<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1997
REGISTRATION NOS. 333-23225 AND 333-23225-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
<TABLE>
<C> <C>
CULLEN/FROST BANKERS, INC. CULLEN/FROST CAPITAL TRUST I
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) Trust Agreement)
TEXAS DELAWARE
(State or other jurisdiction of incorporation or (State or other jurisdiction of incorporation or
organization) organization)
6712 6719
(Primary standard industrial classification code (Primary standard industrial classification code
number) number)
74-1751768 74-2817357
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
</TABLE>
<TABLE>
<C> <C>
THE BANK OF NEW YORK (DELAWARE)
100 W. HOUSTON STREET WHITE CLAY CENTER, ROUTE 273
SAN ANTONIO, TEXAS 78205 NEWARK, DELAWARE 19711
(210) 220-4011 (302) 451-2500
(Address, including zip code, and telephone (Address, including zip code, and telephone
mumber, including number, including
area code, of registrant's principal executive area code, of registrant's principal executive
offices) offices)
PHILLIP D. GREEN
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER THE CORPORATION TRUST COMPANY
CULLEN/FROST BANKERS, INC. CORPORATION TRUST CENTER
100 W. HOUSTON STREET 1209 ORANGE STREET
SAN ANTONIO, TEXAS 78205 WILMINGTON, DELAWARE 19801
(210) 220-4011 (302) 658-7581
(Name, address, including zip code, and telephone (Name, address, including zip code, and telephone
number, including area code, of agent for number, including area code, of agent for service
service for registrant) for registrant)
</TABLE>
---------------------
With a copy to:
Mark J. Menting, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
---------------------
Approximate date of commencement of the proposed sale to the public:
As promptly as practicable after the effective date of this Registration
Statement.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE OR UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE RESPONSES
TO THE ITEMS OF PART I OF FORM S-4.
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus...... Outside Front Cover Page; Facing Page
2. Inside Front and Outside Back Cover Page of
Prospectus.................................. Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............... Summary; Risk Factors; Consolidated Ratios
of Earnings to Fixed Charges
4. Terms of the Transaction.................... Outside Front Cover Page; Summary;
Cullen/Frost Bankers, Inc.; Cullen/Frost
Capital Trust I; Use of Proceeds;
Capitalization; Accounting Treatment; The
Exchange Offer; Description of New
Securities; Description of Old Securities;
Relationship Among the Capital Securities,
the Junior Subordinated Debentures, the
Guarantee and the Expense Agreement; Certain
Federal Income Tax Consequences; Certain
ERISA Considerations; Plan of Distribution
5. Pro Forma Financial Information............. *
6. Material Contacts with the Company Being
Acquired.................................... *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
Be Underwriters............................. *
8. Interests of Named Experts and Counsel...... Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. *
10. Information with Respect to S-3
Registrants................................. Incorporation of Certain Documents by
Reference; Summary; Cullen/Frost Bankers,
Inc.
11. Incorporation of Certain Information by
Reference................................... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3
Registrants................................. *
13. Incorporation of Certain Information by
Reference................................... *
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants........... Available Information; Cullen/Frost Capital
Trust I
15. Information with Respect to S-3 Companies... *
16. Information with Respect to S-2 or S-3
Companies................................... *
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies................... *
18. Information if Proxies, Consents or
Authorizations are to be Solicited.......... *
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or
in an Exchange Offer........................ Incorporation of Certain Documents by
Reference; The Exchange Offer
</TABLE>
- ---------------
* Not applicable.
<PAGE> 3
PROSPECTUS
[CULLEN/FROST LOGO] $100,000,000
CULLEN/FROST CAPITAL TRUST I
OFFER TO EXCHANGE ITS 8.42% CAPITAL SECURITIES, SERIES A WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND
ALL OF ITS OUTSTANDING 8.42% CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
CULLEN/FROST BANKERS, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON APRIL 25, 1997, UNLESS EXTENDED.
Cullen/Frost Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Issuer Trust"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (as the same
may be amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $100,000,000 aggregate Liquidation Amount of its
8.42% Capital Securities, Series A (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
8.42% Capital Securities, Series A (the "Old Capital Securities"), of which
$100,000,000 aggregate Liquidation Amount is outstanding. Pursuant to the
Exchange Offer, Cullen/Frost Bankers, Inc., a Texas corporation (the
"Corporation"), is also exchanging its guarantee of the payment of Distributions
(as defined herein) and payments on liquidation or redemption of the Old Capital
Securities (the "Old Guarantee") for a like guarantee of the New Capital
Securities (the "New Guarantee") and all of its 8.42% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Old Junior Subordinated
Debentures"), of which $103,093,000 aggregate principal amount is outstanding,
for a like aggregate principal amount of its 8.42% Junior Subordinated
Deferrable Interest Debentures, Series A (the "New Junior Subordinated
Debentures"), which New Guarantee and New Junior Subordinated Debentures also
have been registered under the Securities Act. The Old Capital Securities, the
Old Guarantee and the Old Junior Subordinated Debentures are collectively
referred to herein as the "Old Securities" and the New Capital Securities, the
New Guarantee and the New Junior 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 Junior 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 Trust under the Registration Rights Agreement, dated
as of February 3, 1997 (the "Registration Rights Agreement"), among the
Corporation, the Issuer Trust and the Initial Purchasers (as defined herein). 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 18 FOR CERTAIN INFORMATION RELEVANT
TO AN INVESTMENT IN THE NEW SECURITIES.
------------------------
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 March 26, 1997.
<PAGE> 4
(cover page continued)
The New Capital Securities will represent preferred undivided beneficial
interests in the assets of the Issuer Trust. The Corporation is the owner of all
of the common undivided beneficial interests in the assets of the Issuer Trust
(the "Common Securities" and, collectively with the Capital Securities (as
defined below), the "Trust Securities"). The Issuer Trust exists for the sole
purposes of (i) issuing and selling the Trust Securities, (ii) investing the
proceeds thereof in Junior Subordinated Debentures (as defined below) and (iii)
engaging in those activities necessary, or incidental thereto. The Junior
Subordinated Debentures will mature on February 1, 2027 ("Stated Maturity"),
which date may be shortened to a date not earlier than February 1, 2017 in
certain circumstances as described under "Description of New
Securities -- Description of Junior Subordinated Debentures -- Conditional Right
to Shorten Maturity or Redeem upon a Tax Event or Capital Treatment Event" upon
the occurrence of a Tax Event or a Capital Treatment Event (each as defined
herein) if certain conditions are met. The Corporation has committed to the
Board of Governors of the Federal Reserve System (the "Federal Reserve") that
the Corporation will not shorten the Stated Maturity (as defined herein) without
first having received the prior approval of the Federal Reserve to do so, if
then required under applicable Federal Reserve capital guidelines or policies.
The New Capital Securities will have a preference under certain circumstances
with respect to cash 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, as amended and supplemented from time to time, between the
Corporation and The Bank of New York, as trustee (the "Debenture Trustee"),
pursuant to which the Junior Subordinated Debentures are to be issued, (ii) the
"Trust Agreement" means the Amended and Restated Trust Agreement relating to the
Issuer Trust, as amended and supplemented from time to time, among the
Corporation, as Depositor, The Bank of New York, as Property Trustee (the
"Property Trustee"), The Bank of New York (Delaware), as Delaware Trustee (the
"Delaware Trustee"), the Administrative Trustees (the "Administrative Trustees,"
and collectively with the Property Trustee and the Delaware Trustee, the "Issuer
Trustees") and the holders, from time to time, of the undivided beneficial
interests in the assets of the Issuer Trust, (iii) the "Guarantee" means the
Guarantee Agreement, as amended and supplemented from time to time, between the
Corporation and The Bank of New York, as trustee (the "Guarantee Trustee"), for
the benefit of holders of Capital Securities and (iv) the "Expense Agreement"
means the Agreement as to Expenses and Liabilities, between the Corporation, as
holder of the Common Securities, and the Issuer Trust. In addition, as the
context may require, unless expressly stated otherwise, (i) "Capital Securities"
means the Old Capital Securities and the New Capital Securities, (ii) "Junior
Subordinated Debentures" means the Old Junior Subordinated Debentures and the
New Junior Subordinated Debentures and (iii) "Guarantee" means the Old Guarantee
and the New Guarantee.
---------------------
Except as provided below, the New 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 the New Capital Securities will be shown on,
and transfers thereof will be effected through, records maintained by DTC and
its participants. Beneficial interests in the New 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 New
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 -- Book-Entry, Delivery and Form."
Holders of the Capital Securities will be entitled to receive cumulative
cash distributions accruing from the date of initial issuance and payable
semi-annually in arrears on February 1 and August 1 of each year, commencing
August 1, 1997, at the annual rate of 8.42% of the Liquidation Amount of $1,000
per Capital Security ("Distributions"). So long as no Debenture Event of Default
(as defined herein) has occurred and is continuing, the Corporation has the
right to defer payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to
2
<PAGE> 5
(cover page continued)
each deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all interest then accrued and unpaid (together with interest thereon at the
annual rate of 8.42%, compounded semi-annually, to the extent permitted by
applicable law), the Corporation may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the Junior
Subordinated Debentures are so deferred, 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 with respect to debt
securities of the Corporation that rank pari passu in all respects with or
junior to the Junior Subordinated Debentures. During an Extension Period,
interest on the Junior Subordinated Debentures will continue to accrue (and the
amount of Distributions to which holders of the Capital Securities are entitled
will accumulate) at the rate of 8.42% per annum, compounded semi-annually, and
holders of Capital Securities will be required to accrue interest income for
United States federal income tax purposes prior to the receipt of cash to which
such income is attributable. See "Description of New Securities -- Description
of Junior 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 Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer
Trust's obligations under the Capital Securities. See "Relationship Among the
Capital Securities, the Junior Subordinated Debentures, the Guarantee and the
Expense Agreement -- 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 Trust, as described herein. See "Description of New
Securities -- Description of Guarantee." If the Corporation does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust will have insufficient funds to pay Distributions on the Capital
Securities. The Guarantee does not cover payment of Distributions when the
Issuer Trust does not have sufficient funds to pay such Distributions. In such
event, a holder of Capital Securities may institute a legal proceeding directly
against the Corporation to enforce payment of such Distributions to such holder.
See "Description of New Securities -- Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities."
The obligations of the Corporation under the Guarantee and the Capital
Securities are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in "Description of New Securities -- Description of
Junior Subordinated Debentures -- Subordination") of the Corporation. The
Corporation currently has no outstanding Senior Indebtedness.
