition, payments made on, and payments
of the proceeds from the sale of, the Capital Securities to or through the
United States office of a broker are subject to information reporting unless the
holder thereof certifies as to its Non-United States status or otherwise
establishes an exemption from information reporting and backup withholding. See
"--Backup Withholding." Taxable income on the Capital Securities for a calendar
year should be reported to US Holders on the appropriate form by the following
January 31st.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification or exemption requirements. Any amounts so withheld will
be allowed as a credit against the holder's income tax liability, or refunded,
provided the required information is provided to the IRS.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE CAPITAL SECURITIES. POTENTIAL HOLDERS OF THE CAPITAL SECURITIES ARE URGED
TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Capital Securities, fiduciaries of
pension, profit sharing or other employee benefit plans subject to ERISA
("Plans") should consider, among other matters, (a) ERISA's fiduciary standards
(including its prudence and diversification requirements), (b) whether such
fiduciaries have authority to make such investment in the Capital Securities
under the applicable Plan investment policies and governing instruments, and (c)
rules under ERISA and the Code that prohibit Plan fiduciaries from causing a
Plan to engage in a "prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from, among other things, engaging in certain transactions
involving "plan assets" with persons who are "parties in interest" under ERISA
or "disqualified persons" under the Code ("Parties in Interest") with respect to
such Plan. A violation of these "prohibited transaction" rules may result in an
excise tax or other liabilities under ERISA and/or Section 4975 of the Code for
such persons, unless exemptive relief is available under an applicable statutory
or administrative exemption. Employee benefit plans that are governmental plans
(as defined in Section 3(32) of ERISA), certain church plans (as defined in
Section 3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of
ERISA) are not subject to the requirements of ERISA or Section 4975 of the Code.
The Department of Labor (the "DOL") has issued a regulation (29 C.F.R.
section 2510.3-101) (the "Plan Assets Regulation") concerning the definition of
what constitutes the assets of a Plan. The Plan Assets Regulation provides that,
as a general rule, the underlying assets and properties of corporations,
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partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Trust would not be deemed to be "plan assets" of investing Plans if,
immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interests in the Trust
were held by Plans, other employee benefit plans not subject to ERISA or Section
4975 of the Code (such as governmental, church or foreign plans), and entities
holding assets deemed to be "plan assets" of any Plan (collectively, "Benefit
Plan Investors"). No assurance can be given that the value of the Capital
Securities held by Benefit Plan Investors will be less than 25% of the total
value of such Capital Securities at the completion of the initial offering or
thereafter, and no monitoring or other measures will be taken with respect to
the satisfaction of the conditions to this exception. All the Common Securities
will be purchased and held directly by the Company.
Under another exception contained in the Plan Assets Regulation, if the
Capital Securities were to qualify as "publicly offered securities" under the
Plan Assets Regulation, the assets of the Trust would not be deemed to be "plan
assets" by reason of a Plan's acquisition or holding of such securities. The
Capital Securities would qualify as "publicly offered securities" if, among
other things, they are offered pursuant to an effective registration statement,
are owned by 100 or more investors independent of the issuer and each other at
the time of the offering, and are subsequently registered under the Exchange
Act. It is expected that the 100 investor requirement will not be satisfied and
that the Capital Securities will not be registered under the Exchange Act.
There can be no assurance that any of the exceptions set forth in the Plan
Assets Regulation will apply to the purchase of Capital Securities offered
hereby and, as a result, an investing Plan's assets could be considered to
include an undivided interest in the Junior Subordinated Debentures held by the
Trust. In the event that assets of the Trust are considered assets of an
investing Plan, the Trustees, the Company and/ or other persons, in providing
services with respect to the Junior Subordinated Debentures, could be considered
fiduciaries to such Plan and subject to the fiduciary responsibility provisions
of Title I of ERISA. In addition, certain transactions involving the Trust
and/or the Capital Securities could be deemed to constitute direct or indirect
prohibited transactions under ERISA and Section 4975 of the Code with respect to
a Plan. For example, if the Company is a Party in Interest with respect to an
investing Plan (either directly or by reason of its ownership of the Banks or
other subsidiaries), extensions of credit between the Company and the Trust (as
represented by the Junior Subordinated Debentures and the Guarantee) would
likely be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B)
of the Code.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the Capital Securities, assuming that
assets of the Trust were deemed to be "plan assets" of Plans investing in the
Trust (see above). Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 95-60 (for
certain transactions involving insurance company general accounts), PTCE 90-1
(for certain transactions involving insurance company pooled separate accounts),
and PTCE 84-14 (for certain transactions determined by independent qualified
asset managers).
