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Filed Pursuant to Rule 424b3
File Nos. 333-20611 and 333-20611-01
PROSPECTUS
(First Union logo)
$250,000,000
FIRST UNION INSTITUTIONAL CAPITAL II
OFFER TO EXCHANGE ITS 7.85% CAPITAL SECURITIES
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY
AND ALL OF ITS OUTSTANDING 7.85% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
FIRST UNION CORPORATION
The Exchange Offer and Withdrawal Rights will expire at 5:00 p.m.,
New York City time, on March 12, 1997, unless extended.
First Union Institutional Capital II, a statutory business trust created
under the laws of the State of Delaware (the "Issuer"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (as the same
may be amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $250,000,000 aggregate Liquidation Amount (as defined
herein) of its 7.85% Capital Securities (Liquidation Amount $1,000 per Capital
Security) (the "New Capital Securities"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for a like Liquidation Amount of its outstanding 7.85% Capital
Securities (Liquidation Amount $1,000 per Capital Security) (the "Old Capital
Securities"), of which $250,000,000 aggregate Liquidation Amount is outstanding.
Pursuant to the Exchange Offer, First Union Corporation, a North Carolina
corporation (the "Corporation"), is also exchanging (i) its guarantee with
respect to the payment of Distributions (as defined herein) and other payments
on liquidation or redemption of the Old Capital Securities (the "Old Guarantee")
for a like guarantee with respect to the New Capital Securities (the "New
Guarantee"), and (ii) all of its outstanding 7.85% Junior Subordinated
Deferrable Interest Debentures (the "Old Subordinated Debentures"), of which
$257,732,000 aggregate principal amount is outstanding, for a like aggregate
principal amount of its 7.85% Junior Subordinated Deferrable Interest Debentures
(the "New Subordinated Debentures"), which New Guarantee and New Subordinated
Debentures also have been registered under the Securities Act. The Old Capital
Securities, the Old Guarantee and the Old Subordinated Debentures are
collectively referred to herein as the "Old Securities" and the New Capital
Securities, the New Guarantee and the New Subordinated Debentures are
collectively referred to herein as the "New Securities".
The terms of the New Securities are identical in all material respects to
the respective terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and therefore will not be subject
to certain restrictions on transfer applicable to the Old Securities, (ii) the
New Capital Securities will not provide for any increase in the Distribution
rate thereon, and (iii) the New Subordinated Debentures will not provide for any
increase in the interest rate thereon. See "Description of New Securities" and
"Description of Old Securities". The New Capital Securities are being offered
for exchange in order to satisfy certain obligations of the Corporation and the
Issuer under the Registration Rights Agreement, dated as of January 6, 1997 (the
"Registration Rights Agreement"), among the Corporation, the Issuer and the
Initial Purchaser (as defined herein) of the Old Capital Securities. In the
event that the Exchange Offer is consummated, any Old Capital Securities which
remain outstanding after consummation of the Exchange Offer and the New Capital
Securities issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Trust Agreement (as defined herein).
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE NEW CAPITAL SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENT OF DISTRIBUTIONS ON THE NEW CAPITAL
SECURITIES MAY BE DEFERRED AND CERTAIN RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is February 10, 1997.
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The New Capital Securities represent preferred undivided beneficial
interests in the assets of the Issuer. The Corporation is the owner of all of
the common undivided beneficial interests in the assets of the Issuer (the
"Common Securities" and, collectively with the Capital Securities (as defined
herein), the "Trust Securities"). The Issuer exists for the sole purpose of
issuing the Trust Securities and investing the proceeds thereof in the
Subordinated Debentures (as defined herein). The Subordinated Debentures will
mature on January 1, 2027 (the "Stated Maturity"). The Capital Securities will
have a preference under certain circumstances with respect to Distributions and
amounts payable on liquidation, redemption or otherwise over the Common
Securities. See "Description of New Securities" -- "Description of Capital
Securities; SUBORDINATION OF COMMON SECURITIES".
As used herein, (i) the "Indenture" means the Junior Subordinated Indenture
relating to the Subordinated Debentures, as amended and supplemented from time
to time, between the Corporation and Wilmington Trust Company, as trustee (the
"Debenture Trustee"), (ii) the "Trust Agreement" means the Amended and Restated
Trust Agreement relating to the Issuer among the Corporation, as Depositor,
Wilmington Trust Company, as Property Trustee (the "Property Trustee"), and
Wilmington Trust Company, as Delaware Trustee (the "Delaware Trustee") (the
Property Trustee and Delaware Trustee collectively, the "Issuer Trustees"), and
the holders from time to time of the undivided beneficial interests in the
assets of the Issuer, (iii) the "Guarantee" means the Guarantee Agreement
between the Corporation and Wilmington Trust Company, as trustee (the "Guarantee
Trustee"), providing a guarantee, on the terms and conditions described herein,
for the benefit of holders of the Capital Securities, and (iv) the "Expense
Agreement" means the Expense Agreement between the Corporation and the Issuer.
In addition, as the context may require, unless expressly stated otherwise, (i)
the "Capital Securities" means the Old Capital Securities and the New Capital
Securities, (ii) the "Subordinated Debentures" means the Old Subordinated
Debentures and the New Subordinated Debentures, and (iii) the "Guarantee" means
the Old Guarantee and the New Guarantee.
Except as provided below, the Capital Securities will be represented by
global Capital Securities in fully registered form, deposited with a custodian
for and registered in the name of a nominee of The Depository Trust Company
("DTC"). Beneficial interests in such Capital Securities will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. Beneficial interests in such Capital Securities will trade in
DTC's Same-Day Funds Settlement System and secondary market trading activity in
such interests will therefore settle in immediately available funds. The Capital
Securities will be issued, and may be transferred, only in blocks having a
Liquidation Amount of not less than $100,000 (100 Capital Securities). See
"Description of New Securities -- Description of Capital Securities; FORM,
DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER".
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable semi-annually in arrears on January 1 and July 1 of each year,
commencing July 1, 1997, at the annual rate of 7.85% of the Liquidation Amount
of $1,000 per Capital Security ("Distributions"). The Corporation has the right
to defer payment of interest on the 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 Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due, the Corporation may elect to begin a new Extension Period,
subject to the requirements set forth herein. If interest payments on the
Subordinated Debentures are so deferred, Distributions on the Capital Securities
will also be deferred and the Corporation will not be permitted, subject to
certain exceptions described herein, to declare or pay any cash distributions
with respect to the Corporation's capital stock or debt securities of the
Corporation that rank PARI PASSU with or junior to the Subordinated Debentures.
During an Extension Period, interest on the 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 7.85% per annum,
compounded semi-annually, and holders of the Capital Securities will be required
to recognize income (in the form of original issue discount) for United States
federal income tax purposes. See "Description of New Securities -- Description
of Subordinated Debentures; OPTION TO EXTEND INTEREST PAYMENT PERIOD" and
"Certain Federal Income Tax Consequences -- Interest Income and Original Issue
Discount".
The Corporation has, through the Guarantee, the Trust Agreement, the
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully and unconditionally guaranteed all of the Issuer's obligations
under the Capital Securities. See "Relationship Among Capital Securities,
Subordinated Debentures and Guarantee -- Full and Unconditional Guarantee". The
Guarantee of the Corporation 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, as described herein. See
"Description of New Securities -- Description of Guarantee". If the Corporation
does not make interest payments on the
2
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Subordinated Debentures held by the Issuer, the Issuer will have insufficient
funds to pay Distributions on the Capital Securities. The Guarantee does not
cover payment of Distributions when the Issuer does not have sufficient funds to
pay such Distributions. In such event, under the Indenture a holder of the
Capital Securities may institute a legal proceeding directly against the
Corporation to enforce payment of such amounts. See "Description of New
Securities -- Description of Subordinated Debentures; ENFORCEMENT OF CERTAIN
RIGHTS BY HOLDERS OF CAPITAL SECURITIES". The obligations of the Corporation
under the Guarantee and the Subordinated Debentures are unsecured and
subordinate and junior in right of payment to all Senior Debt (as defined
herein) of the Corporation. See "Description of New Securities -- Description of
Subordinated Debentures; SUBORDINATION".
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debentures at maturity or their earlier
redemption. The Subordinated Debentures are redeemable prior to maturity at the
option of the Corporation (i) on or after January 1, 2007, in whole at any time
or in part from time to time at the redemption prices set forth herein, or (ii)
at any time, in whole (but not in part), upon the occurrence and continuation of
a Special Event (as defined herein), at a redemption price equal to the Special
Event Redemption Price (as defined herein). See "Description of New
Securities -- Description of Capital Securities; REDEMPTION".
The holder of the Common Securities (I.E., the Corporation) will have the
right at any time to terminate the Issuer and in the event of such termination,
after satisfaction of liabilities to creditors of the Issuer in accordance with
applicable law and the Expense Agreement, the holders of the Capital Securities
will be entitled to receive as a preference a Liquidation Amount of $1,000 per
Capital Security plus accumulated and unpaid Distributions thereon to the date
of payment, which may be in the form of a distribution of a Like Amount (as
defined herein) in Subordinated Debentures, subject to certain exceptions. See
"Description of New Securities -- Description of Capital Securities; LIQUIDATION
DISTRIBUTION UPON Termination".
The Issuer is making the Exchange Offer of the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, neither the Corporation nor the Issuer has sought its own interpretive
letter, and there can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance, and subject to the two immediately following sentences, the
Corporation and the Issuer believe that New Capital Securities issued pursuant
to this Exchange Offer in exchange for Old Capital Securities may be offered for
resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Capital Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Capital Securities. However, any
holder of Old Capital Securities who is an "affiliate" of the Corporation or the
Issuer within the meaning of Rule 405 under the Securities Act (an "Affiliate")
or who intends to participate in the Exchange Offer for the purpose of
distributing New Capital Securities, or any broker-dealer who purchased Old
Capital Securities from the Issuer to resell pursuant to Rule 144A under the
Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (i) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (ii) will not be entitled to tender such
Old Capital Securities in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Capital Securities unless
such sale is made pursuant to an exemption from such requirements. In addition,
as described below, if any broker-dealer (a "Participating Broker-Dealer") holds
Old Capital Securities acquired for its own account as a result of market-making
or other trading activities and exchanges such Old Capital Securities for New
Capital Securities, then such Participating Broker-Dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate, (ii) any New Capital Securities to be
received by it are being acquired in the ordinary course of its business, (iii)
it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Capital
Securities, and (iv) if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution (within the meaning
of the Securities Act) of such New Capital Securities. The Letter of Transmittal
contains the foregoing representations. In addition, the Corporation and the
Issuer may require such holder, as a condition to such holder's eligibility to
participate in the
3
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Exchange Offer, to furnish to the Corporation and the Issuer (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) on behalf of whom such holder holds the Capital Securities
to be exchanged in the Exchange Offer. Each Participating Broker-Dealer that
receives New Capital Securities for its own account pursuant to the Exchange
Offer will be deemed to have acknowledged by execution of the Letter of
Transmittal or delivery of an Agent's Message (as defined herein) that it
acquired the Old Capital Securities for its own account as the result of
market-making activities or other trading activities and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Capital Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Corporation and the Issuer
believe that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the New Capital Securities received upon exchange
of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the
Corporation and the Issuer have agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Capital Securities for a
period ending 180 days after the Expiration Date (as defined herein) or, if
earlier, when all such New Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution". Any person, including
any Participating Broker-Dealer, who is an Affiliate may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer -- Resales of New Capital Securities".
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message, that,
upon receipt of notice from the Corporation or the Issuer of the occurrence of
any event or the discovery of any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in the
light of the circumstances under which they were made, not misleading, or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of New
Securities pursuant to this Prospectus until the Corporation or the Issuer has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer, or the Corporation or the Issuer has given notice
that the sale of the New Securities may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital Securities
will be a new issue of securities for which there currently is no market. There
can be no assurance as to the development or liquidity of any market for the New
Capital Securities. The Corporation currently does not intend to apply for
listing of the New Capital Securities on any securities exchange or for
quotation through the National Association of Securities Dealers Automated
Quotation System.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Trust Agreement
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of Old Capital
Securities will continue to be subject to all of the existing restrictions upon
transfer thereof and neither the Corporation nor the Issuer will have any
further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Capital Securities held by them. To the extent that Old Capital Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Capital Securities could be adversely affected. See "Risk Factors
-- Consequences of a Failure to Exchange Old Capital Securities".
4
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THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on March 12, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Corporation and the Issuer (in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended).
Tenders of Old Capital Securities may be withdrawn at any time on or prior to
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Corporation or the Issuer and to the terms and provisions
of the Registration Rights Agreement. Old Capital Securities may be tendered in
whole or in part having a Liquidation Amount of not less than $100,000 (100
Capital Securities) and or any integral multiple of $1,000 Liquidation Amount (1
Capital Security) in excess thereof. The Corporation has agreed to pay all
expenses of the Exchange Offer, except as otherwise specified herein. See "The
Exchange Offer -- Fees and Expenses". Each New Capital Security will pay
cumulative Distributions from the most recent Distribution Date (as defined
herein) on the Old Capital Securities surrendered in exchange for such New
Capital Securities or, if no Distributions have been paid on such Old Capital
Securities, from January 6, 1997. Holders of the Old Capital Securities whose
Old Capital Securities are accepted for exchange will not receive accumulated
Distributions on such Old Capital Securities for any period from and after the
last Distribution Date on such Old Capital Securities prior to the original
issue date of the New Capital Securities or, if no such Distributions have been
paid, will not receive any accumulated Distributions on such Old Capital
Securities, and will be deemed to have waived the right to receive any
Distributions on such Old Capital Securities accumulated from and after such
Distribution Date or, if no such interest has been paid or duly provided for,
from and after January 6, 1997. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Capital Securities
as of February 10, 1997.
Neither the Corporation nor the Issuer will receive any proceeds from the
issuance of the New Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution".
This Prospectus may be used by First Union Capital Markets Corp., an
affiliate of the Corporation, in connection with offers and sales related to
market-making transactions in New Securities effected from time to time after
the commencement of the offering to which this Prospectus relates. First Union
Capital Markets Corp. may act as principal or agent in such transactions,
including as agent for the counterparty when acting as principal or as agent for
both counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
INVESTOR RELATIONS, FIRST UNION CORPORATION, TWO FIRST UNION CENTER, CHARLOTTE,
NORTH CAROLINA 28288-0206, TELEPHONE NUMBER (704) 374-6782. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 5, 1997.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS THE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
THE NEW CAPITAL SECURITIES WILL BE ISSUED, AND CAPITAL SECURITIES MAY BE
TRANSFERRED, ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN
$100,000. ANY TRANSFER, SALE OR OTHER DISPOSITION OF CAPITAL SECURITIES IN A
BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE
VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT
TO BE THE HOLDER OF SUCH CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT
LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH
TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL
SECURITIES.
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NO EMPLOYEE BENEFIT OR OTHER PLAN 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 PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF
AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION
("PTCE") 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH PURCHASE OR
HOLDING. ANY PURCHASER OR HOLDER OF THE CAPITAL SECURITIES OR ANY INTEREST
THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF
THAT IT EITHER (I) IS NOT A PLAN OR A PLAN ASSET ENTITY AND IS NOT PURCHASING
SUCH SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN, OR (II) IS
ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38, 90-1
OR 84-14 WITH RESPECT TO SUCH PURCHASE OR HOLDING.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................................................................................................. 7
Incorporation of Certain Documents by Reference........................................................................ 7
Summary................................................................................................................ 8
Risk Factors........................................................................................................... 13
The Issuer............................................................................................................. 17
The Corporation........................................................................................................ 19
Consolidated Ratios of Earnings to Fixed Charges....................................................................... 23
Use of Proceeds........................................................................................................ 23
Capitalization......................................................................................................... 24
Accounting Treatment................................................................................................... 25
The Exchange Offer..................................................................................................... 26
Description of New Securities.......................................................................................... 34
Description of Old Securities.......................................................................................... 53
Relationship Among Capital Securities, Subordinated Debentures and Guarantee........................................... 54
Certain Federal Income Tax Consequences................................................................................ 56
Certain ERISA Considerations........................................................................................... 58
Plan of Distribution................................................................................................... 59
Validity of New Capital Securities..................................................................................... 60
Experts................................................................................................................ 60
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE CORPORATION OR THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE CORPORATION OR THE ISSUER SINCE THE DATE HEREOF.
6
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AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Exchange Act and in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center,
14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may also 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 Corporation can
be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
The Corporation and the Issuer have filed with the Commission a
Registration Statement on Form S-4 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Corporation and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
and the financial statements, notes and schedules filed as part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission, at the addresses set forth above.
Statements made in this Prospectus concerning the contents of any documents
referred to herein are not necessarily complete, and in each instance are
qualified in all respects by reference to the copy of such document filed as an
exhibit to the Registration Statement.
No separate financial statements of the Issuer have been included herein.
The Corporation and the Issuer do not consider that such financial statements
would be material to holders of the Capital Securities because the Issuer 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 Subordinated Debentures of the
Corporation and issuing the Trust Securities. The Corporation has, through the
Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and
the Expense Agreement, taken together, fully and unconditionally guaranteed all
of the Issuer's obligations under the Capital Securities. See "The Issuer" and
"Description of New Securities". In addition, the Corporation does not expect
that the Issuer will be filing reports under the Exchange Act with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the Commission (File
No. 1-10000) pursuant to Section 13(a) or 15(d) of the Exchange Act are
incorporated into this Prospectus by reference:
1. the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. the Corporation's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996, and September 30, 1996; and
3. the Corporation's Current Reports on Form 8-K dated January 10, 1996,
February 9, 1996, August 20, 1996, September 6, 1996, October 16, 1996
and January 13, 1997.
Each document or report filed by the Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus from the date of
filing of such document. Any statement contained herein or in a document all or
a portion of which is incorporated or deemed to be incorporated by reference
herein or therein, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Corporation will provide without charge to any
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the foregoing documents incorporated by
reference herein (other than exhibits not specifically incorporated by reference
into the texts of such documents). Requests for such documents should be
directed to: Investor Relations, First Union Corporation, Two First Union
Center, Charlotte, North Carolina 28288-0206, telephone number (704) 374-6782.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED HEREIN AND
SHOULD BE READ IN CONJUNCTION WITH SUCH INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO,
SUCH INFORMATION. CAPITALIZED TERMS USED HEREIN HAVE THE RESPECTIVE MEANINGS
ASCRIBED TO THEM ELSEWHERE IN THIS PROSPECTUS.
EXCHANGE OFFER
Up to $250,000,000 aggregate Liquidation Amount of New Capital Securities
are being offered in exchange for a like aggregate Liquidation Amount of Old
Capital Securities. Old Capital Securities may be tendered for exchange in whole
or in part in a Liquidation Amount of $100,000 (100 Capital Securities) or any
integral multiple of $1,000 in excess thereof, provided that if any Old Capital
Securities are tendered in exchange for part, the untendered Liquidation Amount
must be $100,000 or any integral multiple of $1,000 in excess thereof. The
Corporation and the Issuer are making the Exchange Offer in order to satisfy
their obligations under the Registration Rights Agreement relating to the Old
Capital Securities. For a description of the procedures for tendering Old
Capital Securities, see "The Exchange Offer -- Procedures for Tendering Old
Capital Securities".