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Junior Subordinated Debentures at Stated Maturity or
their earlier redemption. The Junior Subordinated Debentures are redeemable
prior to maturity at the option of the Corporation (i) on or after February 1,
2007, in whole at any time or in part from time to time, or (ii) prior to
February 1, 2007, in whole (but not in part) at any time within 90 days
following the occurrence and continuation of a Tax Event or Capital Treatment
Event (each as defined herein), in each case at a redemption price set forth
herein, which includes the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption. The
Corporation has committed to the Federal Reserve that the Corporation will not
exercise its rights to redeem the Junior Subordinated Debentures or cause the
redemption of the Capital Securities prior to the Stated Maturity without having
received the prior approval of the Federal Reserve to do so, if then required
under applicable Federal Reserve capital guidelines or policies. See
"Description of New Securities -- Description of Junior Subordinated
Debentures -- Redemption."
The holder of the outstanding Common Securities (i.e., the Corporation) has
the right at any time to terminate the Issuer Trust and, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, to
cause the Junior Subordinated Debentures to be distributed to the holders of the
Capital Securities and Common Securities in liquidation of the Issuer Trust. The
Corporation has committed to the Federal Reserve that, so long as the
Corporation (or any affiliate) is a holder of Common Securities, the
3
<PAGE> 6
(cover page continued)
Corporation will not so terminate the Issuer Trust without having received the
prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve capital guidelines or policies. See "Description of
New Securities -- Description of Capital Securities -- Liquidation Distribution
Upon Termination."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness (as defined herein) of the Corporation. See "Description of
New Securities -- Description of Junior Subordinated
Debentures -- Subordination."
In the event of the termination of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Capital Securities will be entitled to receive a Liquidation
Amount of $1,000 per Capital Security plus accumulated and unpaid Distributions
thereon to the date of payment, subject to certain exceptions, which may be in
the form of a distribution of such amount in Junior Subordinated Debentures. See
"Description of New Securities -- Description of Capital Securities --
Liquidation Distribution Upon Termination."
Prospective purchasers must carefully consider the restrictions on purchase
set forth in "Certain ERISA Considerations."
---------------------
The Corporation and the Issuer Trust are making the Exchange Offer in
reliance on the position taken by the staff of the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") in certain
interpretive letters addressed to third parties in other transactions. However,
neither the Corporation nor the Issuer Trust has sought its own interpretive
letter and there can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer. Based on these interpretations, and subject to
the two immediately following sentences, the Corporation and the Issuer Trust
believe that New Capital Securities issued pursuant to the 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 Trust
within the meaning of Rule 405 under the Securities Act or who intends to
participate in the Exchange Offer for the purpose of participating in a
distribution of the Capital Securities, or any broker-dealer who purchased Old
Capital Securities from the Issuer Trust to resell pursuant to Rule 144A under
the Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Old Capital Securities in the Exchange Offer and (c) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Capital Securities
acquired for its own account as a result of market-making or other trading
activities (a "Participating Broker-Dealer") 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. See "Plan of
Distribution" and "The Exchange Offer -- Resales of New Capital Securities."
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 exists no market.
Although the Initial Purchasers have informed the Corporation and the Issuer
Trust that they currently intend to make a market in the New Capital Securities,
they are not obligated to do so, and any such market making may be discontinued
at any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Capital Securities. The
Corporation currently
4
<PAGE> 7
(cover page continued)
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.
---------------------
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 April 25, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Corporation and the Issuer Trust (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 Trust 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 February 3, 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 Distributions have been paid or duly
provided for, from and after February 3, 1997. This Prospectus, together with
the Letter of Transmittal, is being sent to all registered holders of Old
Capital Securities as of March 26, 1997.
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 Trust 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 Failure to Exchange Old Capital Securities."
Neither the Corporation nor the Issuer Trust will receive any cash proceeds
from the issuance of the New Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE CORPORATION OR THE
ISSUER TRUST ACCEPT SURRENDERS 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.
5
<PAGE> 8
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
may also be accessed electronically by means of the Commission's Web site on the
Internet at http://www.sec.gov. In addition, the Common Stock of the Corporation
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"), and such reports, proxy statements and other
information concerning the Corporation can also be inspected at the office of
the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Corporation and the Issuer Trust 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 a 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 Trust have been included
herein. The Corporation and the Issuer Trust do not consider that such financial
statements would be material to holders of the Capital Securities because the
Issuer Trust is a newly formed special purpose entity, has no operating history
or independent operations and is not engaged in and does not propose to engage
in any activity other than holding as trust assets the Junior Subordinated
Debentures of the Corporation and issuing the Trust Securities. The Corporation
has, through the Guarantee, the Trust Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein),
taken together, fully and unconditionally guaranteed all of the Issuer Trust's
obligations under the Capital Securities. See "Cullen/Frost Capital Trust I" and
"Description of New Securities". In addition, the Corporation does not expect
that the Issuer Trust will be filing reports under the Exchange Act with the
Commission.
THE 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: CULLEN/FROST BANKERS, INC., 100 W. HOUSTON STREET, SAN ANTONIO,
TEXAS 78205, ATTENTION: BART R. VINCENT, TELEPHONE: (210) 220-4011. IN ORDER TO
ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL
18, 1997.
6
<PAGE> 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the Commission
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 (as amended by Form 10-K/A as filed on April 29,
1996);
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 Report on Form 8-K filed on February 4, 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 and to be a part of
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 the Registration Statement and this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
------------------------
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 TRUST. 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 TRUST SINCE THE DATE HEREOF.
---------------------
THE NEW CAPITAL SECURITIES WILL BE ISSUED, AND 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.
7
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 6
Incorporation of Certain Documents by Reference............. 7
Summary..................................................... 9
Risk Factors................................................ 18
Consolidated Ratios of Earnings to Fixed Charges............ 25
Cullen/Frost Bankers, Inc. ................................. 25
Cullen/Frost Capital Trust I................................ 26
Use of Proceeds............................................. 26
Capitalization.............................................. 27
Accounting Treatment........................................ 27
The Exchange Offer.......................................... 28
Description of New Securities............................... 37
Description of Old Securities............................... 63
Relationship Among the Capital Securities, the Junior
Subordinated Debentures, the Guarantee and the Expense
Agreement................................................. 63
Certain Federal Income Tax Consequences..................... 65
Certain ERISA Considerations................................ 68
Plan of Distribution........................................ 69
Experts..................................................... 70
</TABLE>
8
<PAGE> 11
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements contained and incorporated by reference in
this Prospectus.
CULLEN/FROST BANKERS, INC.
The Corporation, a Texas business corporation incorporated in 1977 and
headquartered in San Antonio, Texas, is a bank holding company. The New
Galveston Company, incorporated under the laws of Delaware ("New Galveston"), is
a wholly owned second-tier bank holding company subsidiary of the Corporation
that owns all of the Corporation's banking and non-banking subsidiaries. The
Corporation's principal assets consist of all the capital stock of The Frost
National Bank ("Frost Bank") and United States National Bank of Galveston
("USNB"), both of which are located in Texas. The Corporation through its
subsidiary banks offers a wide range of banking and other financial services.
These services include commercial banking, consumer banking, international
banking, trust services, correspondent banking and discount brokerage.
CULLEN/FROST CAPITAL TRUST I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement between the Corporation, as Depositor, The
Bank of New York, as Property Trustee, and The Bank of New York (Delaware), as
Delaware Trustee, and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on February 3, 1997. The Issuer Trust's business and
affairs are conducted by its trustees: initially, The Bank of New York, as
Property Trustee, The Bank of New York (Delaware), as Delaware Trustee and the
Administrative Trustees named in the Trust Agreement. The Issuer Trust exists
for the exclusive purposes of (i) issuing and selling the Trust Securities, (ii)
using the proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto (such as registering the transfer of the Trust
Securities). Accordingly, the Junior Subordinated Debentures are the sole assets
of the Issuer Trust, and payments under the Junior Subordinated Debentures will
be the sole source of revenue of the Issuer Trust.
THE EXCHANGE OFFER
The Exchange Offer......... Up to $100,000,000 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 in part, the
untendered Liquidation Amount must be $100,000 or
any integral multiple of $1,000 in excess
thereof. The Corporation and the Issuer Trust 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............ 5:00 p.m., New York City time, on April 25, 1997
(such time on such date being hereinafter called
the "Expiration Date") unless the Exchange Offer
is extended by the Corporation and the Issuer
Trust (in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."
9
<PAGE> 12
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain
conditions, which may be waived by the
Corporation and the Issuer Trust 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 the Exchange
Offer."
The Corporation and the Issuer Trust 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
The Bank of New York, 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 Trust. 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."
Resales of New Capital
Securities............... The Corporation and the Issuer Trust 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
10
<PAGE> 13
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 Trust or who intends to
participate in the Exchange Offer for the purpose
of participating in the distribution of the
Capital Securities, or any broker-dealer who
purchased the Old Capital Securities from the
Issuer Trust to resell pursuant to Rule 144A or
any other available exemption under the
Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division
of Corporation Finance of the Commission set
forth in the previously mentioned interpretive
letters, (b) will not be permitted or entitled to
tender such Old Capital Securities in the
Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption
from such requirements. In addition, 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. See "The Exchange
Offer -- Resales of New Capital Securities."
Exchange Agent............. The Exchange Agent with respect to the Exchange
Offer is The Bank of New York. The addresses, 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 Trust will
receive any cash proceeds from the issuance of
the New Capital Securities offered hereby. See
"Use of Proceeds."
Certain United States
Federal Income Tax
Considerations; ERISA
Considerations........... Holders of Old Capital Securities should review the
information set forth under "Certain Federal
Income Tax Consequences" and "ERISA
Considerations" prior to tendering Old Capital
Securities in the Exchange Offer.
DESCRIPTION OF NEW CAPITAL SECURITIES
General.................... The New Capital Securities will represent preferred
undivided beneficial interests in the assets of
the Issuer Trust 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 Trust
are the Junior Subordinated Debentures, and
payments under the Junior Subordinated Debentures
and the Expense Agreement will be the sole
sources of revenue of the Issuer Trust. The
Junior Subordinated Debentures are unsecured
subordinated debt securities issued under the
Indenture between the Corporation and The Bank of
New York, as trustee.