Because of ERISA's prohibitions and those of Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any other person investing "plan assets"
of any Plan, unless such purchase or holding is covered by the exemptive relief
provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. If a purchaser or holder of the Capital Securities that is a Plan or
a Plan Asset Entity elects to rely on an exemption other than PTCE 96-23, 95-60,
91-38, 90-1 or 84-14, the Company and the Trust may require a satisfactory
opinion of counsel or
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other evidence with respect to the availability of such exemption for such
purchase and holding. Any purchaser or holder of the Capital Securities that is
a Plan or a Plan Assets Entity or is purchasing such securities on behalf of or
with "plan assets" will be deemed to have represented by its purchase and
holding thereof that (a) the purchase and holding of the Capital Securities is
covered by the exemptive relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or
84-14 or another applicable exemption, (b) the Company and the Administrators
are not "fiduciaries," within the meaning of Section 3(21) of ERISA and the
regulations thereunder, with respect to such person's interest in the Capital
Securities or the Junior Subordinated Debentures, and (c) such person approves
the purchase of the Junior Subordinated Debentures and the appointment of the
Issuer Trustees.
Any plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Capital Securities should
consult with their own counsel.
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975 of
the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions similar to those under ERISA and the Code discussed
above. Accordingly, fiduciaries of governmental and church plans, in
consultation with their advisers, should consider the impact of their respective
state laws on investments in the Capital Securities and the considerations
discussed above to the extent applicable.
SUPERVISION, REGULATION AND OTHER MATTERS
The following information is not intended to be an exhaustive description of
the statutes and regulations applicable to the Company. The discussion is
qualified in its entirety by reference to all particular statutory or regulatory
provisions. Additional information regarding supervision and regulation is
included in the documents incorporated herein by reference. See "Incorporation
of Certain Documents by Reference."
The business of the Company is influenced by prevailing economic conditions
and governmental policies, both foreign and domestic. The actions and policy
directives of the Federal Reserve determine to a significant degree the cost and
the availability of funds obtained from money market sources for lending and
investing. The Federal Reserve's policies and regulations also influence,
directly and indirectly, the rates of interest paid by commercial banks on their
time and savings deposits. The nature and impact on the Company of future
changes in economic conditions and monetary and fiscal policies, both foreign
and domestic, are not predictable.
The Company is subject to supervision and examination by federal bank
regulatory authorities. The Company's primary bank regulatory authority is the
Federal Reserve. Bank holding companies are expected to serve as a source of
strength to their subsidiary banks under the Federal Reserve's regulations and
policies.
The federal bank regulatory authorities have each adopted risk-based capital
guidelines to which the Company is subject. These guidelines are based on an
international agreement developed by the Basle Committee on Banking Regulations
and Supervisory Practices, which consists of representatives of central banks
and supervisory authorities in 12 countries including the United States of
America. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations, takes off-balance sheet exposures into explicit
account in assessing capital adequacy and minimizes disincentives to holding
liquid, low-risk assets. Risk-based assets are determined by allocating assets
and specified off-balance sheet commitments and exposures into four weighted
categories, with higher levels of capital being required for the categories
perceived as representing greater risk.
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Each of the Company's subsidiary banks are required to maintain a minimum
total risk-based ratio of 8%, of which half (4%) must be "Tier 1" capital. In
addition, the federal bank regulators established leverage ratio (Tier 1 capital
to total adjusted average assets) guidelines providing for a minimum leverage
ratio of 3% for banks meeting certain specified criteria, including excellent
asset quality, high liquidity, low interest rate exposure and the highest
regulatory rating. Institutions not meeting these criteria are expected to
maintain a ratio which exceeds the 3% minimum by at least 100 to 200 basis
points. The federal bank regulatory authorities may, however, set higher capital
requirements when a bank's particular circumstances warrant.