EXPIRATION DATE
The Expiration Date of the Exchange Offer will be 5:00 p.m., New York City
time, on March 12, 1997, unless the Exchange Offer is extended by the
Corporation and the Issuer. See "The Exchange Offer -- Expiration Date;
Extensions; Amendments".
CONDITIONS TO EXCHANGE OFFER
The Exchange Offer is subject to certain conditions, which may be waived by
the Corporation and the Issuer in their sole discretion. The Exchange Offer is
not conditioned upon any minimum Liquidation Amount of Old Capital Securities
being tendered. See "The Exchange Offer -- Conditions to Exchange Offer". The
Corporation and the Issuer reserve the right in their sole discretion, subject
to applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Capital Securities for exchange, (ii) to terminate the
Exchange Offer if certain specified conditions have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer and retain all Old Capital
Securities tendered pursuant to the Exchange Offer, subject, however, to the
right of holders of Old Capital Securities to withdraw their tendered Old
Capital Securities, or (iv) to waive any condition or otherwise amend the terms
of the Exchange Offer in any respect. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments".
WITHDRAWAL RIGHTS
Tenders of Old Capital Securities may be withdrawn at any time on or prior
to the Expiration Date by delivering a written notice of such withdrawal to
Wilmington Trust Company, as Exchange Agent (the "Exchange Agent"), in
conformity with certain procedures set forth below under "The Exchange
Offer -- Withdrawal Rights".
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
Tendering holders of Old Capital Securities must complete and sign a Letter
of Transmittal in accordance with the instructions contained therein and forward
the same by mail, facsimile or hand delivery, together with any other required
documents, to the Exchange Agent, either with the Old Capital Securities to be
tendered or in compliance with the specified procedures for guaranteed delivery
of Old Capital Securities. Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect tenders by book-entry transfer,
including an Agent's Message in lieu of the Letter of Transmittal. Holders of
Old Capital Securities registered in the name of a broker, dealer, commercial
bank, trust company or other nominee are urged to contact such person promptly
if they wish to tender Old Capital Securities pursuant to the Exchange Offer.
See "The Exchange Offer -- Procedures for Tendering Old Capital Securities".
Letters of Transmittal and certificates representing Old Capital Securities
should not be sent to the Corporation or the Issuer. Such documents should only
be sent to the Exchange Agent. Questions regarding how to tender and requests
for information should be directed to the Exchange Agent. See "The Exchange
Offer -- Exchange Agent".
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RESALES OF NEW CAPITAL SECURITIES
The Corporation and the Issuer are making the Exchange Offer in reliance on
the position of the staff of the Division of Corporation Finance of the
Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Corporation nor the Issuer
has sought its own interpretive letter and there can be no assurance that the
staff of the Division of Corporation Finance of the Commission would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance, and subject to the two immediately
following sentences, the Corporation and the Issuer believe that New Capital
Securities issued pursuant to this Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an Affiliate or who intends to participate in the Exchange Offer for the
purpose of distributing the New Capital Securities, or any broker-dealer who
purchased the Old Capital Securities from the Issuer to resell pursuant to Rule
144A or any other available exemption under the Securities Act, (i) will not be
able to rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive letters,
(ii) will not be permitted or entitled to tender such Old Capital Securities in
the Exchange Offer, and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Old Capital Securities unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, any
Participating Broker-Dealer must deliver a prospectus meeting the requirements
of the Securities Act in connection with any resales of such New Capital
Securities.
Each holder of Old Capital Securities that wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate, (ii) any New Capital Securities to be
received by it are being acquired in the ordinary course of its business, (iii)
it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Capital
Securities, and (iv) if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution (within the meaning
of the Securities Act) of such New Capital Securities. The Letter of Transmittal
contains the foregoing representations. Each Participating Broker-Dealer will be
deemed to have acknowledged by execution of the Letter of Transmittal or
delivery of an Agent's Message (as defined herein) that it acquired the Old
Capital Securities for its own account as the result of market-making activities
or other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Corporation and the Issuer believe that Participating Broker-Dealers
may fulfill their prospectus delivery requirements with respect to the New
Capital Securities received upon exchange of such Old Capital Securities (other
than Old Capital Securities which represent an unsold allotment from the
original sale of the Old Capital Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of distribution
with respect to the resale of such New Capital Securities. Accordingly, this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement and to the
limitations described below under "The Exchange Offer -- Resale of New Capital
Securities", the Corporation and the Issuer have agreed that this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 180 days after the Expiration Date or, if
earlier, when all such New Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution". Any person, including
any Participating Broker-Dealer, who is an Affiliate may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer -- Resales of New Capital Securities".
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EXCHANGE AGENT
The Exchange Agent is Wilmington Trust Company. The address and telephone
and facsimile numbers of the Exchange Agent are set forth under "The Exchange
Offer -- Exchange Agent" and in the Letter of Transmittal.
USE OF PROCEEDS
Neither the Corporation nor the Issuer will receive any proceeds from the
issuance of the New Capital Securities offered hereby. See "Use of Proceeds".
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS; CERTAIN ERISA CONSIDERATIONS
Holders of Old Capital Securities should review the information set forth
under "Certain Federal Income Tax Considerations" and "Certain ERISA
Considerations" prior to tendering Old Capital Securities in the Exchange Offer.
NEW SECURITIES
GENERAL
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer and will have a preference under certain
circumstances with respect to Distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. See "Description of New
Securities -- Description of Capital Securities; SUBORDINATION OF COMMON
SECURITIES". The sole assets of the Issuer are the Subordinated Debentures, and
payments under the Subordinated Debentures will be the sole revenue of the
Issuer. The Subordinated Debentures are unsecured subordinated debt securities
issued under the Indenture between the Corporation and Wilmington Trust Company,
as trustee.
SECURITIES OFFERED
The Issuer is offering up to $250,000,000 aggregate Liquidation Amount of
the Issuer's 7.85% Capital Securities which have been registered under the
Securities Act (Liquidation Amount $1,000 per Capital Security). The New Capital
Securities will be issued, and the Old Capital Securities were issued, under the
Trust Agreement. The New Capital Securities and any Old Capital Securities which
remain outstanding after consummation of the Exchange Offer will constitute a
single series of Capital Securities under the Trust Agreement and, accordingly,
will vote together as a single class for purposes of determining whether holders
of the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement. See
"Description of New Securities -- Description of Capital Securities; GENERAL".
The terms of the New Capital Securities are identical in all material respects
to the terms of the Old Capital Securities, except that the New Capital
Securities have been registered under the Securities Act and therefore are not
subject to certain restrictions on transfer applicable to the Old Capital
Securities and will not provide for any increase in the Distribution rate
thereon. See "The Exchange Offer -- Purpose of Exchange Offer", "Description of
New Securities" and "Description of Old Securities".
DISTRIBUTIONS
Holders of the Capital Securities will be entitled to receive as a
preference cumulative Distributions accruing from the date of original issuance
of the Old Capital Securities and payable semi-annually in arrears on January 1
and July 1 of each year (the "Distribution Dates"), commencing July 1, 1997, at
the rate of 7.85% per annum, to the persons in whose names the Capital
Securities are registered at the close of business on the relevant record dates.
See "Description of New Securities -- Description of Capital Securities;
DISTRIBUTIONS".
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive accumulated Distributions on such Old Capital
Securities for any period from and after the last Distribution Date with respect
to such Old Capital Securities prior to the original issue date of the New
Capital Securities or, if no such Distributions have been made, will not receive
any accumulated Distributions on such Old Capital Securities, and will be deemed
to have waived the right to receive any Distributions on such Old Capital
Securities accumulated from and after such Distribution Date or, if no such
Distributions have been made, from and after January 6, 1996.
The Subordinated Debentures are unsecured and rank subordinate and junior
in right of payment to all Senior Debt of the Corporation. The ability of the
Issuer to pay amounts due on the Capital Securities is solely dependent upon the
Corporation making payments on the Subordinated Debentures as and when required.
See "Risk Factors -- Ranking of Subordinated Obligations Under Guarantee and
Subordinated Debentures".
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OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default (as defined herein) has occurred
and is continuing, the Corporation has the right to defer payments of interest
on the Subordinated Debentures at any time or from time to time by extending the
interest payment period thereon for Extension Periods of up to 10 consecutive
semi-annual periods with respect to each deferral period; provided, however,
that no Extension Period may extend beyond the Stated Maturity of the
Subordinated Debentures. If interest payments on the Subordinated Debentures are
deferred, Distributions on the Capital Securities also will be deferred and the
Corporation will not be permitted, subject to certain exceptions set forth
herein, to declare or pay any cash distributions with respect to the
Corporation's capital stock or debt securities of the Corporation that rank PARI
PASSU with or junior to the Subordinated Debentures. During an Extension Period,
Distributions on the Capital Securities will continue to accumulate and
Distributions that are in arrears will bear interest on the amount thereof at
the rate of 7.85% per annum (to the extent permitted by applicable law),
compounded semi-annually, and holders of the Capital Securities will be required
to recognize income (in the form of original issue discount) for United States
federal income tax purposes in advance of receipt of the cash related to such
income. Upon the termination of any Extension Period and the payment of all
amounts then due, the Corporation may elect to begin a new Extension Period,
subject to the requirements set forth herein.
The Corporation has no current plan to exercise its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures. However, should the Corporation elect to exercise such right in the
future, the market price of the Capital Securities is likely to be affected. See
"Risk Factors -- Option to Extend Interest Payment Period; TAX CONSEQUENCES",
"Description of New Securities -- Description of Subordinated Debentures; OPTION
TO EXTEND INTEREST PAYMENT PERIOD" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount".
REDEMPTION; SPECIAL EVENT
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debentures at maturity or upon their
earlier redemption. The Subordinated Debentures are redeemable, at the option of
the Corporation, (i) on or after January 1, 2007, in whole at any time or in
part from time to time, or (ii) at any time in whole (but not in part), upon the
occurrence and continuation of a Special Event (I.E., a Tax Event or a
Regulatory Capital Event (each as defined herein)). See "Risk Factors -- Special
Event -- Redemption" and "Description of New Securities -- Description of
Capital Securities; REDEMPTION".
See "Risk Factors -- Possible Tax Law Changes Affecting Capital Securities"
for a discussion of certain legislative proposals that, if adopted, could give
rise to a Tax Event, which may permit the Corporation to cause a redemption of
the Capital Securities prior to January 1, 2007.
No sinking fund will be established for the benefit of the Capital
Securities.
EXCHANGE OF CAPITAL SECURITIES FOR SUBORDINATED DEBENTURES
The holder of the Common Securities (I.E., the Corporation) has the right
to terminate the Issuer at any time and, after satisfaction of liabilities to
creditors of the Issuer in accordance with applicable law and the Expense
Agreement, cause the Subordinated Debentures to be distributed to the holders of
the Capital Securities in liquidation of the Issuer, subject to the Issuer
having received an opinion of counsel to the effect that such distribution will
not be a taxable event to holders of Capital Securities. See "Description of New
Securities -- Description of Capital Securities; LIQUIDATION OF ISSUER AND
DISTRIBUTION OF SUBORDINATED DEBENTURES TO HOLDERS".
GUARANTEE
The payment of Distributions and payments on the liquidation of the Issuer
or the redemption of the Capital Securities are guaranteed by the Corporation to
the extent that the Issuer has sufficient funds available therefor. Such
guarantee is subordinate and junior in right of payment to all Senior Debt of
the Corporation. See "Risk Factors -- Rights Under Guarantee" and "Description
of New Securities -- Description of Guarantee".
TRANSFER
The Capital Securities will be issued, and may be transferred, only in
blocks having a Liquidation Amount of not less than $100,000 (100 Capital
Securities). Any transfer, sale or other disposition of Capital Securities
resulting in a block having a Liquidation Amount of less than $100,000 shall be
deemed to be void and of no legal effect whatsoever.
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ABSENCE OF MARKET FOR NEW CAPITAL SECURITIES
The New Capital Securities will be a new issue of securities for which
there currently is no market. Morgan Stanley & Co. Incorporated, the initial
purchaser of the Old Capital Securities (the "Initial Purchaser"), informed the
Corporation and the Issuer in connection with the offering of the Old Capital
Securities that the Initial Purchaser intended to make a market in the Old
Capital Securities. However, the Initial Purchaser is not obligated to make a
market in the Old Capital Securities or the New Capital Securities, and any such
market making activity with respect to the Old Capital Securities or the New
Capital Securities may be discontinued at any time without notice. Accordingly,
no assurance can be given that an active public or other market will develop for
the Old Capital Securities or the New Capital Securities or as to the liquidity
of or the trading market for the New Capital Securities or the Old Capital
Securities. The Corporation and the Issuer do not intend to apply for listing
the Old Capital Securities or the New Capital Securities on any securities
exchange or for quotation through the National Association of Securities Dealers
Automated Quotation System.
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RISK FACTORS
Holders of the Old Capital Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters prior to tendering Old Capital Securities in the
Exchange Offer.
RANKING OF SUBORDINATED OBLIGATIONS UNDER GUARANTEE AND SUBORDINATED DEBENTURES
The obligations of the Corporation under the Subordinated Debentures and
the Guarantee are unsecured and rank subordinate and junior in right of payment
to all Senior Debt of the Corporation. Substantially all the Corporation's debt
outstanding at any time will constitute Senior Debt. At September 30, 1996, the
aggregate outstanding Senior Debt of the Corporation was $123.3 billion. Because
the Corporation is a holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary, upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary, except to the
extent that the Corporation may itself be recognized as a creditor of that
subsidiary. Accordingly, the Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries, and holders of Subordinated Debentures should look only to the
assets of the Corporation for payments on the Subordinated Debentures. See "The
Corporation". None of the Indenture, the Guarantee, the Trust Agreement or the
Expense Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Debt, that may be incurred by the Corporation. See
"Description of New Securities -- Description of Guarantee; STATUS OF GUARANTEE"
and "Description of New Securities -- Description of Subordinated Debentures;
SUBORDINATION".
The ability of the Issuer to pay amounts due on the Capital Securities is
solely dependent upon the Corporation making payments on the Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right under the Indenture to defer the payment of
interest on the 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 Subordinated Debentures. As a consequence of any such deferral,
semi-annual Distributions on the Capital Securities by the Issuer will be
deferred (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate additional Distributions thereon at the
rate of 7.85% per annum, compounded semi-annually from the relevant payment date
for such Distributions) during any such Extension Period. During any such
Extension Period, the Corporation may not, and may not permit any subsidiary of
the Corporation to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Corporation's capital stock, or (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Corporation that rank PARI PASSU in all respects with or junior in interest to
the Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Corporation of the debt securities of any subsidiary of the
Corporation if such guarantee ranks PARI PASSU in all respects with or junior in
interest to the Subordinated Debentures (other than (a) repurchases, redemptions
or other acquisitions of shares of capital stock of the Corporation in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of 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 Corporation (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 any exchange or
conversion of any class or series of the Corporation's capital stock (or any
capital stock of a subsidiary of the Corporation) for any class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation's capital stock, (c) the
purchase of fractional interests in shares of the Corporation's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (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
Corporation 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 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 7.85%, compounded
semi-annually, to the extent permitted by applicable law), the Corporation may
elect to begin a new Extension Period, subject
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to the above requirements. There is no limitation on the number of times that
the Corporation may elect to begin an Extension Period. See "Description of New
Securities -- Description of Capital Securities; DISTRIBUTIONS" and "Description
of New Securities -- Description of Subordinated Debentures; OPTION TO EXTEND
INTEREST PAYMENT PERIOD".
Should an Extension Period occur, a holder of the Capital Securities will
continue to accrue income (in the form of original issue discount) in respect of
its PRO RATA share of the Subordinated Debentures held by the Issuer for United
States federal income tax purposes. As a result, a holder of the Capital
Securities will include such income in gross income for United States federal
income tax purposes in advance of the receipt of the cash related to such
income, and will not receive such cash from the Issuer if the holder disposes of
the Capital Securities prior to the record date for the payment of such cash.
See "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount" and " -- Sales or Redemption of Capital Securities".
The Corporation has no current plan to exercise its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures. However, should the Corporation 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 Corporation'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) may be more volatile than the market
prices of other securities on which original issue discount accrues that are not
subject to such deferrals.
SPECIAL EVENT -- REDEMPTION
Upon the occurrence and continuation of a Tax Event or a Regulatory Capital
Event (either, a "Special Event"), the Corporation has the right to redeem the
Subordinated Debentures in whole (but not in part) within 90 days following the
occurrence of such Tax Event or Regulatory Capital Event and thereby cause a
mandatory redemption of the Capital Securities before, as well as after, January
1, 2007. The Corporation has committed to the Federal Reserve Bank of Richmond
that it will not exercise this redemption right without the Corporation having
received the prior approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), if then so required under applicable
capital guidelines or policies of the Federal Reserve Board.
A "Tax Event" means the receipt by the Issuer of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of issuance of the
Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer is, or will be within 90 days of the date
of such opinion, subject to United States federal income tax with respect to
income received or accrued on the Subordinated Debentures, (ii) interest payable
by the Corporation on the Subordinated Debentures is not, or within 90 days of
such opinion, will not be, deductible by the Corporation, in whole or in part,
for United States federal income tax purposes, or (iii) the Issuer is, or will
be within 90 days of the date of the opinion, subject to more than a DE MINIMIS
amount of other taxes, duties or other governmental charges. See " -- Possible
Tax Law Changes Affecting Capital Securities" for a discussion of certain
legislative proposals that, if adopted, could give rise to a Tax Event, which
may permit the Corporation to cause a redemption of the Capital Securities prior
to January 1, 2007.
"Regulatory Capital Event" means the receipt by the Corporation of an
opinion of an independent bank regulatory counsel experienced in such matters to
the effect that, as a result of (i) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any rules, guidelines or policies of the Federal Reserve
Board, or (ii) any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement or decision is announced on or after the date of
issuance of Capital Securities under the Trust Agreement, the Capital Securities
do not constitute, or within 90 days of the date thereof, will not constitute,
tier 1 capital (or its then equivalent); provided, however, that the
distribution of the Subordinated Debentures in connection with the liquidation
of the Issuer shall not in and of itself constitute a Regulatory Capital Event
unless such liquidation shall have occurred in connection with a Tax Event.
See "Description of New Securities -- Description of Subordinated
Debentures; REDEMPTION".
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EXCHANGE OF CAPITAL SECURITIES FOR SUBORDINATED DEBENTURES
The holder of the Common Securities (I.E., the Corporation) will have the
right at any time to terminate the Issuer and, after satisfaction of liabilities
to creditors of the Issuer in accordance with applicable law and the Expense
Agreement, cause the Subordinated Debentures to be distributed to the holders of
the Capital Securities in liquidation of the Issuer, subject to the Issuer
having received an opinion of counsel to the effect that the distribution will
not be taxable to the holders of Capital Securities. The Corporation has
committed to the Federal Reserve Bank of Richmond that so long as it (or an
affiliate) is the owner of the Common Securities it will not exercise this right
without the Corporation having received the prior approval of the Federal
Reserve Board, if then so required under applicable capital guidelines or
policies of the Federal Reserve Board. See "Description of New
Securities -- Description of Capital Securities; LIQUIDATION OF ISSUER AND
DISTRIBUTION OF SUBORDINATED DEBENTURES TO HOLDERS".