11
<PAGE> 14
Securities Offered......... Up to $100,000,000 aggregate Liquidation Amount of
the Issuer's 8.42% Capital Securities, Series A,
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. 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 and
Effect of the Exchange Offer," "Description of
New Securities" and "Description of Old
Securities."
Maturity................... The Capital Securities are scheduled to mature on
February 1, 2027 (the "Stated Maturity").
However, upon the occurrence of a Tax Event or a
Capital Treatment Event, the Corporation in
certain circumstances will have the right to
shorten the Stated Maturity of the Junior
Subordinated Debentures to a date not earlier
than February 1, 2017. See "Description of New
Securities -- Description of Junior Subordinated
Debentures -- Conditional Right to Shorten
Maturity or Redeem upon a Tax Event or a Capital
Treatment Event."
Distributions.............. Holders of the New Capital Securities will be
entitled to receive as a preference cumulative
cash Distributions accruing from the date of
original issuance of the Old Capital Securities
and payable semi-annually in arrears on February
1 and August 1 of each year, commencing August 1,
1997, at a rate of 8.42% 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
February 3, 1997.
The Junior Subordinated Debentures are unsecured
and rank subordinate and junior in right of
payment to all Senior Indebtedness (as defined
herein) of the Corporation. The ability of the
Issuer Trust to pay amounts due on the Capital
Securities is solely dependent upon the
Corporation making payments on the Junior
Subordinated Debentures as and when required. See
"Risk Factors -- Ranking of Subordinated
Obligations Under the Guarantee and the Junior
Subordinated Debentures, Corporation's Source of
Funds."
12
<PAGE> 15
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 Debentures at any time or from
time to time by extending the interest payment
period thereon for up to 10 consecutive
semi-annual periods (an "Extension Period");
provided, however, that no Extension Period may
extend beyond the Stated Maturity of the Junior
Subordinated Debentures (February 1, 2027). If
interest payments on the Junior 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 Junior 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 a rate of 8.42%
per annum (to the extent permitted by law),
compounded semi-annually, and holders of the
Capital Securities will be required to accrue
interest income for United States federal income
tax purposes in advance of receipt of 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. See "Description
of New Securities -- Description of Junior
Subordinated Debentures -- Option to Extend
Interest Payment Period" and "-- Description of
Capital Securities -- Distributions."
The Corporation has no current plan to exercise its
right to defer payments of interest by extending
the interest payment period on the Junior
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 Junior Subordinated
Debentures -- Option to Extend Interest Payment
Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original
Issue Discount."
The 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 Trust
has sufficient funds available therefor. Such
guarantee will be subordinate and junior in right
of payment to all Senior Indebtedness of the
Corporation. See "Risk Factors -- Rights Under
the Guarantee" and "Description of New
Securities -- Description of Guarantee."
Ranking.................... The New Capital Securities will rank pari passu,
and payments thereon will be made pro rata, with
the Common Securities except as described under
"Description of New Securities -- Description of
Capital Securities -- Subordination of Common
Securities." The New Junior Subordinated
Debentures will rank pari passu with all other
junior subordinated debentures (if any) issued by
the Corporation and sold (if at all) to other
trusts (if any) established by the
13
<PAGE> 16
Corporation (if any), in each case similar to the
Issuer Trust, and will be unsecured and
subordinate and rank junior in right of payment
to the extent and in the manner set forth in the
Indenture to all Senior Indebtedness (as defined
herein). See "Description of New
Securities -- Description of Junior Subordinated
Debentures." The New Guarantee will rank pari
passu with all other guarantees (if any) issued
by the Corporation with respect to capital
securities (if any) issued by such other trusts
and will constitute an unsecured obligation of
the Corporation and will rank subordinate and
junior in right of payment to the extent and in
the manner set forth in the New Guarantee to all
Senior Indebtedness. See "Description of New
Securities -- Description of Guarantee."
Redemption................. The Capital Securities are subject to mandatory
redemption (i) in whole but not in part at the
Stated Maturity upon repayment of the Junior
Subordinated Debentures, (ii) in whole but not in
part contemporaneously with the optional
redemption at any time by the Corporation of the
Junior Subordinated Debentures at any time prior
to February 1, 2007 upon the occurrence and
continuation of a Tax Event or Capital Treatment
Event and (iii) in whole or in part at any time
on or after February 1, 2007, contemporaneously
with the optional redemption by the Corporation
of the Junior Subordinated Debentures, in each
case at the applicable Redemption Price. See
"Risk Factors -- Tax Event or Capital Treatment
Event" and "Description of New Securities --
Description of Capital Securities--Redemption."
See "Risk Factors -- Possible Tax Law Changes
Affecting the Capital Securities" for a
discussion of certain legislation 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 February 1,
2007.
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.
ERISA Considerations....... Prospective purchasers must carefully consider the
restrictions on purchase set forth under "Certain
ERISA Considerations."
Absence of Market for the
New Capital Securities..... The New Capital Securities will be a new issue of
securities for which there currently is no
market. Although J.P. Morgan Securities Inc. and
Credit Suisse First Boston Corporation, the
initial purchasers of the Old Capital Securities
(the "Initial Purchasers"), have informed the
Corporation and the Issuer Trust that they
currently intend to make a market in the New
Capital Securities, they are not obligated to do
so, and any such market making may be
discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
New Capital Securities. The Issuer Trust and the
Corporation do not intend to apply for listing of
the New Capital Securities on any securities
exchange or for quotation through NASDAQ.
14
<PAGE> 17
RISK FACTORS
Holders tendering Old Capital Securities in the Exchange Offer should
carefully consider the matters set forth under "Risk Factors."
For further information regarding the New Securities, see "Description of
New Securities."
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE CORPORATION
The following table presents summary consolidated financial data which has
been derived from, and should be read in conjunction with, the consolidated
financial statements, notes thereto and other information of the Corporation
found in the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and other financial statements of the Corporation. This
summary is qualified in its entirety by the detailed information and financial
statements included in the documents incorporated by reference herein, available
as described under "Available Information" and "Incorporation of Certain
Documents by Reference".
CULLEN/FROST BANKERS, INC.
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENTS
Net interest income............................. $179,082 $152,255 $136,347 $127,826 $116,657
Net interest income(1).......................... 180,079 153,136 136,989 128,709 117,786
Combined provisions (credit) for possible loan
losses and real estate valuations............. 7,300 6,882 (4,640) 18,461
Non-interest income
Trust......................................... 34,031 31,762 29,529 26,278 21,861
Service charges on deposit accounts........... 38,294 30,382 28,182 27,303 21,958
Other service charges......................... 8,764 11,055 9,366 7,972 7,888
Net securities transactions................... (980) (1,396) (4,038) 1,433 (232)
Other......................................... 14,426 15,940 13,776 13,243 10,338
-------- -------- -------- -------- --------
Total non-interest income.............. $ 94,535 $ 87,743 $ 76,815 $ 76,229 $ 61,813
Non-interest expense
Salaries & wages.............................. 71,788 58,177 52,986 53,654 46,184
Pensions and other benefits................... 15,351 10,905 9,910 12,052 9,746
Net occupancy................................. 18,782 17,992 15,777 20,749 16,963
Furniture & equipment......................... 11,789 11,259 10,937 10,155 8,295
Intangible amortization....................... 11,306 8,124 7,627 6,877 700
Other......................................... 51,564 55,382 58,325 67,146 52,299
-------- -------- -------- -------- --------
Total non-interest expense............. $180,580 $161,839 $155,562 $170,633 $134,187
Income before taxes............................. 85,737 71,277 57,600 38,062 25,822
Income taxes (credits).......................... 30,759 24,998 20,177 (9,174)(7) 1,700(6)
-------- -------- -------- -------- --------
Net income...................................... $ 54,978 $ 46,279 $ 37,423 $ 47,236 $ 24,122
Cash earnings(2)................................ 63,017 51,908 42,443 51,768 24,639
PER COMMON SHARE DATA(8)
Net income -- primary........................... $ 2.40 $ 2.04 $ 1.67 $ 2.12(7) $ 1.13(6)
Cash earnings -- primary........................ 2.75 2.29 1.89 2.32 1.12
Cash dividends.................................. .81 .57 .34 .08
Shareholders' equity............................ 16.86 15.24 13.28 12.42 9.90
Tangible shareholders' equity(3)................ 13.62 12.59 11.46 9.97 9.50
Average common and common equivalent shares (in
thousands).................................... 22,906 22,676 22,446 22,302 21,949
SELECTED FINANCIAL DATA
Return on average assets........................ 1.22% 1.17% 1.02% 1.34% .79%
Cash earnings ROA(4)............................ 1.40 1.32 1.16 1.47 .81
Return on average equity........................ 15.32 14.32 13.04 19.00 12.56
Cash earnings ROE(5)............................ 17.56 16.06 14.79 20.83 12.83
Net interest income to average earning
assets(1)..................................... 4.76 4.56 4.39 4.27 4.43
</TABLE>
- ---------------
(1) Taxable equivalent basis assuming a 35% tax rate for 1993-1996 and a 34% tax
rate for 1992.
(2) Net income before intangible amortization (goodwill and core deposit
intangibles, net of tax).
(3) Shareholders' equity excluding the SFAS 115 market value adjustment less
intangible assets, net of tax.
(4) Cash earnings as a percentage of average assets.
(5) Cash earnings as a percentage of average shareholders' equity.
(6) Includes an extraordinary credit of $6,497,000 for utilization of net
operating loss carryforwards.
(7) Includes a one-time benefit of $8,439,000 related to a change in accounting
for income taxes.
(8) Previous years restated to reflect 2 for 1 stock split.
16
<PAGE> 19
CULLEN/FROST BANKERS, INC.