Effective January 17, 1995, the federal bank regulatory agencies, including
the Federal Reserve, amended their respective agency risked-based capital
standards to include concentration of credit risk and the risks of
non-traditional activities. Those agencies, including the Federal Reserve, also
issued a joint policy statement, effective June 26, 1996, that provides guidance
on sound practices for interest rate risk management. The policy describes
critical factors affecting the agencies' evaluation of a bank's interest rate
risk when making a determination of capital adequacy.
The federal banking agencies possess broad powers to take corrective action
as deemed appropriate for an insured depository institution and its holding
companies. The extent of these powers depends upon whether the institution in
question is considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Generally, as an institution is deemed to be less well
capitalized, the scope and severity of the agencies' powers increase. The
agencies' corrective powers can include, among other things, requiring an
insured financial institution to adopt a capital restoration plan which cannot
be approved unless guaranteed by the institution's parent holding company;
placing limits on asset growth and restrictions on activities; placing
restrictions on transactions with affiliates; restricting the interest rates the
institution may pay on deposits; prohibiting the institution from accepting
deposits from correspondent banks; prohibiting the payment of principal or
interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval; and, ultimately,
appointing a receiver for the institution. Business activities may also be
influenced by an institution's capital classification. For instance, only a
"well capitalized" depository institution may accept brokered deposits without
prior regulatory approval and only an "adequately capitalized" depository
institution may accept brokered deposits with prior regulatory approval. At
March 31, 1997, the Company, on a consolidated basis, exceeded the required
capital ratios for classification as a "well capitalized" bank holding company.
The deposits of the Company's subsidiary banks are insured by the FDIC and
are subject to FDIC insurance assessments. The amount of FDIC assessments paid
by individual insured depository institutions is based on their relative risk as
measured by regulatory capital ratios and certain other factors. During 1995,
the FDIC's Board of Directors significantly reduced premium rates assessed for
deposits insured by the Bank Insurance Fund (the "BIF"), resulting in the
Company not currently being assessed a premium on its BIF-insured deposits. With
respect to deposits insured by the Savings Association Insurance Fund ("SAIF"),
on September 30, 1996, President Clinton signed into law legislation that
mandated a one-time assessment on SAIF-insured deposits to recapitalize the
SAIF. As a result, for the quarter ended September 30, 1996, the Company
recorded a pre-tax charge of $7.0 million for this SAIF assessment. The
legislation also mandates reductions in deposit premium rates on SAIF-insured
deposits.
Under federal law, a financial institution insured by the FDIC under common
ownership with a failed institution can be required to indemnify the FDIC for
its losses resulting from the insolvency of the failed institution, even if such
indemnification causes the affiliated institution also to become insolvent. As a
result, the Company could, under certain circumstances, be obligated for the
liabilities of its affiliates that are FDIC-insured institutions. In addition,
if any insured depository institution becomes insolvent and the FDIC is
appointed its conservator or receiver, the FDIC may disaffirm or repudiate any
contract or lease to which such institution is a party, the performance of which
is determined to be burdensome and the disaffirmance or repudiation of which is
determined to promote the orderly administration of the
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institution's affairs. If Federal law were construed to permit the FDIC to apply
these provisions to debt obligations of an insured depository institution, the
result could be that such obligations would be prepaid without premium. Federal
law also accords the claims of a receiver of an insured depository institution
for administrative expenses and the claims of holders of deposit liabilities of
such an institution priority over the claims of general unsecured creditors of
such an institution in the event of a liquidation or other resolution of such
institution.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated June 5, 1997 (the "Underwriting Agreement") among the Company, the Issuer
Trust, and each of the underwriters named therein (the "Underwriters"), the
Issuer Trust has agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase, severally but not jointly, the Liquidation Amount of the
Capital Securities set forth opposite their names below:
<TABLE>
<CAPTION>
LIQUIDATION AMOUNT
OF CAPITAL
UNDERWRITERS: SECURITIES:
- ------------------------------------------------------------------------- -------------------
<S> <C>
Morgan Stanley & Co. Incorporated........................................ $ 40,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated....................... 40,000,000
Keefe, Bruyette & Woods, Inc............................................. 20,000,000
-------------------
Total................................................................ $ 100,000,000
-------------------
-------------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, in the event
of a default by an Underwriter, in certain circumstances, the purchase
commitments of non-defaulting Underwriters may be increased or the Underwriting
Agreement may be terminated.