Under current United States federal income tax law, a distribution of the
Subordinated Debentures in exchange for the Capital Securities upon liquidation
of the Issuer will not be a taxable event to holders of the Capital Securities.
Should there occur a change in law, a change in legal interpretation, a Tax
Event, or other circumstances, however, such a distribution of the Subordinated
Debentures by the Issuer could be a taxable event to the holders of the Capital
Securities. See "Certain Federal Income Tax Consequences -- Distribution of
Subordinated Debentures to Holders of Capital Securities".
MARKET PRICES
There can be no assurance as to the market prices for the Capital
Securities, or the Subordinated Debentures that may be distributed in exchange
for Capital Securities if a liquidation of the Issuer occurs. Accordingly, the
Capital Securities that an investor may purchase, whether pursuant to the offer
made hereby or in the secondary market, or the Subordinated Debentures that a
holder of the Capital Securities may receive on liquidation of the Issuer, may
trade at a discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of the Capital Securities may receive
Subordinated Debentures on termination of the Issuer, prospective purchasers of
the Capital Securities are also making an investment decision with respect to
the Subordinated Debentures and should carefully review all the information
regarding the Subordinated Debentures contained herein. See "Description of New
Securities -- Description of Subordinated Debentures".
RIGHTS UNDER GUARANTEE
Wilmington Trust Company will act as the Guarantee Trustee and will hold
the Guarantee for the benefit of the holders of the Capital Securities.
Wilmington Trust Company will also act as Debenture Trustee for the Subordinated
Debentures under the Indenture, and as Property Trustee and 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 the Issuer:
(i) any accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Issuer 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 has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary termination,
winding up or liquidation of the Issuer (unless the 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 has funds on hand available
therefor at such time, and (b) the amount of assets of the Issuer remaining
available for distribution to holders of the Capital Securities in liquidation
of the Issuer. The holders of not less than a majority in aggregate Liquidation
Amount of the Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Capital Securities may institute a legal proceeding directly against the
Corporation to enforce its rights under the Guarantee without first instituting
a legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity. If the Corporation were to default on its obligation to pay amounts
payable under the Subordinated Debentures, the Issuer would 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, in the event (i) a Debenture Event of Default shall have occurred and
be continuing, and (ii) such event is attributable to the failure of the
Corporation to pay interest on or principal of the Subordinated Debentures on
the payment date on which such payment is due and payable, then a holder of the
Capital Securities may institute a legal proceeding directly against the
Corporation for enforcement of payment to such holder of the principal of or
interest on such 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 Corporation will have a
right of set-off under the Indenture to the extent of any payment made by the
Corporation to such holder of the Capital Securities in the Direct Action.
Except as described herein, holders of the Capital Securities will not be able
to exercise directly any other remedy available to the holders of the
Subordinated Debentures or assert directly any other rights in respect of the
Subordinated Debentures. See "Description of New Securities --
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Description of Subordinated Debentures; ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS
OF CAPITAL SECURITIES" and "; DEBENTURE EVENTS OF DEFAULT" and " -- Description
of Guarantee". The Trust Agreement provides that each holder of the Capital
Securities, by acceptance thereof, agrees to the provisions of the Guarantee and
the Indenture.
LIMITED VOTING RIGHTS
Holders of the Capital Securities generally will have limited voting rights
relating only to the modification of the Capital Securities and the exercise of
the Issuer's rights as holder of Subordinated Debentures and the Guarantee.
Holders of the Capital Securities will not be entitled to vote to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events described herein. The Property Trustee and the
holder of the Common Securities (I.E., the Corporation) may amend the Trust
Agreement without the consent of holders of the Capital Securities to ensure
that the Issuer will be classified for United States federal income tax purposes
as other than an association taxable as a corporation or as a grantor trust,
provided that such action does not materially adversely affect the interests of
such holders. See "Description of New Securities -- Description of Capital
Securities; VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT" and ";REMOVAL OF ISSUER
TRUSTEES".
POSSIBLE TAX LAW CHANGES AFFECTING CAPITAL SECURITIES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Revenue
Reconciliation Bill"), the revenue portion of President Clinton's budget
proposal, was introduced in the 104th Congress. The Revenue Reconciliation Bill,
if enacted into law, would, among other things, have generally denied interest
deductions for interest on an instrument issued by a corporation that has a
maximum weighted average maturity of more than 40 years. The Revenue
Reconciliation Bill also would have generally denied interest deductions for
interest on an instrument, issued by a corporation, that has a maximum term of
more than 20 years and that is 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. For purposes of determining the weighted average
maturity or the term of an instrument, any right to extend would be treated as
if exercised. The above-described provisions were proposed to be effective as to
instruments issued on or after December 7, 1995. If either provision were to
have applied to the Subordinated Debentures, the Corporation would have been
unable to deduct interest on the Subordinated Debentures. However, on March 29,
1996, the Chairmen of the Senate Finance and House Ways and Means Committees
issued a joint statement to the effect that it was their intention that the
effective date of the President's legislative proposals, presumably including
the Revenue Reconciliation Bill, if adopted, would be no earlier than the date
of appropriate Congressional action. Under current law, the Corporation will be
able to deduct interest on the Subordinated Debentures. Although the 104th
Congress adjourned without enacting the above-described provisions of the
Revenue Reconciliation Bill, there can be no assurance that current or future
legislative proposals or final legislation will not adversely affect the ability
of the Corporation to deduct interest on the Subordinated Debentures.
Accordingly, there can be no assurance that a Tax Event will not occur. See
"Description of New Securities -- Description of Subordinated Debentures;
REDEMPTION" and " -- Description of Capital Securities; REDEMPTION". See also
"Certain Federal Income Tax Consequences -- Possible Tax Law Changes".
CONSEQUENCES OF FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Corporation and the Issuer do not intend to register
under the Securities Act any Old Capital Securities which remain outstanding
after consummation of the Exchange Offer (subject to such limited exceptions, if
applicable).
To the extent that Old Capital Securities are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Capital Securities
could be adversely affected. In addition, although the Old Capital Securities
have been designated for trading in the Private Offerings, Resale and Trading
through Automatic Linkages ("PORTAL") market, to the extent that Old Capital
Securities are tendered and accepted in connection with the Exchange Offer, any
trading market for Old Capital Securities which remain outstanding after the
Exchange Offer could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a single
series of Capital Securities under the Trust Agreement and, accordingly, will
vote together as a single class for purposes of determining whether holders of
the requisite percentage in outstanding Liquidation
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<PAGE>
Amount thereof have taken certain actions or exercised certain rights under the
Trust Agreement. See "Description of New Securities -- Description of Capital
Securities; GENERAL".
The Old Capital Securities provide that, if the Exchange Offer is not
consummated by March 12, 1997, the Distribution rate borne by the Old Capital
Securities will increase by 0.25% per annum commencing on March 13, 1997, until
the Exchange Offer is consummated. See "Description of Old Securities".
Following consummation of the Exchange Offer, the Old Capital Securities will
not be entitled to any increase in the Distribution rate thereon. The New
Capital Securities will not be entitled to any such increase in the Distribution
rate thereon.
ABSENCE OF PUBLIC MARKET
The Old Capital Securities have not been registered under the Securities
Act and will be subject to restrictions on transferability to the extent that
they are not exchanged for the New Capital Securities. Although the New Capital
Securities will generally be permitted to be resold or otherwise transferred by
the holders (who are not Affiliates) without compliance with the registration
requirements under the Securities Act, they will constitute a new issue of
securities with no established trading market. Capital Securities may be
transferred by the holders thereof only in blocks having a Liquidation Amount of
not less than $100,000 (100 Capital Securities). The Corporation and the Issuer
were advised by the Initial Purchaser in connection with the offering of the Old
Capital Securities that the Initial Purchaser intended to make a market in the
Old Capital Securities. However, the Initial Purchaser is not obligated to make
a market in the Old Capital Securities or the New Capital Securities and any
such market-making activity with respect to the Old Capital Securities or the
New Capital Securities may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the New Capital Securities or the Old Capital Securities
or as to the liquidity of or the trading market for the New Capital Securities
or the Old Capital Securities. If an active public market does not develop, the
market price and liquidity of the New Capital Securities may be adversely
affected.
If a public trading market develops for the New Capital Securities, future
trading prices of such securities will depend on many factors, including, among
other things, prevailing interest rates, results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Corporation, the New Capital Securities may trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are Affiliates may publicly offer for sale or resell
the New Capital Securities only in compliance with the provisions of Rule 144
under the Securities Act.
Each Participating Broker-Dealer that receives New Capital Securities for
its own account must acknowledge that it will deliver a prospectus in connection
with any resale of such New Capital Securities. See "Plan of Distribution".
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Exchange Agent of such Old Capital Securities, a properly
completed and duly executed Letter of Transmittal or Agent's Message in lieu
thereof and all other required documents. Therefore, holders of the Old Capital
Securities desiring to tender such Old Capital Securities in exchange for New
Capital Securities should allow sufficient time to ensure timely delivery.
Neither the Corporation, the Issuer, nor the Exchange Agent is under any duty to
give notification of defects or irregularities with respect to the tenders of
Old Capital Securities for exchange.
THE ISSUER
The Issuer is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement and (ii) the filing of a certificate of
trust with the Delaware Secretary of State. The Issuer's business and affairs
are conducted by the Issuer Trustees: Wilmington Trust Company, as Property
Trustee and Delaware Trustee. In addition, two individuals who are employees or
officers of or affiliated with the Corporation act as administrators with
respect to the Issuer (the "Administrators"). The Administrators were selected
by the holder of the Common Securities (I.E., the Corporation). The Issuer
exists exclusively for the purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Subordinated Debentures, and (iii) engaging in only those other
activities necessary or incidental thereto (such as registering the transfer of
the Capital Securities). Accordingly, the Subordinated Debentures are the sole
assets of the Issuer, and payments under the Subordinated Debentures are the
sole revenue of the Issuer. All of the Common Securities are owned by the
Corporation. The Common Securities rank PARI PASSU, and payments will be made
thereon PRO RATA, with the Capital Securities, except that upon the occurrence
and continuance of an Event of Default (as defined herein) under the Trust
Agreement resulting from a Debenture Event of Default under the Indenture, the
rights of the Corporation as
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holder of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the Capital Securities. See "Description of New
Securities -- Description of Capital Securities; SUBORDINATION OF COMMON
SECURITIES". The Corporation acquired the Common Securities in an aggregate
Liquidation Amount equal to approximately three percent (I.E., $7,732,000) of
the total capital of the Issuer. The Issuer has a term of 31 years, but may
terminate earlier as provided in the Trust Agreement. The holders of a majority
in Liquidation Amount of the Capital Securities, if an Event of Default under
the Trust Agreement has occurred and is continuing, will be entitled to appoint,
remove or replace the Property Trustee and/or the Delaware Trustee. The duties
and obligations of each Issuer Trustee are governed by the Trust Agreement. The
holder of the Common Securities (I.E., the Corporation) will pay all fees and
expenses related to the Exchange Offer, except as provided herein, and will pay,
directly or indirectly, all ongoing costs, expenses and liabilities of the
Issuer.
The principal executive office of the Issuer is in care of First Union
Corporation, One First Union Center, Charlotte, North Carolina 28288-0013,
Attention: Secretary, and its telephone number is (704) 374-6565.
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THE CORPORATION
GENERAL
The Corporation is a North Carolina-based, multi-bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA").
Through its banking subsidiaries, the Corporation provides a wide range of
commercial and retail banking services and trust services in North Carolina,
Florida, South Carolina, Georgia, Tennessee, Virginia, Maryland, Delaware,
Pennsylvania, New Jersey, New York, Connecticut and Washington, D.C. The
Corporation also provides various other financial services, including mortgage
banking, leasing, investment banking, insurance and securities brokerage
services, through other subsidiaries. As of September 30, 1996, and for the nine
months then ended, the Corporation reported assets of $133.9 billion, net loans
of $92.5 billion, deposits of $91.4 billion, stockholders' equity of $8.7
billion and net income applicable to common stockholders of $1.0 billion, and as
of such date the Corporation operated through over 2,100 offices in 38 states,
Washington, D.C. and four foreign countries. The Corporation is the sixth
largest bank holding company in the United States, based on assets at September
30, 1996.
HISTORY AND BUSINESS
The Corporation was incorporated under the laws of North Carolina in 1967.
Pursuant to a corporate reorganization in 1968, First Union National Bank of
North Carolina and First Union Mortgage Corporation, a mortgage banking firm
acquired by First Union National Bank of North Carolina in 1964, became
subsidiaries of the Corporation.
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, the Corporation has concentrated its efforts on building a large,
regional banking organization in what it perceives to be some of the better
banking markets in the eastern region of the United States. Since November 1985,
the Corporation has completed 71 banking-related acquisitions, including the
more significant acquisitions (I.E., involving the acquisition of $3.0 billion
or more of assets or deposits) set forth in the following table.
<TABLE>
<CAPTION>
ASSETS/ CONSIDERATION/
NAME HEADQUARTERS DEPOSITS (1)(2) ACCOUNTING TREATMENT COMPLETION DATE
<S> <C> <C> <C> <C>
Atlantic Bancorporation................... Florida $ 3.8 billion common stock/pooling November 1985
Northwestern Financial Corporation........ North Carolina 3.0 billion common stock/pooling December 1985
First Railroad & Banking Company of Georgia 3.7 billion common stock/pooling November 1986
Georgia.................................
Florida National Banks of Florida 7.9 billion cash/preferred January 1990
Florida, Inc............................ stock/purchase
Southeast banks........................... Florida 9.9 billion cash, notes/preferred September 1991
stock/purchase
Resolution Trust Company ("RTC") Florida, Georgia, 5.3 billion cash/purchase 1991-1994
acquisitions............................ Virginia
Dominion Bankshares Corporation........... Virginia 8.9 billion common stock/preferred March 1993
stock/pooling
Georgia Federal Bank, FSB................. Georgia 4.0 billion cash/purchase June 1993
First American Metro Corp................. Virginia 4.6 billion cash/purchase June 1993
American Savings of Florida, F.S.B........ Florida 3.3 billion common stock/purchase July 1995
First Fidelity Bancorporation............. New Jersey, 35.3 billion common stock/preferred January 1996
Pennsylvania stock/pooling
Center Financial Corporation.............. Connecticut $ 4.0 billion common stock/purchase November 1996
</TABLE>
(1) The dollar amounts indicated represent the assets of the related
organization as of the last reporting period prior to acquisition, except
for (i) the dollar amount relating to RTC acquisitions, which represents
savings and loan deposits acquired from the RTC, and (ii) the dollar amount
relating to Southeast banks, which represent assets of the two banking
subsidiaries of Southeast Banking Corporation acquired from the Federal
Deposit Insurance Corporation (the "FDIC").
(2) In addition, the Corporation acquired (i) Lieber & Company ("Lieber"), a
mutual fund advisory company with approximately $3.4 billion in assets under
management, in June 1994, and (ii) Keystone Investments, Inc. ("Keystone"),
a mutual fund advisory company with $11.8 billion in assets under
management, in December 1996. The consideration paid by the Corporation in
both acquisitions was in the form of the Corporation's common stock. The
Lieber acquisition was accounted for as a pooling of interests and the
Keystone acquisition was accounted for as a purchase.
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The Corporation is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases
negotiations, frequently take place and future acquisitions involving cash, debt
or equity securities can be expected. Acquisitions typically involve the payment
of a premium over book and market values, and therefore, some dilution of the
Corporation's book value and net income per common share may occur in connection
with any future transactions.
SUPERVISION AND REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to bank holding companies and their subsidiaries
and provides certain specific information relevant to the Corporation. This
regulatory framework is intended primarily for the protection of depositors and
the federal deposit insurance funds and not for the protection of security
holders. To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the
applicable statutory and regulatory provisions. A change in applicable statutes,
regulations or regulatory policy may have a material effect on the business of
the Corporation.
GENERAL. As a bank holding company, the Corporation is subject to
regulation under the BHCA and to its examination and reporting requirements.
Under the BHCA, bank holding companies may not directly or indirectly acquire
the ownership or control of more than five percent of the voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of, or a waiver of such approval by, the Federal Reserve Board.
In addition, bank holding companies are generally prohibited under the BHCA from
engaging in nonbanking activities, subject to certain exceptions.
The earnings of the Corporation are affected by general economic
conditions, management policies and the legislative and governmental actions of
various regulatory authorities, including the Federal Reserve Board, the Office
of the Comptroller of the Currency (the "OCC"), which is the principal regulator
of the Corporation's national bank subsidiaries, and the FDIC, which is the
principal federal regulator of the Corporation's state-chartered bank
subsidiaries. In addition, there are numerous governmental requirements and
regulations which affect the activities of the Corporation.
PAYMENT OF DIVIDENDS. The Corporation is a legal entity separate and
distinct from its banking and other subsidiaries. A major portion of the
Corporation's revenues result from amounts paid as dividends to the Corporation
by its national bank subsidiaries. The prior approval of the OCC is required if
the total of all dividends declared by a national bank in any calendar year will
exceed the sum of such bank's net profits for that year and its retained net
profits for the preceding two calendar years, less any required transfers to
surplus. Federal law also prohibits any national bank from paying dividends
which would be greater than such bank's undivided profits after deducting
statutory bad debt in excess of such bank's allowance for loan losses.
In addition to its national bank subsidiaries, the Corporation has two
state-chartered bank subsidiaries, each of which is subject to dividend
limitations under applicable state laws.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of the Corporation's nonbanking subsidiaries, as of
September 30, 1996, the Corporation's subsidiaries, without obtaining
affirmative governmental approvals, could pay aggregate dividends of $430
million to the Corporation. In the first nine months of 1996, the Corporation's
subsidiaries paid $1.1 billion in cash dividends to the Corporation.
In addition, the Corporation and its bank subsidiaries are subject to
various general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
national bank or bank holding company that the payment of dividends would be an
unsafe or unsound practice and to prohibit payment thereof. The OCC (the
appropriate agency with respect to the Corporation's national bank subsidiaries)
and the FDIC (the appropriate agency with respect to the Corporation's
state-chartered bank subsidiaries) have indicated that paying dividends that
deplete a bank's capital base to an inadequate level would be an unsound and
unsafe banking practice. The OCC, the FDIC and the Federal Reserve Board have
each indicated that banking organizations should generally pay dividends only
out of current operating earnings.
BORROWINGS, ETC. There are also various legal restrictions on the extent to
which each of the Corporation and its nonbank subsidiaries can borrow or
otherwise obtain credit from its bank subsidiaries. In general, these
restrictions require that any such extensions of credit must be secured by
designated amounts of specified collateral and are limited, as to any one of the
Corporation or such nonbank subsidiaries, to ten percent of the lending bank's
capital stock and surplus, and as to the Corporation and all such nonbank
subsidiaries in the aggregate, to 20 percent of such lending bank's capital
stock and surplus.