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET SUMMARY
Average Balance:
Loans............................................ $ 2,087 $ 1,683 $ 1,340 $ 1,172 $ 1,046
Earning assets................................... 3,780 3,357 3,119 3,011 2,658
Total assets..................................... 4,496 3,944 3,658 3,512 3,055
Private deposits................................. 3,611 3,130 2,996 2,967 2,597
Public funds..................................... 290 163 125 117 114
Total deposits............................ 3,901 3,293 3,121 3,084 2,711
Period-End Balance:
Loans............................................ $ 2,252 $ 1,817 $ 1,483 $ 1,258 $ 1,030
Earning assets................................... 3,781 3,454 3,245 3,120 2,727
Intangible assets................................ 70 53 43 45 8
Total assets..................................... 4,888 4,200 3,794 3,639 3,151
Total deposits................................... 4,243 3,646 3,088 3,149 2,769
Shareholders' equity............................. 379 341 295 274 206
Adjusted shareholders' equity(1)................. 371 333 298 264 206
Tangible shareholders' equity(2)................. 306 282 255 220 198
ASSET QUALITY (IN THOUSANDS)
Allowance for possible loan losses................. $36,308 $31,577 $25,741(3) $26,298 $31,897
As a percentage of period-end loans.............. 1.61% 1.74% 1.74% 2.09% 3.10%
Net charge-offs (recoveries):
Real estate...................................... $(2,116) $(1,030) $ (621) $ 1,069 $ 9,039
Commercial and industrial........................ 2,511 (1,068) (2,118) (2,290) 1,858
Consumer......................................... 2,293 2,586 665 1,132 1,441
Other............................................ (119) (52) (53) (397) 3,650
------- ------- ------- ------- -------
Total..................................... $ 2,569 $ 436 $(2,127) $ (486) $15,988
As a percentage of average loans................... .12% .03% (.16)% (.04)% 1.53%
Non-performing assets:
Non-accrual and restructured loans .............. $ 9,724 $14,646 $16,627 $27,677 $41,851
Foreclosed assets................................ 2,242 1,509 3,311 3,433 9,452
------- ------- ------- ------- -------
Total..................................... $11,966 $16,155 $19,938 $31,110 $51,303
As a percentage of:
Total assets..................................... .24% .38% .53% .85% 1.63%
Total loans plus foreclosed assets............... .53 .89 1.34 2.47 4.94
</TABLE>
- ---------------
(1) Shareholders' equity excluding the SFAS 115 market value adjustment.
(2) Shareholders' equity excluding the SFAS 115 market value adjustment less
intangible assets, net of tax.
(3) Includes a reduction of $2,684,000 related to the exchange of Cullen/Frost
Bank in Dallas for Texas Commerce Bank-Corpus Christi. See "Cullen/Frost
Bankers, Inc. -- Recent Developments."
17
<PAGE> 20
RISK FACTORS
Holders of Old Capital Securities should carefully review the information
contained elsewhere in this Prospectus and should particularly consider the
following matters before deciding whether to accept the Exchange Offer. In
addition, because holders of Capital Securities may receive Junior Subordinated
Debentures in exchange therefor upon liquidation of the Issuer Trust,
prospective purchasers of Capital Securities are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES, CORPORATION'S SOURCE OF FUNDS
The obligations of the Corporation under the Guarantee issued by the
Corporation for the benefit of the holders of Capital Securities and under the
Junior Subordinated Debentures are subordinate and junior in right of payment to
all Senior Indebtedness (as defined in "Description of New
Securities -- Description of Junior Subordinated Debentures -- Subordination"
and in the Indenture) of the Corporation. The Corporation currently has no
outstanding Senior Indebtedness. Because the Corporation is a holding company,
the right of the Corporation to participate in any distribution of assets of any
subsidiary of the Corporation upon such subsidiary's dissolution, winding-up,
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 a creditor of that subsidiary and its claims are
recognized. At December 31, 1996, Frost Bank had an aggregate (excluding
deposits and liabilities owed to the Corporation) of approximately $129 million
of banknotes and other borrowings outstanding. The principal source of funds for
the Corporation to satisfy its obligations under the Junior Subordinated
Debentures and the Guarantee are the Corporation's subsidiaries. There are
various legal limitations on the extent to which the Corporation's subsidiaries
may extend credit, pay dividends or otherwise supply funds to, or engage in
transactions with, the Corporation or certain of its other subsidiaries. The
prior approval of the Comptroller of the Currency is required if the total of
all dividends declared by a national bank, such as Frost Bank and USNB, in any
calendar year would exceed the bank's net profits, as defined, for that year
combined with its retained profits for the preceding two calendar years less any
required transfers to surplus. In addition, a national bank may not pay
dividends in an amount in excess of its undivided profits less certain bad
debts. Although not necessarily indicative of amounts available to be paid in
future periods, the Corporation's subsidiary national banks had approximately
$6.5 million available for payment of dividends at December 31, 1996.
Accordingly, the Junior Subordinated Debentures and Guarantee will be
effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries and holders of Junior Subordinated Debentures and the
Guarantee should look only to the assets of the Corporation for payments on the
Junior Subordinated Debentures and the Guarantee. See "Cullen/Frost Bankers,
Inc." 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 Indebtedness, that may be incurred by the Corporation. See
"Description of New Securities -- Description of Guarantee -- Status of the
Guarantee" and "Description of New Securities -- Description of Junior
Subordinated Debentures -- Subordination."
The ability of the Issuer Trust to pay amounts due on the Capital
Securities is solely dependent upon the Corporation's making payments on the
Junior Subordinated Debentures as and when required, and the Corporation's
ability to pay is principally dependent upon funds furnished by the
Corporation's subsidiaries.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Indenture) has occurred
and is continuing with respect to the Junior Subordinated Debentures (a
"Debenture Event of Default"), the Corporation has the right under the Indenture
to defer the payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures. See
"Description of New Securities -- Description of Junior Subordinated
Debentures--Debenture Events of Default." As a consequence of any such deferral,
semi-annual Distributions on
18
<PAGE> 21
the Capital Securities by the Issuer Trust 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 8.42% 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 (i) make any payment of principal of or 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 Junior
Subordinated Debentures or (ii) 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 (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 any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the 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 an 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 stockholders' rights plan, or the issuance of rights, stock or other
property under any stockholders' rights plan, or the redemption or repurchase of
rights pursuant thereto, or (e) any dividend in the form of stock, warrants,
options or other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same stock as that on
which the dividend is being paid or ranks pari passu with or junior to such
stock). Prior to the termination of any such Extension Period, the 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 Junior Subordinated Debentures. Upon the termination of any Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the annual rate of 8.42%, compounded semi-annually, to the
extent permitted by applicable law), the Corporation may elect to begin a new
Extension Period subject to the above conditions. 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 Junior Subordinated Debentures--Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect of
its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust for United States federal income tax purposes. As a result, a holder of
Capital Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Capital Securities prior to the record date for the actual
payment of Distributions. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" and "-- Sales or
Redemptions of Capital Securities."
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Corporation elect to exercise such
right in the future, the market price of the Capital Securities is likely to be
adversely 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 Trust) may be more volatile
than the market prices of other securities on which original issue discount
accrues that are not subject to such deferrals.
19
<PAGE> 22
TAX EVENT OR CAPITAL TREATMENT EVENT
Upon the occurrence of a Tax Event or a Capital Treatment Event (whether
occurring before or after February 1, 2007), the Corporation has the right, if
certain conditions are met, (i) to shorten the maturity of the Junior
Subordinated Debentures to a date not earlier than February 1, 2017, or (ii) to
redeem the Junior Subordinated Debentures in whole (but not in part) within 90
days following the occurrence of such Tax Event or Capital Treatment Event and
thereby cause a mandatory redemption of the Capital Securities. The Corporation
has committed to the Federal Reserve that it will not cause any such
distribution, shortening of the maturity or redemption without having received
the prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve capital guidelines or policies. See "Description of
New Securities -- Description of Junior Subordinated Debentures -- Conditional
Right to Shorten Maturity or Redeem upon a Tax Event or Capital Treatment
Event."
A "Tax Event" means, with respect to Junior Subordinated Debentures held by
the Issuer Trust, the receipt by the Issuer Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced proposed 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 proposed
change, 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 Trust is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Corporation on the Junior Subordinated Debentures
is not, or within 90 days of the date of such opinion, will not be, deductible
by the Corporation, in whole or in part, for United States federal income tax
purposes or (iii) the Issuer Trust 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. With respect to Junior Subordinated Debentures which
are no longer held by the Issuer Trust, "Tax Event" means the receipt by the
Corporation 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
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which proposed change, pronouncement or decision is announced on or
after the date of issuance of the Junior Subordinated Debentures under the
Indenture, there is more than an insubstantial risk that interest payable by the
Corporation on the Junior Subordinated Debentures is not, or within 90 days of
the date of such opinion will not be, deductible by the Corporation, in whole or
in part, for United States federal income tax purposes (each of the
circumstances referred to in clauses (i), (ii) and (iii) of the preceding
sentence and the circumstances referred to in this sentence being referred to
herein as an "Adverse Tax Consequence").
See "-- Possible Tax Law Changes Affecting the Capital Securities" for a
discussion of certain legislative proposals that, if adopted, could give rise to
a Tax Event, which may permit the Corporation to shorten the maturity of the
Junior Subordinated Debentures or cause a redemption of the Capital Securities
prior to February 1, 2007.
A "Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of any amendment to, or change (including any
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement, action 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 the Corporation
will not be entitled to treat an amount equal to the Liquidation Amount of the
Capital Securities as "Tier I Capital" (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Corporation.
20
<PAGE> 23
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holder of all of the outstanding Common Securities will have the right
at any time to terminate the Issuer Trust and, after satisfaction of liabilities
to creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The
Corporation has committed to the Federal Reserve that, so long as the
Corporation (or any affiliate) is a holder of Common Securities, the Corporation
will not exercise such right without having received the prior approval of the
Federal Reserve to do so, if then required under applicable Federal Reserve
capital guidelines or policies. See "Description of New Securities --
Description of Capital Securities -- Liquidation Distribution Upon Termination."
Under current United States federal income tax law and interpretations, and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust should not be a taxable event to holders of the
Capital Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust could be a taxable
event to the Issuer Trust and the holders of the Capital Securities. See
"Certain Federal Income Tax Consequences -- Distribution of Junior Subordinated
Debentures to Securityholders."