The initial purchase price for the Capital Securities will be the initial
offering price set forth on the cover page of this Prospectus (the "Capital
Securities Offering Price"). The Underwriters propose to offer the Capital
Securities at the Capital Securities Offering Price, and all or part to certain
dealers at a price that represents a concession not in excess of $6.00 per
Capital Security. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $2.50 per Capital Security to certain other dealers.
After the Capital Securities are released for sale, the Capital Securities
Offering Price and other selling terms may from time to time be varied by the
Underwriters.
In order to facilitate the offering of the Capital Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Capital Securities. Specifically, the Underwriters may
overallot in connection with the offering, creating a short position in the
Capital Securities for their own account. In addition, to cover overallotments
or to stabilize the price of the Capital Securities, the Underwriters may bid
for, and purchase, the Capital Securities in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the Capital Securities in the offering, if the
syndicate repurchases previously distributed Capital Securities in transactions
to cover syndicate short positions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the
Capital Securities above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
In view of the fact that the proceeds from the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriters arranging the investment therein of such
proceeds an amount of $10 per Capital Security (or $1,000,000 in the aggregate)
for the accounts of the Underwriters.
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Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Capital Securities offered hereby as interests in a direct
participation program, the offering of the Capital Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
The Company and the Issuer Trust have agreed that, during the period
beginning on the date of the Underwriting Agreement and continuing to and
including the closing date, they will not offer, sell, contract to sell or
otherwise dispose of (other than in an offering made exclusively outside the
United States) any securities of the Company or the Issuer Trust substantially
similar to the Capital Securities, or any securities convertible into or
exchangeable for the Capital Securities, without the prior written consent of
the Underwriters.
The Capital Securities are a new issue of securities with no established
trading market. The Company and the Issuer Trust do not intend to apply for
listing of the Capital Securities on any national securities exchange, but the
Company and the Issuer Trust have been advised by the Underwriters that they
intend to make a market in the Capital Securities. However, the Underwriters are
not obligated to do so and such market making may be interrupted or discontinued
at any time without notice at the sole discretion of any Underwriter.
Accordingly, no assurance can be given as to the development or liquidity of any
market for the Capital Securities.
The Company and the Issuer Trust have agreed to indemnify the Underwriters
and certain other persons against, or contribute to payments that the
Underwriters may be required to make in respect of, certain liabilities,
including liabilities under the Securities Act.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to the Company and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, Wilmington,
Delaware, special Delaware counsel to the Company and the Issuer Trust. The
validity of the Guarantee and the Junior Subordinated Debentures will be passed
upon for the Company by Arnold & Porter, Washington, D.C. and New York, New
York, special counsel to the Company, and Richard A. Lammert, Esquire, Senior
Vice President, General Counsel and Secretary of the Company, and for the
Underwriters by Cravath, Swaine & Moore, New York, New York. As of March 31,
1997, Mr. Lammert was the beneficial owner of 5,650 shares of common stock, par
value $5 per share, of the Company. Mr. Lammert also holds unexercised options
granted under the Company's 1983 Stock Option Plan to purchase 10,000 shares of
such common stock.
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EXPERTS
The consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (included in the
Company's Annual Report to Stockholders), are incorporated by reference in this
Prospectus (and elsewhere in the Registration Statement) in reliance upon the
report of Price Waterhouse LLP, independent public accountants, given on the
authority of said firm as experts in accounting and auditing.
Documents incorporated herein by reference in the future will include
financial statements, related schedules (if required) and auditors' reports,
which financial statements and schedules will have been audited to the extent
and for the periods set forth in such reports by the firm or firms rendering
such reports, and, to the extent so audited and consent to incorporation by
reference is given, will be incorporated herein by reference in reliance upon
such reports given upon the authority of such firms as experts in accounting and
auditing.
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