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The Federal Deposit Insurance Act, as amended (the "FDIA"), among other
things, imposes liability on an institution the deposits of which are insured by
the FDIC, such as the Corporation's subsidiary national banks, for certain
potential obligations to the FDIC incurred in connection with other FDIC-insured
institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's stockholders, pro rata and, to the
extent necessary, if any such assessment is not paid by any stockholder after
three months' notice, to sell the stock of such stockholder to make good the
deficiency. Under Federal Reserve Board policy, the Corporation is expected to
act as a source of financial strength to each of its subsidiary banks and to
commit resources to support each of such subsidiaries. This support may be
required at times when, absent such Federal Reserve Board policy, the
Corporation may not find itself willing or able to provide it.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
CAPITAL ADEQUACY. The minimum guidelines for the ratio of capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is eight percent. At least half of the total capital
is to be composed of common equity, retained earnings and a limited amount of
qualifying perpetual preferred stock, less certain intangibles ("tier 1 capital"
and, together with tier 2 capital, "total capital"). The remainder may consist
of subordinated debt, qualifying preferred stock and a limited amount of the
loan loss allowance ("tier 2 capital"). At September 30, 1996, the Corporation's
tier 1 and total capital ratios were 6.38 percent and 10.94 percent,
respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. The Corporation's leverage ratio at
September 30, 1996, was 5.23 percent. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Corporation of any specific minimum leverage
ratio or tangible tier 1 leverage ratio applicable to it.
Each of the Corporation's subsidiary national banks is subject to similar
capital requirements adopted by the OCC or the FDIC. Each of the Corporation's
subsidiary banks had a leverage ratio in excess of 5.17 percent, as of September
30, 1996. As of that date, the federal banking agencies have not advised any of
the subsidiary national banks of any specific minimum leverage ratio applicable
to it.
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital guidelines.
PROMPT CORRECTIVE ACTION. The FDIA, among other things, requires the
federal banking agencies to take "prompt corrective action" in respect of
depository institutions that do not meet minimum capital requirements. The FDIA
establishes five capital tiers: "well capitalized"; "adequately capitalized";
"undercapitalized"; "significantly undercapitalized"; and "critically
undercapitalized". A depository institution's capital tier will depend upon how
its capital levels compare to various relevant capital measures and certain
other factors, as established by regulation.
The federal bank regulatory agencies have adopted regulations establishing
relevant capital measures and relevant capital levels applicable to FDIC-insured
banks. The relevant capital measures are the total capital ratio, tier 1 capital
ratio and the leverage ratio. See ";CAPITAL ADEQUACY". Under the regulations, a
FDIC-insured bank will be (i) "well capitalized" if it has a total capital ratio
of ten percent or greater, a tier 1 capital ratio of six percent or greater and
a leverage ratio of five percent or greater and is not subject to any order or
written directive by the OCC to meet and maintain a specific capital level for
any capital measure; (ii) "adequately capitalized" if it has a total capital
ratio of eight percent or greater, a tier 1 capital ratio of four percent or
greater and a leverage ratio of four percent or greater (three percent in
certain circumstances) and is not "well capitalized"; (iii) "undercapitalized"
if it has a total capital ratio of less than eight percent, a tier 1 capital
ratio of less than four percent or a leverage ratio of less than four percent
(three percent in certain circumstances); (iv) "significantly undercapitalized"
if it has a total capital ratio of less than six percent, a tier 1 capital ratio
of less than three percent or a
21
<PAGE>
leverage ratio of less than three percent; and (v) "critically undercapitalized"
if its tangible equity is equal to or less than two percent of average quarterly
tangible assets. As of September 30, 1996, all of the Corporation's
deposit-taking subsidiary banks had capital levels that qualify them as being
"well capitalized" under such regulations.
The FDIA generally prohibits a FDIC-insured depository institution from
making any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. "Undercapitalized" depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of: (i) an amount equal to five percent
of the depository institution's total assets at the time it became
"undercapitalized"; and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" insured depository institutions may be
subject to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become "adequately capitalized", requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. "Critically undercapitalized" institutions are subject to the appointment
of a receiver or conservator.
DEPOSITOR PREFERENCE STATUTE. Under federal law, deposits and certain
claims for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general unsecured
claims against such an institution, including federal funds and letters of
credit, in the "liquidation or other resolution" of such an institution by any
receiver.
INTERSTATE BANKING AND BRANCHING LEGISLATION. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "IBBEA") authorizes interstate
acquisitions of banks and bank holding companies without geographic limitation
beginning one year after enactment. In addition, beginning June 1, 1997, a bank
may merge with a bank in another state as long as neither of the states has
opted out of interstate branching between the date of enactment of the IBBEA and
May 31, 1997. The IBBEA further provides that states may enact laws permitting
interstate merger transactions prior to June 1, 1997. A bank may establish and
operate a DE NOVO branch in a state in which the bank does not maintain a branch
if that state expressly permits DE NOVO branching. Once a bank has established
branches in a state through an interstate merger transaction, the bank may
establish and acquire additional branches at any location in the state where any
bank involved in the interstate merger transaction could have established or
acquired branches under applicable federal or state law. A bank that has
established a branch in a state through DE NOVO branching may establish and
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or DE NOVO.
FDIC INSURANCE ASSESSMENTS; DIFA. The FDIC reduced the insurance premiums
it charges on bank deposits insured by the Bank Insurance Fund ("BIF") to the
statutory minimum of $2,000.00 for "well capitalized" banks, effective January
1, 1996. Premiums related to deposits assessed by the Savings Association
Insurance Fund ("SAIF"), including savings association deposits acquired by
banks, continued to be assessed at a rate of between 23 cents and 31 cents per
$100.00 of deposits. On September 30, 1996, the Deposit Insurance Funds Act of
1996 ("DIFA") was enacted and signed into law. DIFA is expected to reduce the
amount of semi-annual FDIC insurance premiums for savings association deposits
acquired by banks to the same levels assessed for deposits insured by BIF. The
Corporation currently estimates such reductions in premiums may amount to
approximately $35 million pre-tax per year.
DIFA also provides for a special one-time assessment imposed on deposits
insured by the SAIF, including such deposits held by banks, to recapitalize the
SAIF to bring the SAIF up to statutory required levels. The Corporation accrued
for the one-time assessment in the third quarter of 1996 in the amount of $86
million after tax in connection with the SAIF recapitalization.
DIFA further provides for assessments to be imposed on insured depository
institutions with respect to deposits insured by the BIF (in addition to
assessments currently imposed on depository institutions with respect to
SAIF-insured deposits) to pay for the cost of Financing Corporation funding. The
Corporation currently estimates assessments may amount to up to $14 million
after-tax in 1997 with similar assessments per year through 1999 (or earlier if
no savings associations exist prior to December 31, 1999) in connection with
such funding.
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<PAGE>
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Corporation's ratios of earnings to
fixed charges for the years and periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Consolidated Ratios of Earnings to Fixed Charges
Excluding interest on deposits............................ 2.23X 2.75 3.55 3.95 2.71 1.80
Including interest on deposits............................ 1.46X 1.54 1.73 1.70 1.32 1.17
Consolidated Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends
Excluding interest on deposits............................ 2.22X 2.67 3.10 3.59 2.43 1.69
Including interest on deposits............................ 1.45X 1.53 1.67 1.67 1.30 1.15
</TABLE>
For purposes of computing these ratios, earnings represent income from
continuing operations before extraordinary items and cumulative effect of a
change in accounting principle plus income taxes and fixed charges (excluding
capitalized interest). Fixed charges, excluding interest on deposits, represent
interest (other than on deposits, but including capitalized interest), one-third
(the proportion deemed representative of the interest factor) of rents and all
amortization of debt issuance costs. Fixed charges, including interest on
deposits, represent all interest (including capitalized interest), one-third
(the proportion deemed representative of the interest factor) of rents and all
amortization of debt issuance costs.
USE OF PROCEEDS
Neither the Corporation nor the Issuer will receive any proceeds from the
issuance of the New Capital Securities offered hereby. The Old Capital
Securities surrendered in exchange for the New Capital Securities will be
retired and cancelled.
The net proceeds to the Issuer from the offering of the Old Capital
Securities was approximately $250 million (before deducting expenses associated
with the offering). All of the proceeds from the sale of the Old Capital
Securities were invested by the Issuer in the Old Subordinated Debentures. The
net proceeds from the sale of the Old Subordinated Debentures were added by the
Corporation to its general corporate funds and have been and will be used for
general corporate purposes. Pending such application by the Corporation, such
net proceeds may be temporarily invested in short-term interest bearing
securities.
The Corporation is required by the Federal Reserve Board to maintain
certain levels of capital for bank regulatory purposes. See "The
Corporation -- Supervision and Regulation; CAPITAL ADEQUACY". On October 21,
1996, The federal Reserve Board announced that cumulative preferred securities
having the characteristics of the Capital Securities and which qualify as a
minority interest could be included as tier 1 capital for bank holding
companies. Such tier 1 capital treatment, together with the Corporation's
ability to deduct, for income tax purposes, interest payable on the Subordinated
Debentures, will provide the Corporation with a more cost-effective means of
obtaining capital for regulatory purposes than other tier 1 capital alternatives
currently available to it.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation and its subsidiaries as of September 30, 1996, and as adjusted to
give effect to (i) the consummation of the offering of the Old Capital
Securities, and (ii) certain other Guaranteed Preferred Beneficial Interests in
Corporation's Junior Subordinated Deferrable Interest Debentures issued since
September 30, 1996. The following data should be read in conjunction with the
consolidated financial statements and notes thereto of the Corporation and its
subsidiaries incorporated herein by reference. See "Incorporation of Certain
Documents by Reference". Also shown below are certain consolidated regulatory
capital ratios of the Corporation and its subsidiaries at September 30, 1996.
For additional discussion of regulatory capital requirements applicable to the
Corporation, see "The Corporation -- Supervision and Regulation; CAPITAL
ADEQUACY". The issuance of the New Capital Securities in the Exchange Offer will
have no effect on the capitalization of the Corporation.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(DOLLARS IN MILLIONS) HISTORICAL AS ADJUSTED
<S> <C> <C>
LONG-TERM DEBT.................................................................................... $ 7,332 7,332
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES (1).................................................................................. -- 1,000
STOCKHOLDERS' EQUITY
Preferred stock.................................................................................
Preferred stock, no par value per share, authorized 10,000,000 shares, none issued........... -- --
Class A, no par value per share, authorized 40,000,000 shares................................ -- --
Series B $2.15 Cumulative Convertible, 1,910,946 issued (2)................................ 48 48
Common stock, $3.33 1/3 par value; authorized 750,000,000 shares,
outstanding 270,507,508 shares............................................................... 901 901
Paid-in capital................................................................................. 1,408 1,408
Retained earnings............................................................................... 6,431 6,431
Unrealized loss on debt and equity securities................................................... (99) (99)
Total stockholders' equity................................................................. 8,689 8,689
Total capitalization....................................................................... $ 16,021 17,021
</TABLE>
<TABLE>
<CAPTION>
THE REGULATORY
CORPORATION MINIMUM
<S> <C> <C>
CONSOLIDATED REGULATORY CAPITAL RATIOS (as of September 30, 1996)
Tier 1 capital to risk-adjusted assets (3)........................................................ 6.38% 4.00
Total capital to risk-adjusted assets (4)......................................................... 10.94 8.00
Leverage (5)...................................................................................... 5.23 3.00(6)
</TABLE>
(1) As described herein, the sole assets of the Issuer are $257,732,000 of the
Subordinated Debentures issued by the Corporation to the Issuer. The
Subordinated Debentures (which accrue interest at the rate of 7.85% per
annum) will mature on January 1, 2027. The Corporation owns all of the
Common Securities of the Issuer, which accumulate Distributions at the rate
of 7.85% per annum. It is anticipated that the Issuer will not be subject to
the reporting requirements under the Exchange Act. See "Accounting
Treatment". On November 27, 1996, First Union Institutional Capital I, a
statutory business trust created under Delaware law, issued $500 million of
Guaranteed Preferred Beneficial Interests in Corporation's Junior
Subordinated Deferrable Interest Debentures. On January 16, 1997, First
Union Capital I, a statutory business trust created under Delaware law,
issued $250 million of Guaranteed Preferred Beneficial Interests in
Corporation's Junior Subordinated Deferrable Interest Debentures.
(2) The outstanding shares of Series B Cumulative Convertible Class A Preferred
Stock were redeemed on November 15, 1996.
(3) Tier 1 capital consists of common equity, retained earnings and a limited
amount of qualifying perpetual preferred stock (including the Capital
Securities), less certain intangibles.
(4) Total capital consists of tier 1 capital and subordinated debt, qualifying
preferred stock and a limited amount of the loan loss allowance. At least
half of a bank holding company's total capital is to be composed of tier 1
capital.
(5) The leverage ratio is defined as the ratio of tier 1 capital divided by
adjusted average quarterly assets.
(6) Federal Reserve Board guidelines provide for a minimum leverage ratio of
three percent for bank holding companies that meet certain specified
criteria, including that they have the highest regulatory rating. All other
bank holding companies will be required to maintain a leverage ratio of
three percent plus an additional amount of at least 100 to 200 basis points.
The guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.
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<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer will be treated as a
subsidiary of the Corporation, and accordingly, the accounts of the Issuer will
be included in the consolidated financial statements of the Corporation. The
Capital Securities will be presented as a separate line item in the consolidated
balance sheets of the Corporation, entitled "Guaranteed Preferred Beneficial
Interests in Corporation's Junior Subordinated Deferrable Interest Debentures",
and appropriate disclosures about the Capital Securities, the Guarantee and the
Subordinated Debentures will be included in the notes to the consolidated
financial statements. For financial reporting purposes, the Corporation will
record Distributions payable on the Capital Securities as an expense in the
consolidated statements of income.
The Corporation has agreed that future financial reports of the Corporation
will: (i) present the Capital Securities issued by the Issuer on the balance
sheet as a separate line item entitled "Guaranteed Preferred Beneficial
Interests in Corporation's Junior Subordinated Deferrable Interest Debentures",
which will be classified similar to minority interests; (ii) include in a
footnote to the Corporation's consolidated financial statements disclosure that
the sole assets of the Issuer are the Subordinated Debentures (specifying the
principal amount, interest rate and maturity date of the Subordinated
Debentures) and whether Staff Accounting Bulletin 53 treatment is sought; (iii)
include, in an audited footnote to the consolidated financial statements,
disclosure that (a) the Issuer is wholly-owned; (b) the sole assets of the
Issuer are the Subordinated Debentures; and (c) the obligations of the
Corporation under the applicable documents, in the aggregate, constitute a full
and unconditional guarantee by the Corporation of the Issuer's obligations under
the Capital Securities.
25
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Corporation
and the Issuer entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Corporation and the Issuer agreed to file and
to use their reasonable best efforts to cause to be declared effective by the
Commission a registration statement with respect to the exchange of the Old
Capital Securities for capital securities with terms identical in all material
respects to the terms of the Old Capital Securities. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation and the Issuer under the Registration Rights Agreement. The form
and terms of the New Capital Securities are the same as the form and terms of
the Old Capital Securities, except that the New Capital Securities (i) have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Old Capital Securities, and (ii) will
not provide for any increase in the Distribution rate thereon. In that regard,
the Old Capital Securities provide, among other things, that, if the Exchange
Offer is not consummated by March 12, 1997, the Distribution rate borne by the
Old Capital Securities will increase by 0.25% per annum until the Exchange Offer
is consummated. Upon consummation of the Exchange Offer, holders of Old Capital
Securities will not be entitled to any increase in the Distribution rate thereon
or any further registration rights under the Registration Rights Agreement,
except under limited circumstances. See "Risk Factors -- Consequences of a
Failure to Exchange Old Capital Securities" and "Description of Old Securities".
The Exchange Offer is not being made to, nor will the Issuer or the
Corporation accept tenders for exchange from, holders of Old Capital Securities
in any jurisdiction in which the Exchange Offer or the acceptance thereof would
not be in compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Issuer or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Capital Securities are held of record by DTC who desires to deliver such Old
Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
all of the Old Subordinated Debentures, of which $257,732,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of the
New Subordinated Debentures. The New Guarantee and New Subordinated Debentures
have been registered under the Securities Act.
TERMS OF EXCHANGE
The Issuer hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $250,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date and not properly withdrawn
in accordance with the procedures described below. The Issuer will issue,
promptly after the Expiration Date, an aggregate Liquidation Amount of up to
$250,000,000 of New Capital Securities in exchange for a like aggregate
Liquidation Amount of outstanding Old Capital Securities tendered and accepted
in connection with the Exchange Offer. Holders may tender their Old Capital
Securities in whole or in part in a Liquidation Amount of not less than $100,000
or any integral multiple of $1,000 in excess thereof, provided that if any Old
Capital Securities are tendered in exchange for part, the untendered Liquidation
Amount must be $100,000 or any integral multiple of $1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered. As of the date of this Prospectus,
$250,000,000 aggregate Liquidation Amount of the Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Trust Agreement, but will not be entitled to any further registration rights
under the Registration Rights Agreement, except under limited circumstances. See
"Risk Factors -- Consequences of a Failure to Exchange Old Capital Securities"
and "Description of Old Securities".
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<PAGE>
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Corporation will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See " -- Fees and
Expenses".
NEITHER THE BOARD OF DIRECTORS OF THE CORPORATION NOR ANY ADMINISTRATOR OR
ANY TRUSTEE OF THE ISSUER MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on March
12, 1997, unless the Exchange Offer is extended by the Corporation and the
Issuer (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended).
The Corporation and the Issuer expressly reserve the right in their sole
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Old Capital Securities for exchange, (ii) to
terminate the Exchange Offer (whether or not any Old Capital Securities have
theretofore been accepted for exchange) if the Corporation and the Issuer
determine, in their sole discretion, that any of the events or conditions
referred to under " -- Conditions to the Exchange Offer" have occurred or exist
or have not been satisfied, (iii) to extend the Expiration Date of the Exchange
Offer and retain all Old Capital Securities tendered pursuant to the Exchange
Offer, subject, however, to the right of holders of Old Capital Securities to
withdraw their tendered Old Capital Securities as described under
" -- Withdrawal Rights", and (iv) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. If the Exchange Offer is amended in
a manner determined by the Corporation and the Issuer to constitute a material
change, or if the Corporation and the Issuer waive a material condition of the
Exchange Offer, the Corporation and the Issuer will promptly disclose such
amendment by means of an amended or supplemented Prospectus that will be
distributed to the registered holders of the Old Capital Securities, and the
Corporation and the Issuer will extend the Exchange Offer to the extent required
by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Corporation and the Issuer may choose to make any public
announcement and subject to applicable law, the Corporation and the Issuer shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
(pursuant to the withdrawal rights described under " -- Withdrawal Rights")
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of Old
Capital Securities into the Exchange Agent's account at DTC, including an
Agent's Message if the tendering holder has not delivered a Letter of
Transmittal, (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees or (in the
27
<PAGE>
case of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgement from the tendering
participant, which acknowledgement states that such participant has received and
agrees to be bound by the Letter of Transmittal and that the Issuer and the
Corporation may enforce such Letter of Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the Corporation
and the Issuer will be deemed to have accepted for exchange, and thereby
exchanged, Old Capital Securities validly tendered and not withdrawn as, if and
when the Issuer gives oral or written notice to the Exchange Agent of the
Corporation's and the Issuer's acceptance of such Old Capital Securities for
exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent
for the Corporation and the Issuer for the purpose of receiving tenders of Old
Capital Securities, Letters of Transmittal and related documents, and as agent
for tendering holders for the purpose of receiving Old Capital Securities,
Letters of Transmittal and related documents and transmitting New Capital
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever, acceptance for exchange
or the exchange of any Old Capital Securities tendered pursuant to the Exchange
Offer is delayed (whether before or after the Corporation's and the Issuer's
acceptance for exchange of Old Capital Securities) or the Corporation and the
Issuer extend the Exchange Offer or are unable to accept for exchange or
exchange Old Capital Securities tendered pursuant to the Exchange Offer, then,
without prejudice to the Corporation's and the Issuer's rights set forth herein,
the Exchange Agent may, nevertheless, on behalf of the Corporation and the
Issuer and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old
Capital Securities and such Old Capital Securities may not be withdrawn except
to the extent tendering holders are entitled to withdrawal rights as described
under " -- Withdrawal Rights".