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
Upon the occurrence of a Tax Event or a Capital Treatment Event, the
Corporation in certain circumstances will have the right to shorten the maturity
of the Junior Subordinated Debentures to a date not earlier than February 1,
2017 and thereby cause the Capital Securities to be redeemed on such earlier
date. See "Description of New Securities -- Description of Junior Subordinated
Debentures -- Conditional Right to Shorten Maturity or Redeem upon a Tax Event
or a Capital Treatment Event."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities,
or for Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a liquidation of the Issuer Trust occurs. Accordingly, the
Capital Securities or the Junior Subordinated Debentures that a holder of
Capital Securities may receive on liquidation of the Issuer Trust may trade at a
discount to the price that the investor paid to purchase the Capital Securities
offered hereby. As a result of the existence of the Corporation's right to defer
interest payments and the corresponding accrual of income for United States
federal income tax purposes, the market price of the Capital Securities may be
more volatile than the market prices of other debt securities that are not
subject to such optional deferrals. Because holders of Capital Securities may
receive Junior Subordinated Debentures on termination of the Issuer Trust,
prospective purchasers of Capital Securities are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein. See "Description of New Securities -- Description of Junior
Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Bank of New York will act as the trustee under the Guarantee (the
"Guarantee Trustee") and will hold the Guarantee for the benefit of the holders
of the Capital Securities. The Bank of New York will also act as Debenture
Trustee for the Junior Subordinated Debentures and as Property 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 Trust:
(i) any accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary termination, winding-up or liquidation of the Issuer Trust (unless
the Junior Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount
21
<PAGE> 24
and all accumulated and unpaid Distributions to the date of payment, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Capital Securities on liquidation of the Issuer
Trust. The Guarantee is subordinate as described under "-- Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures, Corporation's Source of Funds." The holders of not less than a
majority in aggregate Liquidation Amount of the outstanding Capital Securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust power conferred upon the Guarantee Trustee
under the Guarantee. Any holder of the Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity. If the Corporation were to
default on its obligation to pay amounts payable under the Junior Subordinated
Debentures, the Issuer Trust may lack funds for the payment of Distributions or
amounts payable on redemption of the Capital Securities or otherwise, and, in
such event, holders of the Capital Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, if a Debenture Event of Default
has occurred and is continuing and such event is attributable to the failure of
the Corporation to pay any amounts payable in respect of the Junior Subordinated
Debentures on the payment date on which such payment is due and payable, then a
holder of Capital Securities may institute a legal proceeding directly against
the Corporation for enforcement of payment to such holder of any amounts payable
in respect of such Junior Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Capital Securities of such
holder (a "Direct Action"). In connection with such Direct Action, the
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 Capital Securities in the
Direct Action. Except as described herein, holders of Capital Securities will
not be able to exercise directly any other remedy available to the holders of
the Junior Subordinated Debentures or assert directly any other rights in
respect of the Junior Subordinated Debentures. See "Description of New
Securities -- Description of Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of Capital Securities," "--Debenture Events of
Default" and "-- Description of Guarantee." The Trust Agreement provides that
each holder of Capital Securities by acceptance thereof agrees to the provisions
of the Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee, the Delaware Trustee or any
Administrative Trustee except upon the occurrence of certain events described
herein. The Property Trustee, the Administrative Trustees and the holders of all
of the Common Securities may, subject to certain conditions, amend the Trust
Agreement without the consent of holders of Capital Securities to cure any
ambiguity or make other provisions not inconsistent with other provisions under
the Trust Agreement or to ensure that the Issuer Trust (i) will not be taxable
as a corporation or will be taxable as a grantor trust for United States federal
income tax purposes, or (ii) will not be required to register as an "investment
company" under the Investment Company Act. See "Description of New
Securities -- Description of Capital Securities -- Voting Rights; Amendment of
Trust Agreement" and "--Removal of Issuer Trustees; Appointment of Successors."
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
22
<PAGE> 25
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 Trust 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.
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 the Capital Securities --
General."
The Old Capital Securities provide that, if the Exchange Offer is not
consummated on or prior to the 30th day after the date hereof, the Distribution
rate borne by the Old Capital Securities will increase by 0.25% per annum
commencing on the 31st day after the date hereof, until the Exchange Offer is
consummated. See "Description of Old Securities." Following consummation of the
Exchange Offer, the Capital Securities will not be entitled to any increase in
the Distribution rate thereon.
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Corporation believes are
currently owned by, a relatively small number of beneficial owners. 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 of the Corporation or the Issuer) 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 Trust have been advised by the Initial Purchasers
that the Initial Purchasers presently intend to make a market in the New Capital
Securities. However, the Initial Purchasers are not obligated to do so and any
market-making activity with respect to 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 of the Corporation or the Issuer 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."
23
<PAGE> 26
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 should allow sufficient time to ensure timely delivery. Neither the
Corporation, the Issuer Trust 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.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, the revenue portion of President Clinton's 1997 budget
proposal (the "Budget Proposal"), was released. If enacted, the Budget Proposal
would generally deny interest deductions for interest on an instrument issued by
a corporation that has a maximum term of more than 15 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. The above described
provision of the Budget Proposal is proposed to be effective generally for
instruments issued on or after the date of first Congressional committee action.
If this provision were to apply to the New Junior Subordinated Debentures, the
Corporation would be unable to deduct interest on the New Junior Subordinated
Debentures. Under current law, the Corporation will be able to deduct interest
on the New Junior Subordinated Debentures. There can be no assurance, however,
that current or future legislative proposals or final legislation will not
affect the ability of the Corporation to deduct interest on the New Junior
Subordinated Debentures. Such a change could give rise to a Tax Event, which may
permit the Corporation, if certain conditions are met, to shorten the maturity
of the Junior Subordinated Debentures to a date not earlier than February 1,
2017 or to cause a redemption of the Capital Securities before February 1, 2007.
See "Description of New Securities -- Description of Junior Subordinated
Debentures -- Redemption," "Description of New Securities -- Description of
Capital Securities -- Redemption" and "Description of New
Securities -- Description of Junior Subordinated Debentures -- Conditional Right
to Shorten Maturity or Redeem upon a Tax Event or Capital Treatment Event." See
also "Certain Federal Income Tax Consequences -- Possible Tax Law Changes." A
shortening of the Stated Maturity of the Junior Subordinated Debentures might
result in a taxable exchange to holders of Capital Securities.
24
<PAGE> 27
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges for the Corporation for each of the five years in the five-year period
ended December 31, 1996. For purposes of computing these ratios, earnings
represent net income, plus total taxes based on income, plus fixed charges.
Fixed charges include interest expense (ratios are presented both excluding and
including interest on deposits), the estimated interest component of net rental
expense and amortization of debt expense.
During the periods indicated below, no shares of preferred stock of the
Corporation were outstanding, and, therefore, the consolidated ratios of
earnings to fixed charges and preferred stock dividends would be identical to
the ratios set forth below.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Including interest on deposits.......................... 1.74 1.66 1.80 1.58 1.34
Excluding interest on deposits.......................... 8.35 5.08 6.62 5.87 4.39
</TABLE>
CULLEN/FROST BANKERS, INC.
GENERAL
The Corporation, a Texas business corporation incorporated in 1977 and
headquartered in San Antonio, Texas, is a bank holding company within the
meaning of the Bank Holding Company Act of 1956 and as such is registered with
the Federal Reserve. New Galveston, incorporated under the laws of Delaware, is
a wholly owned second-tier bank holding company subsidiary of the Corporation
that owns all of the Corporation's banking and non-banking subsidiaries. At
December 31, 1996, the Corporation had consolidated total assets of $4.9
billion, total deposits of $4.2 billion and shareholders' equity of $378.9
million. Based on information from the Federal Reserve, at December 31, 1995,
the Corporation was the largest of 97 unaffiliated bank holding companies
headquartered in Texas as determined based on total assets.
The Corporation's principal assets consist of all of the capital stock of
two national banks located in Texas, Frost Bank and USNB. The largest of the
Corporation's subsidiary banks is Frost Bank, the origin of which can be traced
to a mercantile partnership organized in 1868. At December 31, 1996, Frost Bank,
which accounted for approximately 98 percent of the consolidated assets, 97
percent of the consolidated loans, and 98 percent of the consolidated deposits
of the Corporation, was the largest bank headquartered in San Antonio and South
Texas. The Corporation's subsidiary banks have 52 offices in six major Texas
banking markets with 19 locations in the San Antonio area, 14 in the
Houston/Galveston area, 10 in the Corpus Christi area, 5 in Austin, 3 in San
Marcos and 1 in McAllen. The Corporation through its subsidiary banks offers a
wide range of banking and other financial services. These services include
commercial banking, consumer banking, international banking, trust services,
correspondent banking and discount brokerage.
The principal executive office of the Corporation is located at 100 W.
Houston Street, San Antonio, Texas 78205, telephone number (210) 220-4011.
RECENT DEVELOPMENTS
On March 7, 1997, the Corporation completed the acquisition of Corpus
Christi Bancshares, Inc. ("Corpus Christi") and its wholly-owned subsidiary,
Citizens State Bank of Corpus Christi ("Citizens") for an aggregate purchase
price of $32.2 million. On that date, the offices of Citizens became branch
locations of Frost Bank and, as a result, the Corporation acquired five new
offices in the Corpus Christi area of Texas. As of December 31, 1996, Corpus
Christi had total consolidated assets of $219.1 million and shareholders' equity
of $17.5 million.
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<PAGE> 28
The Corporation regularly evaluates acquisition opportunities and regularly
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, in some cases negotiations, regularly take
place and future acquisitions could occur.
On January 16, 1997, the Corporation reported net income of $14.4 million
for the quarter ended December 31, 1996 and $55.0 million for the year ended on
such date, a return on assets for the quarter and year ended on such date of
1.24% and 1.22%, respectively, and a return on equity for the quarter and year
ended on such date of 15.30% and 15.32%, respectively.
On April 30, 1996, the Corporation announced that its Board of Directors
had authorized it to repurchase up to 500,000 shares of its common stock from
time to time. As of the date hereof, no shares have been repurchased.
CULLEN/FROST CAPITAL TRUST I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement between the Corporation, as Depositor, The
Bank of New York, as Property Trustee, and The Bank of New York (Delaware), as
Delaware Trustee, and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on February 3, 1997. The Issuer Trust's business and
affairs are conducted by its trustees: initially, The Bank of New York, as
Property Trustee, The Bank of New York (Delaware), as Delaware Trustee and two
individual Administrative Trustees who are employees or officers of, or
affiliated with, the Corporation. The Issuer Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities, (ii) using the
proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto (such as registering the transfer of the Trust
Securities). Accordingly, the Junior Subordinated Debentures will be the sole
assets of the Issuer Trust, and payments under the Junior Subordinated
Debentures will be the sole source of revenue of the Issuer Trust.
All of the Common Securities are presently 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 during the
continuation of a Debenture Event of Default arising as a result of any failure
by the Corporation to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Capital
Securities. See "Description of New Securities -- Description of Capital
Securities--Subordination of Common Securities." The Corporation acquired Common
Securities in an aggregate liquidation amount equal to approximately, but not
less than, 3% of the total capital of the Issuer Trust. The Issuer Trust has a
term of 31 years, but may terminate earlier as provided in the Trust Agreement.