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a
holder of Old Capital Securities will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Old Capital Securities, that the Issuer will acquire good,
marketable and unencumbered title to the tendered Old Capital Securities, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Capital Securities tendered for exchange are not subject to any adverse claims
or proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the Corporation, the
Issuer or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment, and transfer of the Old Capital Securities tendered
pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, or (in the case of a book-entry tender) an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must be received by the Exchange Agent at its address set forth under
" -- Exchange Agent" , and either (i) tendered Old Capital Securities must be
received by the Exchange Agent, or (ii) such Old Capital Securities must be
tendered pursuant to the procedures for book-entry transfer set forth below and
a book-entry confirmation, including an Agent's Message if the tendering holder
has not delivered a Letter of Transmittal, must be received by the Exchange
Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal and the untendered Liquidation
Amount must be $100,000 or any integral multiple of $1,000 in excess thereof.
The entire amount of Old Capital Securities delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
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<PAGE>
BOOK ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Old Capital Securities by causing DTC to
transfer such Old Capital Securities into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. However, although delivery of
Old Capital Securities may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any
other required documents, must in any case be delivered to and received by the
Exchange Agent at its address set forth under " -- Exchange Agent" on or prior
to the Expiration Date, or the guaranteed delivery procedure set forth below
must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (i) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (ii) such registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (i) or (ii) above, such certificates for Old Capital Securities
must be duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association (an "Eligible Institution"), unless surrendered
on behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or before the Expiration Date, or the
procedures for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal,
are received by the Exchange Agent within three New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old Capital Securities, and a
properly completed and duly executed Letter of Transmittal (or facsimile thereof
or Agent's Message in lieu thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of New Capital Securities might not be made to all
tendering holders at the same time, and will depend upon when Old Capital
Securities, book-entry confirmations with respect to Old Capital Securities and
other required documents are received by the Exchange Agent.
The Corporation's and the Issuer's acceptance for exchange of Old Capital
Securities tendered pursuant to any of the procedures described above will
constitute a binding agreement among the tendering holder, the Corporation and
the Issuer upon the terms and subject to the conditions of the Exchange Offer.
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DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Corporation and
the Issuer, in their sole discretion, whose determination shall be final and
binding on all parties. The Corporation and the Issuer reserve the absolute
right, in their sole discretion, to reject any and all tenders determined by
them not to be in proper form or the acceptance of which, or exchange for, may,
in the view of counsel to the Corporation or the Issuer, be unlawful. The
Corporation and the Issuer also reserve the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under " -- Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Capital Securities of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders.
The Corporation's and the Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the Corporation,
the Issuer, any affiliates or assigns of the Corporation or the Issuer, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Issuer,
proper evidence satisfactory to the Corporation and the Issuer, in their sole
discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Issuer is making the Exchange Offer for the Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Corporation nor the Issuer
sought its own interpretive letter, and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the two immediately following
sentences, the Corporation and the Issuer believe that New Capital Securities
issued pursuant to this Exchange Offer in exchange for Old Capital Securities
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Capital Securities are acquired in the ordinary course of
such holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Capital Securities.
However, any holder of Old Capital Securities who is an Affiliate or who intends
to participate in the Exchange Offer for the purpose of distributing New Capital
Securities, or any broker-dealer who purchased Old Capital Securities from the
Issuer to resell pursuant to Rule 144A or any other available exemption under
the Securities Act, (i) will not be able to rely on the interpretations of the
staff of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (ii) will not be permitted or entitled to
tender such Old Capital Securities in the Exchange Offer, and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, Participating Broker-Dealers must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate, (ii) any New Capital Securities to be
received by it are being acquired in the ordinary course of its business, (iii)
it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Capital
Securities, and (iv) if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution (within the meaning
of the Securities Act) of such New Capital Securities. The Letter of Transmittal
contains the foregoing representations. In addition, the Corporation and the
Issuer may require such holder, as a condition to such holder's eligibility to
participate in the Exchange Offer, to furnish to the Corporation and the Issuer
(or an agent thereof) in writing information as to the number of
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"beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on
behalf of whom such holder holds the Capital Securities to be exchanged in the
Exchange Offer. Each Participating Broker-Dealer will be deemed to have
acknowledged by execution of the Letter of Transmittal or delivery of an Agent's
Message that it acquired the Old Capital Securities for its own account as the
result of market-making activities or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Capital Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Corporation and the Issuer
believe that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the New Capital Securities received upon exchange
of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the
Corporation and the Issuer have agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Capital Securities for a
period ending 180 days after the Expiration Date or, if earlier, when all such
New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution". Any person, including any
Participating Broker-Dealer, who is an Affiliate may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message in lieu
thereof, that, upon receipt of notice from the Corporation or the Issuer of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Securities pursuant to this Prospectus until the Corporation or the Issuer has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer or the Corporation or the Issuer has given notice
that the sale of the New Securities may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under " -- Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Capital Securities to be withdrawn, the
aggregate principal amount of Old Capital Securities to be withdrawn, and (if
certificates for such Old Capital Securities have been tendered) the name of the
registered holder of the Old Capital Securities as set forth on the Old Capital
Securities, if different from that of the person who tendered such Old Capital
Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Capital Securities, the tendering holder must submit the certificate numbers
shown on the particular Old Capital Securities to be withdrawn and the signature
on the notice of withdrawal must be guaranteed by an Eligible Institution,
except in the case of Old Capital Securities tendered for the account of an
Eligible Institution. If Old Capital Securities have been tendered pursuant to
the procedures for book-entry transfer set forth in " -- Procedures for
Tendering Old Capital Securities", the notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawal of Old
Capital Securities, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Old Capital Securities may not be
rescinded. Old Capital Securities properly withdrawn will not be deemed validly
tendered for purposes of the Exchange Offer, but may be retendered at any
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subsequent time on or prior to the Expiration Date by following any of the
procedures described above under " -- Procedures for Tendering Old Capital
Securities".
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Corporation and
the Issuer, in their sole discretion, whose determination shall be final and
binding on all parties. Neither the Corporation, the Issuer, any affiliates or
assigns of the Corporation or the Issuer, the Exchange Agent nor any other
person shall be under any duty to give any notification of any irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification. Any Old Capital Securities which have been tendered but which are
withdrawn will be returned to the holder thereof promptly after withdrawal.
DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive accumulated Distributions on such Old Capital
Securities for any period from and after the last Distribution Date with respect
to such Old Capital Securities prior to the original issue date of the New
Capital Securities or, if no such Distributions have been made, will not receive
any accumulated Distributions on such Old Capital Securities, and will be deemed
to have waived the right to receive any Distributions on such Old Capital
Securities accumulated from and after such Distribution Date or, if no such
Distributions have been made, from and after January 6, 1996.
CONDITIONS TO EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Corporation and the Issuer will not be
required to accept for exchange, or to exchange, any Old Capital Securities for
any New Capital Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Old Capital Securities have theretofore been accepted
for exchange) or may waive any conditions to or amend the Exchange Offer, if any
of the following conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is an Affiliate)
without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Capital Securities are
acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such New Capital Securities;
(b) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in the Corporation's and the Issuer's
judgment, would reasonably be expected to impair the ability of the Issuer
or the Corporation to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Corporation's and the Issuer's judgment, would
reasonably be expected to impair the ability of the Issuer or the
Corporation to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or North Carolina or New York State authorities which, in the
Corporation's and the Issuer's judgment, would reasonably be expected to
impair the ability of the Issuer or the Corporation to proceed with the
Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in the Corporation's
and the Issuer's judgment, would reasonably be expected to impair the
ability of the Issuer or the Corporation to proceed with the Exchange
Offer;
(f) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Corporation or the Issuer, threatened for that purpose any governmental
approval has not been obtained, which approval the Corporation and the
Issuer shall deem necessary for the consummation of the Exchange Offer as
contemplated hereby; or
(g) any change, or any development involving a prospective change, in
the business or financial affairs of the Issuer or the Corporation or any
of its subsidiaries has occurred which, in the judgment of the Corporation
and the Issuer, might materially impair the ability of the Issuer or the
Corporation to proceed with the Exchange Offer.
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If the Corporation and the Issuer determine in their sole discretion that
any of the foregoing events or conditions has occurred or exists or has not been
satisfied, the Corporation and the Issuer may, subject to applicable law,
terminate the Exchange Offer (whether or not any Old Capital Securities have
theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offer in any respect. If such waiver
or amendment constitutes a material change to the Exchange Offer, the
Corporation and the Issuer will promptly disclose such waiver by means of an
amended or supplemented Prospectus that will be distributed to the registered
holders of the Old Capital Securities, and the Corporation and the Issuer will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Operations
Telephone: (302) 651-8869
Facsimile: (302) 651-1079
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Capital Securities, and in
handling or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Neither the Corporation nor the Issuer will make any payment to brokers,
dealers or others soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer has issued the Old
Capital Securities and the Common Securities and will issue the New Capital
Securities. The New Capital Securities will represent preferred undivided
beneficial interests in the assets of the Issuer and the holders thereof will be
entitled to a preference in certain circumstances with respect to Distributions
and amounts payable on redemption of the Trust Securities or liquidation of the
Issuer over the Common Securities. See ";SUBORDINATION OF COMMON SECURITIES".
The Trust Agreement has been qualified under the Trust Indenture Act. This
summary of certain provisions of the Capital Securities, the Common Securities
and the Trust Agreement describes the material terms of the Capital Securities
but does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Trust Agreement, including
the definitions therein of certain terms.
GENERAL
The Capital Securities (including the Old Capital Securities and the New
Capital Securities) will be limited to $250,000,000 aggregate Liquidation Amount
at any one time outstanding. The Capital Securities rank PARI PASSU, and
payments thereon will be made PRO RATA, with the Common Securities of the
Issuer, except as described under ";SUBORDINATION OF COMMON SECURITIES". Legal
title to the Subordinated Debentures is held by the Property Trustee in trust
for the benefit of the holders of the Capital Securities and the holder of the
Common Securities (I.E., the Corporation). The Guarantee is a guarantee on a
subordinated and junior basis with respect to the Capital Securities but does
not guarantee payment of Distributions or amounts payable on redemption or
liquidation of the Capital Securities when the Issuer does not have funds on
hand available to make such payments. See " -- Description of Guarantee".
DISTRIBUTIONS
Distributions on the Capital Securities are cumulative from the date of
original issuance of the Old Capital Securities and are payable as a preference
at the annual rate of 7.85% of the Liquidation Amount of $1,000, semi-annually
in arrears on January 1 and July 1 of each year, to the holders of the Capital
Securities at the close of business on the 15th day of the month preceding the
relevant Distribution Date. The first Distribution Date for the Capital
Securities will be July 1, 1997. The amount of Distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
In the event that any date on which Distributions are payable on the Capital
Securities is not a Business Day (as defined in the Trust Agreement), then
payment of the Distributions payable on such date will be made on the next
succeeding Business Day (and without any additional Distributions or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same effect as if made on the date
such payment was originally payable.
So long as no "Event of Default" (as defined in the Indenture) with respect
to the Subordinated Debentures (a "Debenture Event of Default") has occurred and
is continuing (see " -- Description of Subordinated Debentures; DEBENTURE EVENTS
OF DEFAULT"), the Corporation has the right under the Indenture to defer the
payment of interest on the 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 Subordinated Debentures. See " -- Description of
Subordinated Debentures; GENERAL". As a consequence of any such election,
semi-annual Distributions on the Capital Securities will be deferred by the
Issuer during any such Extension Period. Distributions to which holders of the
Capital Securities are entitled will accumulate additional Distributions thereon
at the rate per annum of 7.85% thereof, compounded semi-annually from the
relevant payment date for such Distributions. The term "Distributions" as used
herein shall include any such additional Distributions. During any such
Extension Period, the Corporation may not, and may not permit any subsidiary of
the Corporation to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Corporation's capital stock or (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Corporation that rank PARI PASSU in all respects with or junior in interest to
the Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Corporation of the debt securities of any subsidiary of the
Corporation if such guarantee ranks PARI PASSU in all respects with or junior in
interest to the Subordinated Debentures (other than (a) repurchases, redemptions
or other acquisitions of shares of capital stock of the Corporation in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of 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 Corporation (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
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prior to the applicable Extension Period, (b) as a result of any exchange or
conversion of any class or series of the Corporation's capital stock (or any
capital stock of a subsidiary of the Corporation) for any class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation's capital stock, (c) the
purchase of fractional interests in shares of the Corporation's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (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
Corporation 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 Subordinated Debentures. Upon the termination of any
such Extension Period and the payment of all amounts then due, the Corporation
may elect to begin a new Extension Period. There is no limitation on the number
of times that the Corporation may elect to begin an Extension Period. See
" -- Description of Subordinated Debentures; OPTION TO EXTEND INTEREST PAYMENT
PERIOD" and "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount".
The Corporation has no current plan to exercise its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures.
The revenue of the Issuer available for distribution to holders of Capital
Securities will be limited to payments under the Subordinated Debentures. If the
Corporation does not make interest payments on the Subordinated Debentures, the
Property Trustee will not have funds available to pay Distributions on the
Capital Securities. The payment of Distributions (if and to the extent the
Issuer has funds legally available for the payment of such Distributions and
cash sufficient to make such payments) is guaranteed by the Corporation on a
limited basis as set forth herein under " -- Description of Guarantee".
REDEMPTION
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in
part, of the Subordinated Debentures, whether at maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption shall be applied by the Property Trustee to redeem a Like Amount of
the Trust Securities, upon not less than 30 nor more than 60 days notice, at the
applicable Redemption Price (as defined herein) plus accumulated but unpaid
Distributions thereon to the Redemption Date (as defined in the Trust
Agreement). See " -- Description of Subordinated Debentures; REDEMPTION". If
less than all of the Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption 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 Corporation upon the
repayment or redemption of all or any part of the 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 Corporation has the right to redeem the Subordinated Debentures (i) on
or after January 1, 2007, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), upon the occurrence of a Special
Event. The Corporation has committed to the Federal Reserve Bank of Richmond
that it will not exercise such redemption rights without having received the
prior approval of the Federal Reserve Board to do so, if then so required under
applicable capital guidelines or policies of the Federal Reserve Board.
SPECIAL EVENT REDEMPTION. If a Tax Event or a Regulatory Capital Event
shall occur and be continuing, the Corporation has the right to redeem the
Subordinated Debentures in whole (but not in part) and thereby cause a mandatory
redemption of the Capital Securities and Common Securities in whole (but not in
part) at the Special Event Redemption Price within 90 days following the
occurrence of such Tax Event or Regulatory Capital Event. In the event a Tax
Event has occurred and is continuing and the Corporation does not elect to
redeem the Subordinated Debentures and thereby cause a mandatory redemption of
such Capital Securities and Common Securities or to liquidate the Issuer and,
after satisfaction of liabilities to creditors of the Issuer in accordance with
applicable law and the Expense Agreement, cause the Subordinated Debentures to
be distributed to holders of the Capital Securities and Common Securities in
exchange therefor upon liquidation of the Issuer as described below, such
Capital Securities and Common Securities will remain outstanding and Additional
Sums (as defined herein) may be payable on the Subordinated Debentures.
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As used herein:
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer
on the outstanding Capital Securities and Common Securities shall not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Issuer has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to that
portion of the principal amount of Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to
the Common Securities and to the Capital Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used
to pay the Redemption Price of such Trust Securities, and (ii) with respect
to a distribution of Subordinated Debentures to holders of Trust Securities
in connection with a dissolution or liquidation of the Issuer, Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust
Security.
"Redemption Price" means (i) with respect to an optional repayment or
redemption by the Corporation of the Subordinated Debentures on or after
January 1, 2007, the applicable redemption price specified herein, and (ii)
with respect to a repayment or redemption by the Corporation of the
Subordinated Debentures in connection with a Special Event, the Special
Event Redemption Price.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at
the applicable Redemption Price with the applicable proceeds from the
contemporaneous redemption of the 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 has funds on hand and
available for the payment of such Redemption Price. See ";SUBORDINATION OF
COMMON SECURITIES".
If the Issuer 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, with respect to the Capital Securities held by
DTC or its nominee 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. See ";FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND
TRANSFER". If Capital Securities are held in certificated form, the Property
Trustee, to the extent funds are available, will irrevocably deposit with the
paying agent for the Capital Securities funds sufficient to pay the 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 such
Capital Securities on the relevant record dates for the related Distributions.
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 and any unpaid
Distributions payable in respect of the Capital Securities on or prior to the
Redemption Date, but without interest on such Redemption Price, and such Capital
Securities will cease to be outstanding. In the event that any date fixed for
redemption of Capital Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Issuer or by the Corporation pursuant to the Guarantee, as described under
" -- Description of Guarantee", Distributions on such Capital Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Issuer 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 law), the Corporation or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
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Payment of the applicable Redemption Price on the Capital Securities and
any distribution of Subordinated Debentures to holders of Capital Securities
shall be made to the applicable recordholders thereof as they appear on the
register for such Capital Securities on the relevant record date, which shall be
a date at least 15 days prior to the Redemption Date.
If less than all of the outstanding Capital Securities and Common
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Capital Securities and Common Securities to be redeemed
shall be allocated PRO RATA to the outstanding Capital Securities and 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, by
such method as the Property Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions of the Liquidation
Amount of Capital Securities of a denomination larger than $1,000, provided that
the holder of such Capital Securities has at least 100 Capital Securities
remaining after the redemption. The Property Trustee shall promptly notify the
Securities Registrar (as defined in the Trust Agreement) 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 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 holder of Trust Securities to be
redeemed at its registered address. Unless the Corporation defaults in payment
of the Redemption Price on the Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on such Subordinated Debentures or
portions thereof (and Distributions will cease to accrue on the Capital
Securities or portions thereof) called for redemption.
LIQUIDATION OF ISSUER AND DISTRIBUTION OF SUBORDINATED DEBENTURES TO HOLDERS
The holder of the Common Securities (I.E., the Corporation) has the right
at any time to terminate the Issuer and, after satisfaction of liabilities to
creditors of the Issuer in accordance with applicable law and the Expense
Agreement, cause the Subordinated Debentures to be distributed to the holders of
the Capital Securities in liquidation of the Issuer, subject to the Issuer
having received an opinion of counsel to the effect that the distribution will
not be taxable to holders of Capital Securities. In addition, the Corporation
has committed to the Federal Reserve Bank of Richmond that as so long as it (or
any affiliate) is the owner of the Common Securities it will not exercise the
foregoing right as holder of the Common Securities without having received the
prior approval of the Federal Reserve Board to do so, if then so required under
applicable capital guidelines or policies of the Federal Reserve Board.
After the liquidation date fixed for any distribution of Subordinated
Debentures (i) the Capital Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the record holder of the Capital
Securities in book-entry form, will receive a registered global certificate or
certificates representing the Subordinated Debentures to be delivered upon such
distribution, and (iii) any certificates representing Capital Securities not
held by DTC or its nominee will be deemed to represent Subordinated Debentures
having a Like Amount of such Capital Securities, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on such
Capital Securities until such certificates are presented to the Property Trustee
or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Subordinated
Debentures that may be distributed in exchange for Capital Securities if a
dissolution and liquidation of the Issuer were to occur. Accordingly, the
Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Issuer, may trade at a discount to the price that the
investor paid to purchase such Capital Securities.
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 the Capital Securities and Common Securities;
provided, however, that if, on any Distribution Date or Redemption Date, a
Debenture Event of Default shall have occurred and be continuing, no payment of
any Distribution on, or Redemption Price of, the Common Securities, and no other
payment on account of the redemption, liquidation or other acquisition of the
Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Capital
Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all of the outstanding Capital Securities then called for redemption,
shall have been made or provided for, and all funds available to the
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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 in the Trust Agreement)
(an "Event of Default") with respect to the Capital Securities (see ";EVENTS OF
DEFAULT; NOTICE") resulting from a Debenture Event of Default, the Corporation,
as holder of the Common Securities, will be deemed to have waived any right to
act with respect to any such Event of Default under the Trust Agreement until
the effect of all such Events of Default with respect to the Capital Securities
have been cured, waived or otherwise eliminated. Until any such Events of
Default with respect to the Capital Securities have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Capital Securities and not on behalf of the Corporation, as
holder of the Common Securities, and only the holders of the Capital Securities
will have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, the Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of:
(i) certain events of bankruptcy, dissolution or liquidation of
the holder of the Common Securities (I.E., the Corporation);
(ii) the distribution of a Like Amount of the Subordinated
Debentures to the holders of the Trust Securities, if the holder of
the Common Securities (I.E. the Corporation), has given written
direction to the Property Trustee to terminate the Issuer (which
direction is optional and wholly within the discretion of the holder
of the Common Securities);
(iii) redemption of all of the Capital Securities in connection
with the redemption of the Subordinated Debentures as described under
";REDEMPTION"; and
(iv) the entry of an order for the dissolution of the Issuer by a
court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Issuer in accordance with applicable law and
the Expense Agreement, to the holders of Trust Securities a Like Amount of the
Subordinated Debentures, unless such distribution is determined by the Property
Trustee not to be practical, in which event such holders will be entitled to
receive out of the assets of the Issuer available for distribution to holders,
after satisfaction of liabilities to creditors of the Issuer in accordance with
applicable law and the Expense Agreement, an amount equal to, in the case of
holders of the Capital Securities, the aggregate of the Liquidation Amounts of
the Capital Securities, plus accrued and unpaid Distributions thereon to the
date of payment (the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because the Issuer has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Issuer on the Capital Securities shall be paid
on a PRO RATA basis. The holder of the Common Securities (I.E., the Corporation)
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, the Capital Securities shall have a
priority over the Common Securities.
EVENTS OF DEFAULT; NOTICE
Under the Trust Agreement, any one of the following events constitutes an
Event of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the
Indenture (see " -- Description of Subordinated Debentures; DEBENTURE
EVENTS OF DEFAULT"); or
(ii) default by the Property Trustee in the payment of any
Distribution when it becomes due, and continuation of such default for
a period of 30 days; or
(iii) default by the Property Trustee in the payment of any
Redemption Price of any Trust Security when it becomes due; 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
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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
defaulting Issuer Trustee or Trustees by the holders of at least 25
percent 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 and the failure by the
Corporation to appoint a successor Property Trustee within 60 days
thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities and the
Administrators, unless such Event of Default shall have been cured or waived.
The Corporation, 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, the Capital
Securities shall have a preference over the Common Securities upon termination
of the Issuer as described above. See ";LIQUIDATION DISTRIBUTION UPON
TERMINATION". The existence of an Event of Default does not entitle the holders
of Capital Securities to accelerate the maturity thereof.
REMOVAL OF ISSUER TRUSTEES
If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Capital
Securities. 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.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal standards of the Trust
Indenture Act or of any jurisdiction in which any part of the assets of the
Issuer may at the time be located, the Property Trustee shall have power to
appoint one or more persons either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such assets, or to act as separate
trustee of any such property, in either case with such powers as may be provided
in the instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee that is
not a natural person 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 Trustee shall be a party, or any entity succeeding
to all or substantially all the corporate trust business of such Trustee, shall
be the successor of such Trustee under the Trust Agreement, provided such entity
shall be otherwise qualified and eligible.
MERGER, CONSOLIDATION, AMALGAMATION OR REPLACEMENT OF ISSUER
The Issuer 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 indicated in the Trust Agreement. The Issuer may, at the request of
the holder of the Common Securities (I.E, the Corporation) and with the consent
of a majority (based on the Liquidation Amount) of the 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; provided, that (i) such successor
entity either (a) expressly assumes all of the obligations of the Issuer 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 rank the same
as the Capital Securities rank in priority with respect to Distributions and
payments upon liquidation, redemption and otherwise, (ii) the Property Trustee
expressly appoints a trustee of such successor entity possessing the same powers
and duties as the Property Trustee as the holder of the Subordinated Debentures,
(iii) the Successor Securities are listed, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
other organization on which the Capital Securities are then listed, if any, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
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lease does not cause the Capital Securities (including any Successor Securities)
to be downgraded by any nationally recognized statistical rating organization,
(v) 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, (vi) such successor entity has a purpose substantially
identical to that of the Issuer, (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer has
received an opinion from independent counsel to the Issuer 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 nor such successor entity will be required to register as an
"investment company" under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and (viii) the Corporation or any permitted successor
or assignee owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, the Issuer shall not, except with the consent of holders of 100
percent in 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 Issuer or the successor entity to be
classified as an association taxable as a corporation or as other than a grantor
trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under " -- Description of Guarantee; AMENDMENT
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 holder of the
Common Securities (I.E., the Corporation) 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, which shall
not be inconsistent with the other provisions of the Trust Agreement, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as shall be necessary to ensure that the Issuer will be classified for United
States federal income tax purposes as a grantor trust or as other than an
association taxable as a corporation at all times that any Trust Securities are
outstanding or to ensure that the Issuer will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
in the case of clauses (i) or (ii), such action shall not adversely affect in
any material respect the interests of any holder of Trust Securities, and any
amendments of such Trust Agreement shall become effective when notice thereof is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the holder of the Common Securities (I.E., the Corporation) and the Property
Trustee with (i) the consent of holders representing not less than a majority
(based on Liquidation Amount) of the outstanding Trust 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 cause the Issuer to be classified as an
association taxable as a corporation or affect the Issuer's status as a grantor
trust for United States federal income tax purposes or the Issuer's exemption
from status as an "investment company" under the Investment Company Act,
provided that without the consent of each holder of Trust Securities, 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 Subordinated Debentures are held by the Property Trustee,
the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
such Subordinated Debentures, (ii) waive any past default that is waiveable
under Section 513 of the Indenture, (iii) exercise any right to rescind or annul
a declaration that the principal of all the Subordinated Debentures shall be due
and payable, or (iv) consent to any amendment, modification or termination of
the Indenture or such Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in aggregate Liquidation Amount of all outstanding Capital
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Subordinated Debentures affected thereby,
no such consent shall be given by the Property Trustee without the prior consent
of each holder of the Capital Securities. The Issuer Trustees shall not revoke
any action previously authorized or approved by a vote of the holders
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of the Capital Securities, except by subsequent vote of the holders of the
Capital Securities. The Property Trustee shall notify each holder of Capital
Securities of any notice of default with respect to the Subordinated Debentures.
In addition to obtaining the foregoing approvals of the holders of the Capital
Securities, prior to taking any of the foregoing actions, the Issuer Trustees
shall obtain an opinion of counsel experienced in such matters to the effect
that such action shall not cause the Issuer to be classified as an association
taxable as a corporation or as other than a grantor trust 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 notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of Capital Securities in the manner set forth in the Trust
Agreement.
No vote or consent of the holders of Capital Securities will be required
for the Issuer to redeem and cancel the 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 Corporation, any Issuer Trustee or any
affiliate of the Corporation or any Issuer Trustee, shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Capital Securities will be in blocks having a Liquidation Amount of not
less than $100,000 (100 Capital Securities) and may be transferred or exchanged
in such blocks in the manner and at the offices described below.
New Capital Securities initially will be represented by one or more Capital
Securities in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited on issuance with
the Property Trustee as custodian for DTC, in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Capital Securities in certificated form
except in the limited circumstances described below. See ";EXCHANGE OF
BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES".
DEPOSITARY PROCEDURES. DTC has advised the Issuer and the Corporation that
DTC is a limited-purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants") and to facilitate
the clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers (including
the Initial Purchaser), banks, trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Issuer and the Corporation that, pursuant to
procedures established by it, ownership of interests in the Global Capital
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Capital Securities).
Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are Participants in such system, or indirectly
through organizations (including the Euroclear System ("Euroclear") and Cedel,
S.A. ("CEDEL") which are Participants in such system. All interests in a Global
Capital Security, including those held through Euroclear or CEDEL, may be
subject to the procedures and requirements of DTC. Those interests held through
Euroclear or CEDEL may also be subject to the procedures and requirements of
such system. The laws of some states require that certain persons take physical
delivery in certificated form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Capital Security to such
persons will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Capital
Security to pledge such interests to persons or entities that do not participate
in the DTC system, or otherwise
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take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Capital Securities, see ";EXCHANGE OF BOOK-ENTRY
CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES".
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their names, will not
receive physical delivery of Capital Securities in certificated form and will
not be considered the registered owners or holders thereof under the Trust
Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Capital Securities, including the Global Capital Securities, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Capital Securities, or for maintaining, supervising or reviewing any of
DTC's records or any Participant's or Indirect Participant's records relating to
the beneficial ownership interests in the Global Capital Securities or (ii) any
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Issuer and the
Corporation that its current practice, upon receipt of any payment in respect of
securities such as the Capital Securities, is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in Liquidation Amount of beneficial
interests in the relevant security as shown on the records of DTC unless DTC has
reason to believe it will not receive payment on such payment date. Payments by
the Participants and the Indirect Participants to the beneficial owners of the
Capital Securities will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Property Trustee,
the Issuer or the Corporation. Neither the Issuer nor the Corporation nor the
Property Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the Capital Securities, and the Issuer,
the Corporation and the Property Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Capital Securities will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Capital Securities described herein, cross-market transfers between the
Participants in DTC, on the one hand, and Euroclear or CEDEL participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary or take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Capital Securities in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and CEDEL
participants may not deliver instructions directly to the depositaries for
Euroclear or CEDEL.
Because of the time zone differences, the securities account of a Euroclear
or CEDEL participant purchasing an interest in a Global Capital Security from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. Cash received in Euroclear or
CEDEL as a result of sales of interest in a Global Capital Security by or
through a Euroclear or CEDEL participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or CEDEL cash account only as of the business day for
Euroclear or CEDEL following DTC's settlement date.
DTC has advised the Issuer and the Corporation that it will take any action
permitted to be taken by a holder of Capital Securities only at the direction of
one or more Participants to whose account with DTC interests in the Global
Capital Securities are credited and only in respect to such portion of the
Liquidation Amount of the Capital Securities as to which
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such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Trust Agreement, DTC reserves the right
to exchange the Global Capital Securities for Capital Securities in certificated
form and to distribute such Capital Securities to its Participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Issuer and the
Corporation believe to be reliable, but neither the Issuer nor the Corporation
takes responsibility for the accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interest in the Global Capital Securities among
participants in DTC, Euroclear and CEDEL, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuer or the Corporation nor the Property
Trustee will have any responsibility for the performance by DTC, Euroclear or
CEDEL or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL
SECURITIES. A Global Capital Security is exchangeable for Capital Securities in
registered certificated form if (i) DTC (x) notifies the Issuer that it is
unwilling or unable to continue as depositary for the Global Capital Security
(the "Depositary") and the Issuer thereupon fails to appoint a successor
Depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Corporation in its sole discretion elects to
cause the issuance of the Capital Securities in certificated form, or (iii)
there shall have occurred and be continuing an Event of Default or any event
which after notice or lapse of time or both would be an Event of Default.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities held in global form shall be
made to the Depositary, which shall credit the relevant accounts at the
Depositary on the applicable Distribution Dates. Payments in respect of Capital
Securities that are not held by the Depositary shall be made by check mailed to
the address of the holder entitled thereto as such address shall appear on the
register maintained by the Securities Registrar appointed under the Trust
Agreement. The paying agent (the "Paying Agent") shall initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrators. The Paying Agent shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Property Trustee and the
Administrators. In the event that the Property Trustee shall no longer be the
Paying Agent, the Property Trustee shall appoint a successor (which shall be a
bank or trust company 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, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer will not be required to register or cause to be
registered the transfer of any Capital Securities after such Capital Securities
have been called for redemption.
INFORMATION CONCERNING 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. If no Event of Default has occurred and is continuing
under the Trust Agreement and the Property Trustee is required to decide between
alternative causes of action, construe ambiguous provisions in the Trust
Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of Capital Securities are
entitled under the Trust Agreement to vote, then the Property Trustee shall take
such action as is directed by the Corporation, as Depositor, and if not so
directed, shall take such action as it deems advisable and in the best interests
of the holders of the Trust Securities and will have no liability, except for
its own bad faith, negligence or willful misconduct.
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MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer in such a way that the Issuer
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act and will not be classified as an association taxable
as a corporation or as other than a grantor trust for United States federal
income tax purposes and so that the Subordinated Debentures will be treated as
indebtedness of the Corporation for United States federal income tax purposes.
In this connection, the Property Trustee and the holder of the Common Securities
(I.E., the Corporation) are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of the Issuer or the Trust Agreement,
that the Property Trustee and the holder of the Common Securities (I.E., the
Corporation) determine in their sole 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 may not borrow money or issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF SUBORDINATED DEBENTURES
The Old Subordinated Debentures were issued, and the New Subordinated
Debentures will be issued, as a separate series under the Indenture. The
Indenture has been qualified under the Trust Indenture Act. This summary of
certain terms and provisions of the Subordinated Debentures and the Indenture
describes the material terms thereof but does not purport to be complete, and
where reference is made to particular provisions of the Indenture, such
provisions, including the definitions of certain terms, some of which are not
otherwise defined herein, are qualified in their entirety by reference to all of
the provisions of the Indenture and those terms made a part of the Indenture by
the Trust Indenture Act.
GENERAL
Concurrently with the issuance of the Old Capital Securities, the Issuer
invested the proceeds thereof, together with the consideration paid by the
Corporation for the Common Securities, in the Old Subordinated Debentures issued
by the Corporation.
Pursuant to the Exchange Offer, the Corporation will exchange the Old
Subordinated Debentures for the New Subordinated Debentures as soon as
practicable after the date hereof. No Old Subordinated Debentures will remain
outstanding after such exchange. The Subordinated Debentures are unsecured and
subordinate and junior in right of payment to the extent and in the manner set
forth in the Indenture to all Senior Debt of the Corporation. See ";
SUBORDINATION". The Corporation is a holding company and almost all of the
operating assets of the Corporation and its consolidated subsidiaries are owned
by such subsidiaries. The Corporation relies primarily on dividends from such
subsidiaries to meet its obligations. The payment by the Corporation's bank
subsidiaries, in particular, are subject to restrictions under federal (and, in
the case of state-chartered banks, state) law. Because the Corporation is a
holding company, the right of the Corporation to participate in any distribution
of assets of any subsidiary upon such subsidiary's liquidation or reorganization
or otherwise, is subject to the prior claims of creditors of the subsidiary,
except to the extent the Corporation may itself be recognized as a creditor of
that subsidiary. Accordingly, the Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries, and holders of Subordinated Debentures should look only to the
assets of the Corporation for payments on the Subordinated Debentures. The
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of the Corporation, including the Senior Debt, whether under the
Indenture, any other indenture that the Corporation may enter into in the future
or otherwise. See "; SUBORDINATION". The Subordinated Debentures bear interest
payable, at the annual rate of 7.85% of the principal amount thereof,
semi-annually in arrears on January 1 and July 1 of each year (each, an
"Interest Payment Date"), commencing July 1, 1997, to the person in whose name
each Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the Business Day (as defined in the Indenture) next
preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Issuer, each Subordinated Debenture will be held in
the name of the Property Trustee in trust for the benefit of the holders of the
Capital Securities. The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the Subordinated Debentures is not
a Business Day, then payment of the interest payable on such date will be made
on the next succeeding Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case 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
7.85% thereof, compounded semi-
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annually. The term "interest" as used herein shall include semi-annual interest
payments, interest on semi-annual interest payments not paid on the applicable
Interest Payment Date and Additional Sums, as applicable. The Subordinated
Debentures will mature on January 1, 2027.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right under the Indenture at any time during the term of
the 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 each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity. At the end of such Extension Period, the Corporation
must pay all interest then accrued and unpaid (together with interest thereon at
the annual rate of 7.85%, compounded semi-annually, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Subordinated Debentures (or holders of Capital Securities while
such series is outstanding) will be required to recognize income (in the form of
original issue discount) 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 Corporation may not, and may not
permit any subsidiary of the Corporation to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Corporation's capital stock, or (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Corporation that rank PARI PASSU in all
respects with or junior in interest to the Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Corporation of the debt
securities of any subsidiary of the Corporation if such guarantee ranks PARI
PASSU in all respects with or junior in interest to the Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Corporation in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of 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 Corporation (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 any exchange or conversion of any class or series of the Corporation's
capital stock (or any capital stock of a subsidiary of the Corporation) for any
class or series of the Corporation's capital stock or of any class or series of
the Corporation's indebtedness for any class or series of the Corporation's
capital stock, (c) the purchase of fractional interest in shares of the
Corporation's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (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 Corporation 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 Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due on any Interest Payment Date, the Corporation may elect to
begin a new Extension Period, subject to the above requirements. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Corporation must give the Property Trustee and the Debenture Trustee 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, except for the election to begin such Extension Period, or (ii)
the date the Property Trustee is required to give notice to the holders of such
Capital Securities of the record date for such Distributions or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Debenture Trustee shall give notice of the
Corporation'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
Corporation may elect to begin an Extension Period.
ADDITIONAL SUMS
If the Issuer is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional amounts on the Subordinated Debentures such Additional Sums as shall
be required so that the Distributions payable by the Issuer shall not be reduced
as a result of any such additional taxes, duties or other governmental charges.
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REGISTRATION, DENOMINATION AND TRANSFER
The Subordinated Debentures will be registered in the name of the Issuer.
In the event that the Subordinated Debentures are distributed to holders of
Capital Securities, it is anticipated that the depositary arrangements for the
Subordinated Debentures will be substantially identical to those in effect for
the Capital Securities. See " -- Description of Capital Securities; FORM,
DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER".