USE OF PROCEEDS
Neither the Corporation nor the Issuer Trust will receive any cash proceeds
from the issuance of the New Capital Securities offered hereby. In consideration
for issuing the New Capital Securities in exchange for Old Capital Securities as
described in this Prospectus, the Issuer Trust will receive Old Capital
Securities in like Liquidation Amount. The Old Capital Securities surrendered in
exchange for the New Capital Securities will be retired and cancelled.
The net proceeds to the Issuer Trust from the offering of the Old Capital
Securities was approximately $100 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 Junior Subordinated
Debentures. The Corporation intends that the net proceeds from the sale of the
Old Junior Subordinated Debentures will be added to its general corporate funds
and will be used for general corporate purposes, which may include the reduction
of short-term indebtedness, investments at the holding company level,
investments in the capital of, or extensions of credit to, the Corporation's
subsidiaries, acquisitions and the repurchase of the Corporation's common stock.
Pending such application by the Corporation, such net proceeds may be
temporarily invested in short-term interest bearing securities. The Capital
Securities are currently eligible to qualify as "Tier I Capital" under the
capital guidelines of the Federal Reserve.
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<PAGE> 29
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation and its subsidiaries as of December 31, 1996 and as adjusted to give
effect to the consummation of the offering of the Old Capital Securities, as if
such transaction had occurred on December 31, 1996. The following data should be
read in conjunction with the consolidated financial statements of the
Corporation and its subsidiaries, including the notes thereto, which are
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference." The issuance of New Capital Securities in the Exchange Offer will
have no effect on the capitalization of the Corporation.
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------------
AS
ACTUAL ADJUSTED
------ --------
(IN MILLIONS)
<S> <C> <C>
LONG-TERM DEBT
Guaranteed Preferred Beneficial Interests in Corporation's
Junior Subordinated Deferrable Interest
Debentures(a).......................................... $ -- $100.0
SHAREHOLDERS' EQUITY
Common Stock, par value $5.00 per share................... 112.4 112.4
Surplus................................................... 63.5 63.5
Retained Earnings ........................................ 195.4 195.4
Unrealized Gain on Available-for-Sale Securities, Net of
Tax.................................................... 7.6 7.6
------ ------
Total Shareholders' Equity ....................... 378.9 378.9
------ ------
Total Capitalization.............................. $378.9 $478.9
====== ======
</TABLE>
- ---------------
(a) The sole asset of the Issuer Trust is the Junior Subordinated Debentures.
The Junior Subordinated Debentures held by the Issuer Trust will mature on
February 1, 2027. The Corporation owns all of the Common Securities of the
Issuer Trust. It is anticipated that the Issuer Trust will not be subject to
the reporting requirements of the Securities Exchange Act of 1934, as
amended. See "Accounting Treatment."
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Corporation and, accordingly, the accounts of the Issuer Trust
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, under the caption entitled
"Guaranteed Preferred Beneficial Interests in Corporation's Junior Subordinated
Deferrable Interest Debentures" and appropriate disclosures about the Capital
Securities, the Guarantee, the Junior Subordinated Debentures and the Expense
Agreement 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 interest expense in the
consolidated statements of income.
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<PAGE> 30
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Corporation
and the Issuer Trust entered into the Registration Rights Agreement with the
Initial Purchasers, pursuant to which the Corporation and the Issuer Trust
agreed to file and to use their reasonable best efforts to cause to become
effective with 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.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation and the Issuer Trust 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 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
will not provide for any increase in the Distribution rate thereon. 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 Failure to Exchange
Old Capital Securities" and "Description of Old Securities."
The Exchange Offer is not being made to, nor will the Issuer Trust 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 Trust 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 Junior Subordinated Debentures, of which $103,093,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of the
New Junior Subordinated Debentures. The New Guarantee and $100,000,000 aggregate
principal amount of the New Junior Subordinated Debentures have been registered
under the Securities Act.
TERMS OF THE EXCHANGE
The Issuer Trust hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $100,000,000 aggregate Liquidation Amount of New
Capital Securities for a like aggregate Liquidation Amount of Old Capital
Securities properly tendered on or prior to the Expiration Date (as defined
below) 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 $100,000,000 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 in 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, except as set forth in the preceding
paragraph. As of the date of this Prospectus, $100,000,000 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
28
<PAGE> 31
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 Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
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 ADMINISTRATIVE
TRUSTEE OR ANY TRUSTEE OF THE ISSUER TRUST 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 April
25, 1997 unless the Exchange Offer is extended by the Issuer Trust and the
Corporation (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended).
The Issuer Trust and the Corporation expressly reserve the right in their
sole and absolute discretion, subject to applicable law, at any time and from
time to time, (i) to delay the acceptance of the 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 Issuer Trust and
the Corporation determine, in their sole and absolute discretion, that any of
the events or conditions referred to under "-- Conditions to the Exchange Offer"
have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain all 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 Issuer Trust and the
Corporation to constitute a material change, or if the Issuer Trust and the
Corporation waive a material condition of the Exchange Offer, the Issuer Trust
and the Corporation will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
Old Capital Securities, and the Issuer Trust and the Corporation 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 Issuer Trust and the Corporation may choose to make any
public announcement and subject to applicable law, the Issuer Trust and the
Corporation 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.
29
<PAGE> 32
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer Trust 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, (ii) the Letter of
Transmittal (or facsimile thereof), or an Agent's Message (as defined below) in
lieu thereof, properly completed and duly executed, with any required signature
guarantees, 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.
Subject to the terms and conditions of the Exchange Offer, the Issuer Trust
and the Corporation 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 Trust gives oral or written notice to the Exchange Agent of the
Issuer Trust's acceptance of such Old Capital Securities for exchange pursuant
to the Exchange Offer. The Exchange Agent will act as agent for the Issuer Trust
and the Corporation 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 Issuer Trust's and the Corporation's
acceptance for exchange of Old Capital Securities) or the Issuer Trust and the
Corporation 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 Issuer Trust's and the Corporation's rights set forth
herein, the Exchange Agent may, nevertheless, on behalf of the Issuer and the
Corporation 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 Trust 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 Trust 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 and will comply with its obligations under the
Registration Rights Agreement.
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) or an
Agent's Message, with any required signature guarantees and any other required
documents, must be received by the Exchange Agent at one of its addresses 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.
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<PAGE> 33
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 terms of the Letter of Transmittal, and the
Corporation may enforce the Letter of transmittal against such participant.
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. 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.
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), or an Agent's Message, properly completed and duly executed, with any
required signature guarantees 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 (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (b) such registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (a) or (b) above, such certificates for 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"); provided that no
guarantee needs to be provided if the Old Capital Securities are tendered for
the account of a firm that is an Eligible Institution. See Instruction 2 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;
31
<PAGE> 34
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
or an Agent's Message, 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 an Agent's Message, 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 an Agent's Message, 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 Issuer Trust's and the Corporation's acceptance for exchange of Old
Capital Securities tendered pursuant to any of the procedures described above
will constitute a binding agreement between the tendering holder, the
Corporation and the Issuer Trust upon the terms and subject to the conditions of
the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Corporation and
the Issuer Trust, in their sole discretion, which determination shall be final
and binding on all parties. The Corporation and the Issuer Trust 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
Trust, be unlawful. The Corporation and the Issuer Trust also reserve the
absolute right, subject to applicable law, to waive any of the conditions of the
Exchange Offer as set forth under "-- Conditions to the Exchange Offer" or any
condition or irregularity in any tender of 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 Trust'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. The Corporation, the
Issuer Trust, any affiliates or assigns of the Corporation or the Issuer Trust,
the Exchange Agent or any other person shall not be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the
Corporation and the Issuer Trust, proper evidence satisfactory to the
Corporation and the Issuer Trust, 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.
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<PAGE> 35
RESALES OF NEW CAPITAL SECURITIES
The Corporation and the Issuer Trust are 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 Trust sought its own interpretive letter and there
can be no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Corporation and the Issuer Trust
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 Trust
or who intends to participate in the Exchange Offer for the purpose of
participating in a distribution of the Capital Securities, or any broker-dealer
who purchased Old Capital Securities from the Issuer Trust to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (a) will
not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such 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
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" of the Corporation or the Issuer
Trust, (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 Trust may require
such holder, as a condition to such holder's eligibility to participate in the
Exchange Offer, to furnish to the Corporation and the Issuer Trust (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Old 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 Trust 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
33
<PAGE> 36
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 Trust have agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such 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" of the Corporation or the
Issuer Trust may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Corporation or the Issuer Trust of the occurrence of any event or the discovery
of any fact which makes any statement contained or incorporated by reference in
this Prospectus untrue in any material respect or which causes this Prospectus
to omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the Guarantee
or the Junior Subordinated Debentures, as applicable) pursuant to this
Prospectus until the Corporation or the Issuer Trust has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating Broker-
Dealer or the Corporation or the Issuer Trust has given notice that the sale of
the New Capital Securities (or the Guarantee or the Junior Subordinated
Debentures, as applicable) 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 one of its addresses set forth under "-- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Capital Securities to be withdrawn,
the aggregate Liquidation 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 serial 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 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 Trust, in their sole discretion, which determination shall be final
and binding on all parties. Neither the Corporation, the Issuer Trust, any
affiliates or assigns of the Corporation or the Issuer Trust, the Exchange Agent
nor any other person shall be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such
34
<PAGE> 37
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 THE 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 February 3, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Issuer Trust and the Corporation 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" of
the Corporation or the Issuer Trust within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such 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 Issuer Trust's or the Corporation's
judgment, would reasonably be expected to impair the ability of the Issuer
Trust or the Corporation to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted,
enacted or proposed which, in the Issuer Trust's or the Corporation's
judgment, would reasonably be expected to impair the ability of the Issuer
Trust or the Corporation to proceed with the Exchange Offer or might
otherwise adversely affect the business or financial affairs of the
Corporation;
(d) the Corporation has received an opinion of counsel, rendered by a
law firm having a recognized national tax practice, to the effect that, as
a result of the consummation of the Exchange Offer, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be, subject to
United States federal income tax with respect to income received or accrued
on the Junior Subordinated Debentures, (ii) interest payable by the
Corporation on the Junior Subordinated Debentures is not, or will not be,
deductible by the Corporation, in whole or in part, for United States
federal income tax purposes, or (iii) the Issuer Trust is, or will be,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges;
(e) a banking moratorium shall have been declared by United States
federal or Texas or New York State authorities which, in the Corporation's
judgment, would reasonably be expected to impair the ability of the
Corporation to proceed with the Exchange Offer;
(f) trading on NASDAQ 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 Issuer Trust's
35
<PAGE> 38
or the Corporation's judgment, would reasonably be expected to impair the
ability of the Issuer Trust or the Corporation to proceed with the Exchange
Offer;
(g) 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 Trust, threatened for that purpose any
governmental approval has not been obtained, which approval the Issuer
Trust or the Corporation shall, in their sole discretion, deem necessary
for the consummation of the Exchange Offer as contemplated hereby; or
(h) any change, or any development involving a prospective change, in
the business or financial affairs of the Issuer Trust or the Corporation or
any of the Corporation's subsidiaries has occurred which, in the sole
judgment of the Issuer Trust or the Corporation, might impair the ability
of the Issuer Trust or the Corporation to proceed with the Exchange Offer
or might adversely affect the business or financial affairs of the
Corporation.
If the Issuer Trust or the Corporation determine in their sole discretion
that any of the foregoing events or conditions has occurred or exists or has not
been satisfied, the Issuer Trust or the Corporation 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 Issuer
Trust or the Corporation 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 Issuer Trust and the Corporation
will extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent as follows:
<TABLE>
<C> <C> <C>
By Hand or Overnight Facsimile Transmissions: By Registered or Certified Mail:
Delivery: (Eligible Institutions Only) The Bank of New York
(212) 571-3080 101 Barclay Street, 7E
The Bank of New York To Confirm by Telephone New York, New York 10286
101 Barclay Street or for Information Call: Attention: Reorganization Section,
Corporate Trust Services (212) 815-6333 Arwen Gibbons
Window
Ground Level
Attention: Reorganization
Section,
Arwen Gibbons
</TABLE>
Delivery to other than the above addresses 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
36
<PAGE> 39
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 Trust will make any payment to
brokers, dealers or others soliciting acceptances of the Exchange Offer.
DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust have 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 Trust and the holders thereof will be
entitled to a preference in certain circumstances with respect to Distributions
and amounts payable on redemption or liquidation over the Common Securities, as
well as other benefits as described in the Trust Agreement. See
"-- Subordination of Common Securities." This summary of certain provisions of
the Capital Securities and the Trust Agreement, which describes the material
provisions thereof, does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trustees.
General
The Capital Securities (including the Old Capital Securities and the New
Capital Securities) will be limited to $100,000,000 aggregate Liquidation Amount
outstanding. The Capital Securities will rank pari passu, and payments will be
made thereon pro rata, with the Common Securities except as described under
"-- Subordination of Common Securities." The 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.
Legal title to the Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the Capital
Securities and Common Securities. The Guarantee will be a guarantee on a
subordinated basis with respect to the Capital Securities but will not guarantee
payment of Distributions or amounts payable on redemption or liquidation of such
Capital Securities when the Issuer Trust does not have funds on hand available
to make such payments. See "-- Description of Guarantee."
Distributions
The Capital Securities represent beneficial interests in the assets of the
Issuer Trust, and each Capital Security will be entitled to Distributions
payable at the annual rate of 8.42% of the stated Liquidation Amount of $1,000,
payable semi-annually in arrears on February 1 and August 1 of each year (each a
"Distribution Date"), to the holders of the Capital Securities at the close of
business on the January 15 or July 15 (whether or not a Business Day (as defined
below)) next preceding the relevant Distribution Date. Distributions on the
Capital Securities will be cumulative. Distributions will accumulate from the
date of initial issuance. The first Distribution Date for the Capital Securities
will be August 1, 1997. The amount of Distributions payable for any period less
than a full Distribution period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by two. If any date on which Distributions are
payable on the Capital Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time or
37
<PAGE> 40
from time to time for a period not exceeding 10 consecutive semi-annual periods
with respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such election, semi-annual Distributions on the Capital
Securities will be deferred by the Issuer Trust 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 8.42%
thereof, compounded semi-annually from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by two. The term "Distributions" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Corporation may not (i) make any payment of principal of or 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 Junior Subordinated Debentures or (ii) 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 (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 any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the 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 an 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 Junior 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 Junior 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 intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Issuer Trust will invest all of the proceeds from the
issuance and sale of the Capital Securities. See "-- Description of Junior
Subordinated Debentures." If the Corporation does not make payments on the
Junior Subordinated Debentures, the Issuer Trust may not have funds available to
pay Distributions or other amounts payable on the Capital Securities. The
payment of Distributions and other amounts payable on the Capital Securities (if
and to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Corporation on a limited
basis as set forth herein under "-- Description of Guarantee."
Redemption
Upon the repayment or redemption of the Junior Subordinated Debentures,
whether in whole at maturity or in whole or in part upon earlier redemption as
provided in the Indenture, the proceeds from such repayment or redemption shall
be applied by the Property Trustee to redeem a Like Amount (as defined below) of
the Trust Securities, upon not less than 30 nor more than 60 days' notice, at a
redemption price (the "Redemption
38
<PAGE> 41
Price") equal to the aggregate Liquidation Amount of such Trust Securities plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Corporation upon the concurrent redemption of such Junior Subordinated
Debentures. See "-- Description of Junior Subordinated
Debentures -- Redemption." If less than all of the Junior Subordinated
Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds
from such repayment or redemption shall be allocated to the redemption pro rata
of the Capital Securities and the Common Securities. The amount of premium, if
any, paid by the Corporation upon the redemption of all or any part of the
Junior Subordinated Debentures to be repaid or redeemed on a Redemption Date
shall be allocated to the redemption pro rata of the Capital Securities and the
Common Securities.
The Corporation has the right to redeem the Junior Subordinated Debentures
(i) on or after February 1, 2007, in whole at any time or in part from time to
time, or (ii) prior to February 1, 2007 in whole (but not in part) at any time
within 90 days following the occurrence and during the continuation of a Tax
Event or Capital Treatment Event. A redemption of the Junior Subordinated
Debentures would cause a mandatory redemption of a Like Amount of the Trust
Securities. The Corporation has committed to the Federal Reserve that the
Corporation will not redeem the Capital Securities without first having received
the prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve guidelines or policies.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices, expressed in percentages of the Liquidation Amount
(as defined below), together with accumulated Distributions to but excluding the
date fixed for redemption, if redeemed during the 12-month period beginning
February 1 of the year indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2007........................................................ 104.210%
2008........................................................ 103.789
2009........................................................ 103.368
2010........................................................ 102.947
2011........................................................ 102.526
2012........................................................ 102.105
2013........................................................ 101.684
2014........................................................ 101.263
2015........................................................ 100.842
2016........................................................ 100.421
</TABLE>
and at 100% on or after February 1, 2017.
The Redemption Price, in the case of a redemption prior to February 1, 2007
following a Tax Event or Capital Treatment Event as described under (ii) above,
will equal for each Capital Security the Make-Whole Amount for a corresponding
$1,000 principal amount of Junior Subordinated Debentures together with
accumulated Distributions to but excluding the date fixed for redemption. The
"Make-Whole Amount" will be equal to the greater of (i) 100% of the principal
amount of such Junior Subordinated Debentures or (ii) as determined by a
Quotation Agent (as defined below), the sum of the present values of the
principal amount and premium payable as part of the Redemption Price with
respect to an optional redemption of such Junior Subordinated Debentures on
February 1, 2007, together with the present values of scheduled payments of
interest from the Redemption Date to February 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 30-day months) at the Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate plus (i) 1.25% if such Redemption Date occurs on or before
February 1, 1998 or (ii) 0.50% if such Redemption Date occurs after February 1,
1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the week immediately prior to the calculation date, appearing in the
most recently published statistical release designated "H.15(519)" or any
successor publication which is published weekly by the Federal Reserve and
39
<PAGE> 42
which establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant Maturities,"
for the maturity corresponding to the Remaining Life (if no maturity is within
three months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
Business Day preceding the Redemption Date.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain closed, or (c) a day on which the Property
Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture
Trustee is closed for business.
"Comparable Treasury Issue" means with respect to any Redemption Date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after February 1, 2007, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Quotation Agent" means J.P. Morgan Securities Inc. 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.
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any
other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Corporation.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) if the Debenture
Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such Redemption Date.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to the
principal amount of Junior 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 (ii) with respect to a distribution of Junior Subordinated
Debentures to holders of Trust Securities in connection with a dissolution or
liquidation of the Issuer Trust, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Junior Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
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Payment of Additional Sums
If a Tax Event described in clause (i) or (iii) of the definition of Tax
Event above has occurred and is continuing and the Issuer Trust is the holder of
all of the Junior Subordinated Debentures, the Corporation will pay Additional
Sums (as defined below), if any, on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on the
outstanding Capital Securities and Common Securities of the Issuer Trust will
not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event; provided, however, that Additional Sums shall not include any
withholding taxes arising after the occurrence of a Tax Event which have been
withheld from payments to Securityholders and for which Securityholders are
liable.
Redemption Procedures
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Capital Securities. With respect to Capital Securities not held in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Capital Securities funds sufficient to pay
the applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of the Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Capital Securities will cease to be outstanding. If any date fixed for
redemption of Capital Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Issuer Trust or by the Corporation pursuant to the Guarantee as described
under "-- Description of Guarantee," Distributions on such Capital Securities
will continue to accumulate at the then applicable rate, from the Redemption
Date originally established by the Issuer Trust for such Capital Securities to
the date such Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the 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, and may resell such securities as described
in "Plan of Distribution."
If less than all of the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Capital Securities to be
redeemed shall be
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selected on a pro rata basis not more than 60 days prior to the Redemption Date
by the Property Trustee from the outstanding Capital Securities not previously
called for redemption, or if the Capital Securities are then held in the form of
a Global Capital Security (as defined below), in accordance with DTC's customary
procedures, provided, in each case, that each holder of any Capital Securities
has at least 100 Capital Securities remaining after the redemption. The Property
Trustee shall promptly notify the securities registrar for the Trust Securities
in writing of the Capital Securities selected for redemption and, in the case of
any Capital Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the aggregate Liquidation Amount of
Capital Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Corporation defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either by
the Issuer Trust or the Corporation pursuant to the Guarantee, Distributions
will cease to accumulate on the Capital Securities or portions thereof) called
for redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of such Capital Securities and Common Securities.