The Subordinated Debentures will be issuable only in registered form
without coupons in minimum denominations of $100,000 and integral multiplies of
$1,000 in excess thereof. Subordinated Debentures will be exchangeable for other
Subordinated Debentures, of any authorized denominations, of a like aggregate
principal amount.
Payments on Subordinated Debentures represented by a global security will
be made to DTC, as the Depositary for the Subordinated Debentures. In the event
Subordinated Debentures are issued in definitive form, principal and interest
will be payable, the transfer of the Subordinated Debentures will be
registrable, and Subordinated Debentures will be exchangeable for Subordinated
Debentures of other 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 Corporation,
provided that payment of interest may be made at the option of the Corporation
by check mailed to the address of the persons entitled thereto or by wire
transfer. In addition, if the Subordinated Debentures are issued in certificated
form, the record dates for payments of interest will be the 15th day of the
month preceding the Interest Payment Dates.
In the event of any redemption, neither the Corporation nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Subordinated Debentures during a period beginning at the opening of business 15
days before the day of selection for redemption of Subordinated Debentures and
ending at the close of business on the day of mailing of the relevant notice of
redemption, or (ii) transfer or exchange any Subordinated Debentures so selected
for redemption, except, in the case of any Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Corporation in trust, for the payment of the principal of (and
premium, if any) or interest on any Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Corporation, be repaid
to the Corporation and the holder of such Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Corporation for
payment thereof.
REDEMPTION
The Corporation may, at its option, redeem the Subordinated Debentures on
or after January 1, 2007, in whole or in part from time to time. The Corporation
has committed, however, to the Federal Reserve Bank of Richmond that it will not
exercise this redemption option without having received the prior approval of
the Federal Reserve Board to do so, if then so required under applicable capital
guidelines or policies of the Federal Reserve Board. The Redemption Price for
any Subordinated Debenture so redeemed shall equal the following prices,
expressed in percentages of the principal amount together with any accrued and
unpaid interest thereon to the Redemption Date, if redeemed during the 12-month
period beginning January 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2007...................................................................................... 103.925%
2008...................................................................................... 103.533
2009...................................................................................... 103.140
2010...................................................................................... 102.748
2011...................................................................................... 102.355
2012...................................................................................... 101.963
2013...................................................................................... 101.570
2014...................................................................................... 101.178
2015...................................................................................... 100.785
2016...................................................................................... 100.393
2017 and thereafter....................................................................... 100.000%
</TABLE>
Subordinated Debentures in denominations larger than $1,000 may be redeemed
in part but only in integral multiples of $1,000. The Corporation may not redeem
the Subordinated Debentures in part unless all accrued and unpaid interest has
been paid in full on all outstanding Subordinated Debentures for all interest
periods terminating on or prior to the Redemption Date.
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In addition, if a Tax Event or Regulatory Capital Event shall occur and be
continuing, the Corporation may, at its option, redeem Subordinated Debentures
in whole (but not in part) at any time within 90 days of the occurrence of such
Tax Event or Regulatory Capital Event, at the Special Event Redemption Price,
which is equal to the greater of (i) 100% of the principal amount of the
Subordinated Debentures or (ii) the sum, as determined by a Quotation Agent, of
the present values of the principal amount and premium payable as part of the
Redemption Price with respect to an optional redemption of such Subordinated
Debentures on January 1, 2007, together with scheduled payments of interest from
the Redemption Date to January 1, 2007 (the "Remaining Life"), in each case
discounted to the Redemption Date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate plus, in
each case, accrued interest thereon to the Redemption Date. The Corporation has
committed to the Federal Reserve Bank of Richmond that it will not exercise this
redemption option without having received the prior approval of the Federal
Reserve Board to do so, if then so required under applicable capital guidelines
or policies of the Federal Reserve Board.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date plus (i) 1.00% if such Redemption Date
occurs on or prior to January 1, 1998 and (ii) .50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the Remaining
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.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Debenture Trustee after consultation with the Corporation. "Reference Treasury
Dealer" means: (i) 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
Corporation shall substitute therefor another Primary Treasury Dealer; and (ii)
any other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Corporation.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the 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 three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any 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.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Subordinated Debentures to
be redeemed at its registered address. Unless the Corporation defaults in
payment of the Redemption Price, on and after the Redemption Date interest
ceases to accrue on such Subordinated Debentures or portions thereof called for
redemption.
The Subordinated Debentures will not be subject to any sinking fund.
RESTRICTIONS ON CERTAIN PAYMENTS
The Corporation has agreed (and in connection with the New Subordinated
Debentures will agree) that it will not, and will not permit any subsidiary of
the Corporation to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Corporation's capital stock, or (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Corporation that rank PARI PASSU in all respects with or junior in interest to
the Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Corporation of the debt securities of any subsidiary of the
Corporation if such guarantee ranks PARI PASSU in all respects with or junior in
interest to the Subordinated Debentures (other than (a) repurchases, redemptions
or other acquisitions or shares of capital stock of the Corporation in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection
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with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Corporation (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction theretofore entered into, (b) as a result of any exchange or
conversion of any class or series of the Corporation's capital stock (or any
capital stock of a subsidiary of the Corporation) for any class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation's capital stock, (c) the
purchase of fractional interests in shares of the Corporation's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (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 shall have occurred any event of which
the Corporation has actual knowledge that (a) with the giving of notice or the
lapse of time, or both, would constitute a Debenture Event of Default with
respect to the Subordinated Debentures and (b) in respect of which the
Corporation shall not have taken reasonable steps to cure, (ii) if the
Subordinated Debentures are held by the Issuer, the Corporation shall be in
default with respect to its payment of any obligations under the Guarantee, or
(iii) the Corporation shall have given notice of its selection of an Extension
Period as provided in the Indenture with respect to the Subordinated Debentures
and shall not have rescinded such notice, or such Extension Period, or any
extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may, without
the consent of the holders of the Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of Subordinated
Debentures or the holders of the Capital Securities so long as they remain
outstanding) and qualifying, or maintaining the qualification of, the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting the
Corporation and the Debenture Trustee, with the consent of the holders of not
less than a majority in principal amount of Subordinated Debentures affected, to
modify the Indenture in a manner affecting the rights of the holders of the
Subordinated Debentures, provided that no such modification may, without the
consent of the holder of each outstanding Subordinated Debenture so affected,
(i) change the Stated Maturity of the Subordinated Debentures, except as
otherwise specified herein, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon, or (ii) reduce the
percentage of principal amount of the Subordinated Debentures, the holders of
which are required to consent to any such modification of the Indenture,
provided that so long as any of the 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 Indenture may
occur, and no waiver of any Debenture Event of Default or compliance with any
covenant under the Indenture may be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount of such
Capital Securities, unless and until the principal of the Subordinated
Debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied.
In addition, the Corporation and the Debenture Trustee may execute, without
the consent of any holder of Subordinated Debentures, any supplemental indenture
to the Indenture for the purpose of creating any new series of junior
subordinated debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events that has occurred and is continuing constitutes an event of default
thereunder and therefore constitutes a Debenture Event of Default:
(i) failure for 30 days to pay any interest on the Subordinated
Debentures when due (subject to the deferral of any due date in the
case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on any
Subordinated Debentures when due, whether at maturity, upon redemption
by declaration or otherwise; or
(iii) failure to observe or perform in any material respect
certain other covenants contained in the Indenture for 90 days after
written notice to the Corporation from the Debenture Trustee or the
holders of at least 25 percent in aggregate principal amount of
outstanding Subordinated Debentures; or
(iv) certain events of bankruptcy, insolvency or reorganization
of the Corporation.
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The holders of a majority in aggregate outstanding principal amount of
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 percent in aggregate
outstanding principal amount of 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 Subordinated Debentures fail to
make such declaration, the holders of at least 25 percent in aggregate
Liquidation Amount of the Capital Securities shall have such right. The holders
of a majority in aggregate outstanding principal amount of Subordinated
Debentures may annul such declaration and waive the default if the default
(other than the non-payment of the principal of Subordinated Debentures which
has become due solely by such acceleration) has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee. Should the holders
of the Subordinated Debentures fail to annul such declaration and waive such
default, the holders of a majority in aggregate Liquidation Amount of the
Capital Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures affected thereby may, on behalf of the holders of all
the Subordinated Debentures, waive any past default, except a default in the
payment of principal 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 Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Subordinated Debenture. Should the holders of Subordinated Debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the Capital Securities shall have such right.
The Corporation is required to file annually with the Debenture Trustee a
certificate as to whether or not the Corporation is in compliance with all the
conditions and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing, the
Property Trustee will have the right to declare the principal of and the
interest on the Subordinated Debentures, and any other amounts payable under the
Indenture, to be forthwith due and payable and to enforce its other rights as a
creditor with respect to the Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If (i) a Debenture Event of Default has occurred and is continuing and (ii)
such event is attributable to the failure of the Corporation to pay interest or
principal on the Subordinated Debentures on the date such interest or principal
is otherwise payable, then a holder of Capital Securities may institute a Direct
Action against the Corporation for enforcement of payment to such holder of the
principal of or interest on the Subordinated Debentures having a principal
amount equal to the aggregate Liquidation Amount of the Capital Securities of
such holder. The Corporation may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of the holders
of all the Capital Securities. If the right to bring a Direct Action is removed,
the Issuer may become subject to the reporting obligations under the Exchange
Act. The Corporation has the right under the Indenture to set-off any payment
made to such holder of Capital Securities by the Corporation in connection with
a Direct Action.
The holders of the Capital Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Subordinated Debentures unless there shall have
been an Event of Default under the Trust Agreement. See " -- Description of
Capital Securities; EVENTS OF DEFAULT; NOTICE".
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Corporation will not consolidate with or
merge into any other Person (as defined in the Indenture) or convey, transfer or
lease its properties and assets substantially as an entirety to any Person, and
no Person will consolidate with or merge into the Corporation or convey,
transfer or lease its properties and assets substantially as an entirety to the
Corporation, unless (i) in case the Corporation consolidates with or merges into
another Person or conveys or transfers its properties and assets substantially
as an entirety to any Person, the successor Person is organized under the laws
of the United States or any state or Washington, D.C., and such successor Person
expressly assumes the Corporation's obligations on the Subordinated Debentures
issued under the Indenture; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have happened and be
continuing; (iii) such transaction is permitted under the Trust Agreement and
the Guarantee and does not give rise to any breach or violation of the Trust
Agreement or the Guarantee; and (iv) certain other conditions as prescribed in
the Indenture are met.
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The general provisions of the Indenture do not afford holders of the
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable, or (ii) will become due and payable at their
Stated Maturity within one year, and the Corporation deposits or causes to be
deposited with the Debenture Trustee funds, in trust, for the purpose and in an
amount in the currency or currencies in which the Subordinated Debentures are
payable sufficient to pay and discharge the entire indebtedness on the
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal (and premium, if any) and interest to the date
of the deposit or to the Stated Maturity, as the case may be, then the Indenture
will cease to be of further effect (except as to the Corporation's obligations
to pay all other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Corporation
will be deemed to have satisfied and discharged the Indenture.
DISTRIBUTION OF SUBORDINATED DEBENTURES
As described under " -- Description of Capital Securities; LIQUIDATION OF
ISSUER AND DISTRIBUTION OF SUBORDINATED DEBENTURES TO HOLDERS", under certain
circumstances involving the termination of the Issuer, Subordinated Debentures
may be distributed to the holders of the Capital Securities in liquidation of
the Issuer, after satisfaction of liabilities to creditors of the Issuer in
accordance with applicable law and the Expense Agreement. It is anticipated that
the depositary arrangements for the Subordinated Debentures would be
substantially identical to those in effect for the Capital Securities. If the
Subordinated Debentures are distributed to the holders of Capital Securities
upon the liquidation of the Issuer, the Corporation will use its reasonable best
efforts to list the Subordinated Debentures on the New York Stock Exchange or
such other stock exchanges, if any, on which the Capital Securities are then
listed. There can be no assurance as to the market price of any Subordinated
Debentures that may be distributed to the holders of Capital Securities.
SUBORDINATION
The Indenture provides that the Subordinated Debentures will be subordinate
and junior in right of payment to all Senior Debt to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding-up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, the holders of Senior Debt will first
be entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the holders of Subordinated
Debentures, or the Property Trustee on behalf of such holders, will be entitled
to receive or retain any payment in respect of the principal of (and premium, if
any) or interest, if any, on the Subordinated Debentures.
In the event of the acceleration of the maturity of the Subordinated
Debentures, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon (including any amounts due upon acceleration) before the holders of
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of (or premium, if any) or interest, if any, on the
Subordinated Debentures.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to Senior Debt
or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all Other
Financial Obligations (as hereinafter defined) of such Person; 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, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
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"Other Financial Obligations" means, with respect to any Person, all
obligations to make payment pursuant to the terms of financial instruments, such
as (i) securities contracts and foreign currency exchange contracts, (ii)
derivative instruments, such as swap agreements (including interest rate and
foreign exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange rate agreements, options,
commodity futures contracts, commodity option contracts, and (iii) in the case
of both (i) and (ii) above, similar financial instruments.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Corporation whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Subordinated Debentures or to other Debt
which is PARI PASSU with, or subordinated to, the Subordinated Debentures;
provided, however, that Senior Debt shall not be deemed to include (i) any Debt
of the Corporation 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 Corporation, (ii) any Debt of the Corporation to any of
its subsidiaries, (iii) Debt to any employee of the Corporation, and (iv) any
other debt securities issued pursuant to the Indenture. Senior Debt includes,
without limitation, Debt issued (i) under the indenture, dated as of April 1,
1983, and amended thereafter, between the Corporation and Chemical Bank, as
trustee, and (ii) except to the extent otherwise provided with respect to any
series of debt securities issued after the date hereof, under the indenture,
dated as of March 15, 1986, and amended thereafter, between the Corporation and
Harris Trust and Savings Bank, as trustee.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by the Corporation. The Corporation expects from time to
time to incur additional indebtedness constituting Senior Debt.
RESTRICTIONS ON TRANSFER
The Subordinated Debentures will be issued, and may be transferred only, in
minimum denominations of not less than $100,000 and multiples of $1,000 in
excess thereof. Any transfer, sale or other disposition of Subordinated
Debentures in a denomination of less than $100,000 shall be deemed to be void
and of no legal effect whatsoever. Any such transferee shall be deemed not to be
the holder of such Subordinated Debentures for any purpose, including but not
limited to the receipt of payments on such Subordinated Debentures, and such
transferee shall be deemed to have no interest whatsoever in such Subordinated
Debentures.
GOVERNING LAW
The Indenture and the Subordinated Debentures are governed by and construed
in accordance with the laws of the State of New York.
INFORMATION CONCERNING DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Debenture Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the Debenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
CERTAIN COVENANTS RELATING TO ISSUER
The Corporation will covenant (i) to maintain directly or indirectly 100
percent ownership of the Common Securities of the Issuer, provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Corporation's ownership of the Common Securities, and (ii) to use its reasonable
efforts, consistent with the terms and provisions of the Trust Agreement, to
cause the Issuer to remain classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes.
DESCRIPTION OF GUARANTEE
The Old Guarantee was entered into by the Corporation concurrently with the
issuance by the Issuer of the Old Capital Securities, for the benefit of the
holders from time to time of the Old Capital Securities. As soon as practicable
after the date hereof, the Old Guarantee will be exchanged by the Corporation
for the New Guarantee. The New Guarantee has been
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qualified under the Trust Indenture Act. This summary of certain provisions of
the Guarantee describes the material terms of the Guarantee but does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Guarantee Agreement, including the definitions
therein of certain terms, and the Trust Indenture Act. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the Capital
Securities.
GENERAL
The Corporation has agreed (and under the New Guarantee will agree) to pay
in full on a subordinated basis, to the extent set forth herein, the Guarantee
Payments (as defined herein) to the holders of the Capital Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that the
Issuer 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 (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
the Capital Securities, to the extent that the Issuer has funds on hand
available therefor at the time; (ii) the Redemption Price with respect to any
Capital Securities called for redemption, to the extent that the Issuer has
funds on hand available therefor at the time; or (iii) upon a voluntary or
involuntary termination, winding-up or liquidation of the Issuer (unless the
Subordinated Debentures are distributed to holders of the Capital Securities),
the lesser of (a) the Liquidation Distribution, and (b) the amount of assets of
the Issuer remaining available for distribution to holders of Capital Securities
on liquidation of the Issuer. The Corporation's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Corporation to the holders of the Capital Securities or by causing the Issuer to
pay such amounts to such holders.
The Guarantee will be a guarantee on a subordinated basis of the Issuer's
obligations under the Capital Securities, but will apply only to the extent that
the Issuer has funds sufficient to make the payments, and is not a guarantee of
collection.
If the Corporation does not make interest payments on the Subordinated
Debentures held by the Issuer, the Issuer will not be able to pay Distributions
on the Capital Securities and will not have funds legally available therefor.
The Guarantee will rank subordinate and junior in right of payment to all Senior
Debt of the Corporation. See ";STATUS OF GUARANTEE". Because the Corporation is
a holding company, the right of the Corporation to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of that
subsidiary, except to the extent the Corporation may itself be recognized as a
creditor of that subsidiary. Accordingly, the Corporation's obligations under
the Guarantee will be effectively subordinated and junior in right of payment to
all existing and future liabilities of the Corporation's subsidiaries, and
claimants should look only to the assets of the Corporation for payments
thereunder. See "The Corporation". The Guarantee does not limit the incurrence
or issuance of other secured or unsecured debt of the Corporation, including
Senior Debt, whether under the Indenture, any other indenture that the
Corporation may enter into in the future or otherwise.
The Corporation has, through the Guarantee, the Trust Agreement, the
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully and unconditionally guaranteed all of the Issuer's obligations
under the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such a
guarantee. It is only the combined operation of these documents that has the
effect of providing a full and unconditional guarantee of the Issuer's
obligations with respect to the Capital Securities. See "Relationship Among
Capital Securities, Subordinated Debentures and Guarantee".
STATUS OF GUARANTEE
The Guarantee will constitute an unsecured obligation of the Corporation
and will rank subordinate and junior in right of payment to all Senior Debt of
the Corporation in the same manner as the Subordinated Debentures.
The Guarantee will rank PARI PASSU with any other similar guarantees issued
by the Corporation. 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 Corporation to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). The Guarantee will be held for the benefit of the holders of the
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, or upon
distribution to the holders of the Capital Securities of the Subordinated
Debentures. The Guarantee does not place a limitation on the amount of
additional Senior Debt that may be incurred by the Corporation. The Corporation
expects from time to time to incur additional indebtedness constituting Senior
Debt.
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AMENDMENT 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
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under " -- Description of 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 Corporation 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
Corporation to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Issuer, the Guarantee
Trustee or any other person or entity.
The Corporation, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
INFORMATION CONCERNING GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
an event of default under the Guarantee, undertakes to perform only such duties
as are specifically set forth in the Guarantee and, after an event of default
under the Guarantee, must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, the Guarantee Trustee is under no obligation to
exercise any of the powers vested in it by the Guarantee at the request of any
holder of the Capital Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the applicable Redemption Price of the Capital Securities, upon
full payment of the amounts payable upon liquidation of the Issuer or upon
distribution of 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.
EXPENSE AGREEMENT
Pursuant to the Expense Agreement, the Corporation, as holder of the Common
Securities, has unconditionally guaranteed to each person or entity to whom the
Issuer becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Issuer, other than obligations of the Issuer to pay to the
holders of Capital Securities or other similar interests in the Issuer of the
amounts due such holders pursuant to the terms of the Capital Securities or such
other similar interests, as the case may be.
DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all material respect to
the New Securities, except that (i) the Old Securities have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer, except under
limited circumstances); (ii) the New Capital Securities will not provide for any
increase in the Distribution rate thereon; and (iii) the New Subordinated
Debentures will not provide for any increase in the interest rate thereon. The
Old Securities provide that, in the event that the Exchange Offer is not
consummated on or prior to March 12, 1997, or, in certain limited circumstances,
in the event a shelf registration statement (the "Shelf Registration Statement")
with respect to the
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resale of the Old Capital Securities is not declared effective on or prior to
July 5, 1997, then interest will accrue (in addition to the interest rate on the
Subordinated Debentures) at the rate of 0.25% per annum on the principal amount
of the Subordinated Debentures, and Distributions will accrue (in addition to
the stated Distribution rate on the Capital Securities) at the rate of 0.25% per
annum on the Liquidation Amount of the Capital Securities, for the period from
the occurrence of such event until such time as the Exchange Offer is
consummated or any required Shelf Registration Statement is effective. The New
Securities are not, and upon consummation of the Exchange Offer the Old
Securities will not be, entitled to any such additional interest or
Distributions. Accordingly, holders of Old Capital Securities should review the
information set forth under "Risk Factors -- Certain Consequences of Failure to
Exchange Old Capital Securities" and "Description of New Securities".
RELATIONSHIP AMONG CAPITAL SECURITIES,
SUBORDINATED DEBENTURES AND GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer has funds available for the payment of such
Distributions) are guaranteed by the Corporation as and to the extent set forth
under "Description of New Securities -- Description of Guarantee". Taken
together, the Corporation's obligations under the Subordinated Debentures, the
Indenture, the Trust Agreement, the Expense Agreement and the Guarantee provide,
in the aggregate, a full and unconditional guarantee of payment of Distributions
and other amounts due on the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full and unconditional guarantee of the
Issuer's obligations under the Capital Securities. If and to the extent that the
Corporation does not make payments on the Subordinated Debentures, the Issuer
will not pay Distributions or other amounts due on the Capital Securities. The
Guarantee does not cover payment of Distributions when the Issuer does not have
sufficient funds to pay such Distributions. In such event, the remedy of a
holder of Capital Securities is to institute a legal proceeding directly against
the Corporation for enforcement of payment of such Distributions to such holder.
The obligations of the Corporation under the Guarantee are subordinate and
junior in right of payment to all Senior Debt of the Corporation.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover Distributions
and other payments due on the Capital Securities, primarily because (i) the
aggregate principal amount of the Subordinated Debentures will be equal to the
sum of the aggregate Liquidation Amount of the Capital Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
Subordinated Debentures will match the Distribution rate and Distribution and
other payment dates for the Capital Securities; (iii) the Corporation shall pay
for all and any costs, expenses and liabilities of the Issuer, except the
Issuer's obligations to holders of the Capital Securities under such Capital
Securities; and (iv) the Trust Agreement further provides that the Issuer will
not engage in any activity that is not consistent with the limited purposes of
the Issuer.
Notwithstanding anything to the contrary in the Indenture, the Corporation
has the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Corporation 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 Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer or any
other person or entity.
A default or event of default under any Senior Debt of the Corporation
would not constitute a Debenture Event of Default (and, therefore, would not
constitue an Event of Default under the Trust Agreement). However, in the event
of payment defaults under, or acceleration of, Senior Debt of the Corporation,
the subordination provisions of the Indenture provide that no payments may be
made in respect of the Subordinated Debentures until such Senior Debt has been
paid in full or any payment default thereunder has been cured or waived. Failure
to make required payments on the Subordinated Debentures would constitute a
Debenture Event of Default (and, therefore, an Event of Default under the Trust
Agreement).
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LIMITED PURPOSE OF ISSUER
The Capital Securities evidence preferred undivided beneficial interests in
the assets of the Issuer, and the Issuer exists for the sole purpose of issuing
its Capital Securities and Common Securities and investing the proceeds thereof
in the Subordinated Debentures. A principal difference between the rights of a
holder of Capital Securities and a holder of a Subordinated Debentures is that a
holder of Subordinated Debentures is entitled to receive from the Corporation
the principal amount of, and interest accrued on, the Subordinated Debentures
held, while a holder of Capital Securities is entitled to receive Distributions
from the Issuer (or from the Corporation under the Guarantee) if and to the
extent the Issuer has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Issuer involving the liquidation of the Subordinated Debentures, after
satisfaction of liabilities to creditors of the Issuer in accordance with
applicable law and the Expense Agreement, the holders of the Capital Securities
will be entitled to receive, out of assets held by Issuer, the Liquidation
Distribution in cash. See "Description of New Securities -- Description of
Capital Securities; LIQUIDATION DISTRIBUTION UPON TERMINATION". Upon any
voluntary or involuntary liquidation or bankruptcy of the Corporation, the
Property Trustee, as holder of the Subordinated Debentures, would be a
subordinated creditor of the Corporation, subordinated in right of payment to
all Senior Debt of the Corporation as set forth in the Indenture, but entitled
to receive payment in full of principal and interest, before any stockholders of
the Corporation receive payments or distributions. Since the Corporation is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Issuer (other than the Issuer's obligations to the holders of
Capital Securities), the positions of a holder of Capital Securities and a
holder of such Subordinated Debentures relative to other creditors and to
stockholders of the Corporation in the event of liquidation or bankruptcy of the
Corporation are expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of Capital
Securities. This summary only addresses the tax consequences to a person that
acquires Capital Securities on their original issue at their original offering
price and that is (i) an individual citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any state thereof or Washington, D.C., or (iii) an estate or trust the
income of which is subject to United States federal income tax regardless of
source (a "United States Person"). This summary does not address all tax
consequences that may be applicable to a United States Person that is a
beneficial owner of Capital Securities, nor does it address the tax consequences
to (i) persons that are not United States Persons, (ii) persons that may be
subject to special treatment under United States federal income tax law, such as
banks, insurance companies, thrift institutions, regulated investment companies,
real estate investment trusts, tax-exempt organizations and dealers in
securities or currencies, (iii) persons that will hold Capital Securities as
part of a position in a "straddle" or as part of a "hedging", "conversion" or
other integrated investment transaction for federal income tax purposes, (iv)
persons whose functional currency is not the United States dollar, or (v)
persons that do not hold Capital Securities as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Sullivan & Cromwell, special tax counsel to the
Corporation and the Issuer. This summary is based upon the Code, Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time. Such
changes may be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences described below,
possibly adversely affecting a beneficial owner of Capital Securities. In
particular, legislation has been proposed that could adversely affect the
Corporation's ability to deduct interest on the Subordinated Debentures, which
may in turn permit the Corporation to cause a redemption of the Capital
Securities. See " -- Possible Tax Law Changes". The authorities on which this
summary is based are subject to various interpretations, and it is therefore
possible that the federal income tax treatment of the purchase, ownership and
disposition of Capital Securities may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF ISSUER
In connection with the issuance of the Old Capital Securities, Sullivan &
Cromwell have rendered their opinion to the effect that, under then current law
and assuming compliance with the terms of the Trust Agreement and certain other
factual matters, the Issuer will not be classified as an association taxable as
a corporation for United States federal income tax purposes. As a result, each
beneficial owner of Capital Securities (a "Securityholder") will be required to
include in its gross income its PRO RATA share of the interest income, including
premium or original issue discount, paid or accrued with respect to the
Subordinated Debentures whether or not cash is actually distributed to such
Securityholder. See -- "Interest Income and Original Issue Discount".
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury Regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a contingency that
stated interest will not be timely paid that is "remote" because of the terms of
the relevant debt instrument will be ignored in determining whether a debt
instrument is issued with original issue discount ("OID"). As a result of the
terms and conditions of the Subordinated Debentures that prohibit certain
payments with respect to the Corporation's capital stock and indebtedness if the
Corporation elects to extend interest payment periods, the Corporation believes
that the likelihood of its exercising its option to defer payments is remote.
Based on the foregoing, the Corporation believes that the Subordinated
Debentures will not be considered to be issued with OID at the time of their
original issuance, and accordingly, a Securityholder should include in gross
income such holder's allocable share of interest on the Subordinated Debentures.
Under the Regulations, if the Corporation exercised its option to defer any
payment of interest, the Subordinated Debentures would at that time be treated
as issued with OID, and all stated interest on the Subordinated Debentures would
thereafter be treated as OID as long as the Subordinated Debentures remained
outstanding. In such event, all of a Securityholder's taxable interest income
with respect to the Subordinated Debentures would be accounted for as OID on an
economic accrual
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basis regardless of such holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a Securityholder would be required to include in gross income OID
even though the Corporation would not make any actual cash payments during an
Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service and it is possible that the
Internal Revenue Service could take a position contrary to the interpretation
herein.
Because income on the Capital Securities will constitute interest or OID,
corporate Securityholders will not be entitled to a dividends-received deduction
with respect to any income recognized with respect to the Capital Securities.
DISTRIBUTION OF SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL SECURITIES
Under current law, a distribution by the Issuer of the Subordinated
Debentures as described herein under "Description of New
Securities -- Description of Capital Securities; LIQUIDATION OF ISSUER AND
DISTRIBUTION OF SUBORDINATED DEBENTURES TO HOLDERS" will be non-taxable and will
result in the Securityholder receiving directly his PRO RATA share of the
Subordinated Debentures previously held indirectly through the Issuer, with a
holding period and aggregate tax basis equal to the holding period and aggregate
tax basis such Securityholder had in its Capital Securities before such
distribution. If, however, the liquidation of the Issuer were to occur because
the Issuer is subject to United States federal income tax with respect to income
accrued or received on the Subordinated Debentures, the distribution of
Subordinated Debentures to Securityholders by the Issuer would be a taxable
event to the Issuer and each Securityholder, and each Securityholder would
recognize gain or loss as if the Securityholder had exchanged its Capital
Securities for the Subordinated Debentures it received upon the liquidation of
the Issuer. A Securityholder will accrue interest in respect of Subordinated
Debentures received from the Issuer in the manner described above under
" -- Interest Income and Original Issue Discount".
SALES OR REDEMPTION OF CAPITAL SECURITIES
A Securityholder that sells (including a redemption for cash) Capital
Securities will recognize gain or loss equal to the difference between its
adjusted tax basis in the Capital Securities and the amount realized on the sale
of such Capital Securities. Assuming that the Corporation does not exercise its
option to defer payment of interest on the Subordinated Debentures, and the
Subordinated Debentures are not considered issued with OID, a Securityholder's
adjusted tax basis in the Capital Securities generally will be its initial
purchase price. If the Subordinated Debentures are deemed to be issued with OID
as a result of the Corporation's deferral of any interest payment, a
Securityholder's adjusted tax basis in the Capital Securities generally will be
its initial purchase price, increased by OID previously includible in such
holder's gross income to the date of disposition and decreased by distributions
or other payments received on the Capital Securities since and including the
date of the first Extension Period. Such gain or loss generally will be a
capital gain or loss (except to the extent any amount realized is treated as a
payment of accrued interest with respect to such Securityholder's PRO RATA share
of the Subordinated Debentures required to be included in income) and generally
will be a long-term capital gain or loss if the Capital Securities have been
held for more than one year.
Should the Corporation exercise its option to defer any payment of interest
on the Subordinated Debentures, the Capital Securities may trade at a price that
does not accurately reflect the value of accrued but unpaid interest with
respect to the underlying Subordinated Debentures. In the event of such a
deferral, a Securityholder who disposes of its Capital Securities between record
dates for payments of distributions thereon will be required to include in
income as ordinary income accrued but unpaid interest on the Subordinated
Debentures to the date of disposition and to add such amount to its adjusted tax
basis in its PRO RATA share of the underlying Subordinated Debentures deemed
disposed of. To the extent the selling price is less than the Securityholder's
adjusted tax basis, such 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.
Although the matter is not free from doubt, an exchange of Old Capital
Securities for New Capital Securities should not be taxable to Securityholders.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest income paid and OID accrued on the Capital
Securities held of record by United States Persons (other than corporations and
other exempt Securityholders) will be reported to the Internal Revenue Service.
"Backup" withholding at a rate of 31 percent will apply to payments of interest
to non-exempt United States Persons unless the Securityholder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
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Payment of the proceeds from the disposition of Capital Securities to or
through the United States office of a broker is subject to information reporting
and backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
It is anticipated that income on the Capital Securities will be reported to
holders on Form 1099 and mailed to holders of the Capital Securities by January
31 following each calendar year.
POSSIBLE TAX LAW CHANGES
As discussed above, the Revenue Reconciliation Bill would, among other
things, generally have denied interest deductions for interest on an instrument
issued by a corporation that has a maximum weighted average maturity of more
than 40 years. The Revenue Reconciliation Bill also would generally have denied
interest deductions for interest on an instrument issued by a corporation that
has a maximum term of more than 20 years and that is 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. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. If either provision were to have applied to the Subordinated
Debentures, the Corporation would have been unable to deduct interest on the
Subordinated Debentures. However, on March 29, 1996, the Chairmen of the Senate
Finance and House Ways and Means Committees issued a joint statement to the
effect that it was their intention that the effective date of the President's
legislative proposals, presumably including the Revenue Reconciliation Bill, if
adopted, would be no earlier than the date of appropriate Congressional action.
Under current law, the Corporation will be able to deduct interest on the
Subordinated Debentures. Although the 104th Congress adjourned without enacting
the above-described provisions of the Revenue Reconciliation Bill, there can be
no assurance that current or future legislative proposals or final legislation
will not adversely affect the ability of the Corporation to deduct interest on
the Subordinated Debentures. Accordingly, there can be no assurance that a Tax
Event will not occur. See "Description of Capital Securities; Redemption;
SPECIAL EVENT REDEMPTION" and "; DISTRIBUTION OF SUBORDINATED DEBENTURES TO
HOLDERS OF CAPITAL SECURITIES".
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a Plan subject to ERISA, should consider the fiduciary
standards of ERISA in the context of the Plan's particular circumstances before
authorizing an investment in the Capital Securities. Accordingly, among other
factors, the fiduciary should consider whether the investment would satisfy the
prudence and diversification requirements of ERISA and would be consistent with
the documents and instruments governing the Plan.
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 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.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Issuer would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire an equity interest in the Issuer
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Issuer would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in the
Issuer, less than 25 percent of the value of each class of equity interests in
the Issuer were held by Plans, other employee benefit plans not
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subject to ERISA or Section 4975 of the Code (such as governmental, church and
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 percent of the total value of such Capital Securities, and no monitoring
or other measures will be taken with respect to the satisfaction of the
conditions to this exception. All of the Common Securities were purchased and
held by the Corporation.
Certain transactions involving the Issuer could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Capital Securities were acquired with "plan
assets" of Plan and assets of the Issuer were deemed to be "plan assets" of
Plans investing in the Issuer. For example, if the Corporation is a Party in
Interest with respect to an investing Plan (either directly or by reason of its
ownership of a bank or other subsidiaries), extensions of credit between the
Corporation and the Issuer (as represented by the 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, unless exemptive relief were available under
an applicable administrative exemption (see below).
The DOL has issued five 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 Issuer were deemed to be
"plan assets" of Plans investing in the Issuer (see above). Those class
exemptions are PTCE 96-23 (for certain transactions determined by in-house asset
management), PTCE 95-60 (for certain transactions involving insurance company
general accounts), PTCE 91-38 (for certain transactions involving bank
collective investment funds), PTCE 90-1 (for certain transactions involving
insurance company separate accounts), and PTCE 84-14 (for certain transactions
determined by independent qualified asset managers).
Because the Capital Securities may be deemed to be equity interests in the
Issuer for purposes of applying ERISA and Section 4975 of the Code, the Capital
Securities may not be purchased or held by any Plan, any Plan Asset Entity or
any person investing "plan assets" of any Plan, unless such purchaser or holder
is eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38,
90-1 or 84-14. Any purchaser or holder of the Capital Securities or any interest
therein will be deemed to have represented by its purchase and holding thereof
that it either (a) is not a Plan or a Plan Asset Entity and is not purchasing
such securities on behalf of or with "plan assets" of any Plan or (b) is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1
or 84-14 with respect to such purchase or holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons investing in the Capital Securities
on behalf of or with "plan assets" of any Plan consult with their counsel
regarding the potential consequences if the assets of the Issuer were deemed to
be "plan assets" and the availability of exemptive relief under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Issuer has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 180 days after the Expiration Date (subject to
extension under certain limited circumstances described herein) or, if earlier,
when all such New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "The Exchange Offer -- Resales of New Capital Securities".
The Issuer will not receive any proceeds from the issuance of the New Capital
Securities offered hereby. New Capital Securities received by broker-dealers for
their own accounts in connection with the Exchange Offer may be sold from time
to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Capital
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Capital Securities. Any broker-dealer that resells
New Capital Securities that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates in
a distribution of such New Capital Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Capital Securities and any commissions or concessions
received by any such persons may be deemed to be underwriting
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compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
This Prospectus may be used by First Union Capital Markets Corp., an
affiliate of the Corporation, in connection with offers and sales related to
market-making transactions in New Securities effected from time to time after
the commencement of the offering to which this Prospectus relates. First Union
Capital Markets Corp. may act as principal or agent in such transactions,
including as agent for the counterparty when acting as principal or as agent for
both counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
The Corporation has been advised by First Union Capital Markets Corp. that,
subject to applicable laws and regulations, First Union Capital Markets Corp.
may make a market in New Securities. However, they are not obligated to do so
and any market-making may be discounted at any time without notice. In addition,
such market-making activity is subject to the limits imposed by the Securities
Act, the Exchange Act and federal banking laws and regulations. There can be no
assurance that an active trading market will be sustained.
The Corporation may agree to indemnify First Union Capital Markets Corp.
with respect to certain liabilities in connection with this Prospectus,
including liabilities under the Securities Act.
VALIDITY OF NEW CAPITAL SECURITIES
Certain matters of Delaware law relating to the validity of the New Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Corporation and the Issuer. The validity of the New Subordinated
Debentures and New Guarantee will be passed upon for the Corporation by Sullivan
& Cromwell, New York, New York. Sullivan & Cromwell will rely upon the opinion
of Marion A. Cowell, Jr., Executive Vice President, Secretary and General
Counsel of the Corporation, as to matters of North Carolina law. Mr. Cowell is a
stockholder of the Corporation and holds options to purchase additional shares
of the Corporation's Common Stock. Sullivan & Cromwell regularly perform legal
services for the Corporation and its subsidiaries. Members of Sullivan &
Cromwell performing these legal services own shares of capital stock of the
Corporation.
EXPERTS
The Corporation's consolidated balance sheets as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, included in the Corporation's 1995 Supplemental
Annual Report to Stockholders, which is incorporated by reference in the
Corporation's 1995 Annual Report on Form 10-K and incorporated by reference
herein, have been incorporated by reference herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing. The aforementioned report of KPMG Peat Marwick LLP
covering the Corporation's consolidated financial statements refers to a change
in the method of accounting for investments.
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