However, if on any Distribution Date or Redemption Date a Debenture Event of
Default has occurred and is continuing as a result of any failure by the
Corporation to pay any amounts in respect of the Junior Subordinated Debentures
when due, no payment of any Distribution on, or Redemption Price of, any of the
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all 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 Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Capital Securities
then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holder of the Common Securities (i.e., the
Corporation) 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 such Capital Securities has been cured, waived
or otherwise eliminated. See "-- Events of Default; Notice" and "-- Description
of Junior Subordinated Debentures -- Debenture Events of Default." Until all
such Events of Default under the Trust Agreement with respect to the Capital
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee will act solely on behalf of the holders of the Capital Securities and
not on behalf of the holders of the Common Securities, and only the holders of
the Capital Securities will have the right to direct the Property Trustee to act
on their behalf.
Liquidation Distribution Upon Termination
The amount payable on the Capital Securities in the event of any
liquidation of the Issuer Trust is $1,000 per Capital Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holder of all of the outstanding Common Securities (i.e., the
Corporation) has the right at any time to terminate the Issuer Trust and, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Capital
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Securities and Common Securities in liquidation of the Issuer Trust. Such right
is subject to the Corporation having received an opinion of counsel to the
effect that such distribution will not be a taxable event to holders of Capital
Securities. The Corporation has committed to the Federal Reserve that, so long
as the Corporation (or an affiliate) is a holder of Common Securities, it will
not exercise such right without having received the prior approval of the
Federal Reserve to do so, if then required under applicable Federal Reserve
capital guidelines or policies.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
terminate on February 1, 2028 or, if earlier, will terminate on the first to
occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Corporation; (ii) the distribution of a Like Amount of the Junior Subordinated
Debentures to the holders of the Trust Securities, if the holder of the Common
Securities have given written direction to the Property Trustee to terminate the
Issuer Trust (which direction, subject to the foregoing restrictions, is
optional and wholly within the discretion of the holder of Common Securities);
(iii) redemption of all of the Trust Securities as described under
"-- Redemption" and (iv) the entry of an order for the dissolution of the Issuer
Trust by a court of competent jurisdiction.
If termination of the Issuer Trust occurs automatically upon expiration of
its term, or as described in clause (i), (ii) or (iv) above, the Issuer Trust
will be liquidated by the Property Trustee as expeditiously as the Property
Trustee determines to be possible by distributing, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, to
the holders of such Trust Securities a Like Amount of the Junior Subordinated
Debentures, unless such distribution is 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 Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to, in the case of holders of Capital
Securities, the aggregate of the Liquidation Amount plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Issuer Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Issuer Trust on its Capital Securities shall be paid on a pro rata basis. The
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 as a result of any failure by the Corporation to pay any amounts
in respect of the Junior Subordinated Debentures when due, the Capital
Securities shall have a priority over the Common Securities.
Notice of liquidation will be mailed at least 30 days but not more than 60
days before the liquidation date to each registered holder of Capital Securities
at its address appearing on the securities register for the Trust Securities.
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures (i) the Capital Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the registered holder of the Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If the Corporation does not redeem the Junior Subordinated Debentures prior
to maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a termination and liquidation of the Issuer
Trust were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Capital Securities offered hereby.
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Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Corporation by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Capital Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrative Trustees, unless such Event of Default has been cured or waived.
The Property Trustee shall not be deemed to have knowledge of any Event of
Default unless the Property Trustee shall have received written notice to that
effect or an officer of the Property Trustee charged with the administration of
the Trust Agreement shall have obtained actual knowledge of such Event of
Default. The Corporation, as Depositor, and the Administrative Trustees are
required to file annually with the Property Trustee a certificate as to whether
or not they are in compliance with all the conditions and covenants applicable
to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Corporation to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
the Capital Securities as described above. See "-- Subordination of Common
Securities," "-- Liquidation Distribution Upon Termination" and "-- Description
of Junior Subordinated Debentures -- Debenture Events of Default."
The existence of an Event of Default does not entitle the holders of
Capital Securities to accelerate the maturity thereof.
Removal of Issuer Trustees; Appointment of Successors
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by vote of the holder of the
Common Securities (i.e., the Corporation). If a Debenture Event of Default shall
have occurred and be continuing, the Property Trustee or the Delaware Trustee,
or both of them, may be removed at such time by vote of the holders of a
majority in Liquidation Amount of the Capital Securities. An Administrative
Trustee may be removed by the holder of the Common Securities at any time. If
any Issuer Trustee shall resign, be removed or become incapable of acting as an
Issuer Trustee, or if a vacancy shall occur in the office of any Issuer Trustee
for any cause, at a time when no Debenture Event of
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Default shall have occurred and be continuing, the holder of the Common
Securities is entitled to appoint a successor Issuer Trustee. If the Property
Trustee or the Delaware Trustee shall resign, be removed or become incapable of
continuing to act as the Property Trustee or the Delaware Trustee, as the case
may be, at a time when a Debenture Event of Default shall have occurred and be
continuing, the holders of the Capital Securities, by vote of the holders of a
majority in Liquidation Amount of the Capital Securities, shall promptly appoint
a successor Trustee. If an Administrative Trustee shall resign, be removed or
become incapable of acting as Administrative Trustee, at a time when a Debenture
Event of Default shall have occurred and be continuing, the holder of the Common
Securities is entitled to appoint a successor Administrative Trustee. If no
successor Issuer Trustee shall have been so appointed by the holders of the
Common Securities or the Capital Securities and accepted appointment, any holder
of Trust Securities who has been a holder of Trust Securities for at least six
months may petition any court of competent jurisdiction for the appointment of a
successor Issuer Trustee. Any Delaware Trustee must meet the applicable
requirements of Delaware law. Any Property Trustee must be a national or
state-chartered bank, and at the time of appointment have securities rated in
one of the three highest rating categories by a nationally recognized
statistical rating organization and have capital and surplus of at least
$50,000,000. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all of the obligations of the
Issuer Trust with respect to the Capital Securities or (b) substitutes for the
Capital Securities other securities having substantially the same terms as the
Capital Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Capital Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Capital Securities (including any Successor Securities)
to be downgraded by any nationally recognized statistical rating organization,
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trust has
received an opinion from independent counsel experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act, and (vii) the Corporation
or any permitted successor or assignee owns all of the common securities of such
successor entity and guarantees the obligations of such
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successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Capital Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer Trust or the successor entity to be classified as an association taxable
as a corporation or as other than a grantor trust for United States federal
income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided below and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "-- Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the 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 are not
inconsistent with the other provisions of the Trust Agreement, provided that any
such amendment does not adversely affect in any material respect the interests
of any holder of Trust Securities, or (ii) to modify, eliminate or add to any
provisions of the Trust Agreement to such extent as may be necessary to ensure
that the Issuer Trust will not be taxable as a corporation or will be taxable as
a grantor trust for United States federal income tax purposes at any time that
any Trust Securities are outstanding or to ensure that the Issuer Trust will not
be required to register as an "investment company" under the Investment Company
Act, and any amendments of the Trust Agreement will become effective when notice
of such amendment is given to the holders of Trust Securities. The Trust
Agreement may be amended by the 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 in aggregate Liquidation Amount of the
outstanding Capital Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will not
affect the Issuer Trust's status as a grantor trust for United States federal
income tax purposes or cause the Issuer Trust to be classified as a corporation
for United States federal income tax purposes or the Issuer Trust's exemption
from status as an "investment company" under the Investment Company Act, except
that without the consent of each holder of Trust Securities, the Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Indenture, (iii) exercise any right to rescind or
annul a declaration that the Junior Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, except that if a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent will be given by the Property Trustee without the prior consent of
each holder of the Capital Securities. The Property Trustee may not revoke any
action previously authorized or approved by a vote of the holders of the Capital
Securities except by subsequent vote of the holders of the Capital Securities.
The Property Trustee will notify each holder of Capital Securities of any notice
of default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Capital Securities,
before taking any of the foregoing actions, the
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Property Trustee will obtain an opinion of counsel experienced in such matters
to the effect that the Issuer Trust will not be taxable as a corporation 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 registered holder of Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Corporation, the Issuer Trustees or any
affiliate of the Corporation or any Issuer Trustees, will, for purposes of such
vote or consent, be treated as if they were not outstanding.
Book Entry, Delivery and Form
The New Capital Securities will be issued in fully registered form in
minimum blocks of at least 100 (representing a minimum of $100,000 aggregate
Liquidation Amount) and the New Capital Securities must at all times be held in
blocks of at least 100. Any attempted transfer, sale or other disposition of the
New 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.
The New Capital Securities initially will be evidenced by one or more
global Capital Securities (the "Global Capital Securities") which will be
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.
("Cede") as DTC's nominee. Except as set forth below, record ownership of the
Global Capital Securities may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee and only in
amounts that would not cause a holder to own less than 100 Capital Securities.
DTC has advised the Issuer Trust 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 Purchasers),
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 or 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 Trust and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants designated by the Initial
Purchasers with portions of the Liquidation Amount of the Global Capital
Securities and (ii) ownership of such interests in the Global Capital Securities
will be shown on, and the transfer or 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).
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.
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Payment of Distributions on, and the Redemption Price of, the Global
Capital Securities will be made to Cede, as the registered holder of the Global
Capital Securities, by wire transfer of immediately available funds on each
Distribution Date or Redemption Date. Neither the Corporation nor the Issuer
Trustees (or any Administrator, securities registrar, paying agent or exchange
agent under the Trust Agreement) will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Capital Security, for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
the performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
The Corporation and the Issuer Trust have been informed by DTC that, with
respect to any payment of Distributions on, or the Redemption Price of, the
Global Capital Security, DTC's practice is to credit Participants' accounts on
the payment date therefor with payments in amounts proportionate to their
respective beneficial interests in the Capital Securities represented by the
Global Capital Securities, as shown on the records of DTC (adjusted as necessary
so that such payments are made with respect to whole Capital Securities only),
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in
Capital Securities represented by the Global Capital Security held through such
Participants will be the responsibility of such Participants, as is the case
with securities held for the accounts of customers registered in "street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Capital Securities represented by the Global
Capital Securities to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest. Furthermore, the laws of some states require that certain persons take
physical delivery of securities in definitive form. Consequently, the ability to
transfer beneficial interests in the Global Capital Securities to such persons
may be limited.
DTC has advised the Corporation and the Issuer Trust that it will take any
action permitted to be taken by a holder of Capital Securities (including,
without limitation, the presentation of Capital Securities for exchange as
described below) only at the direction of one or more Participants to whose
account with DTC interests in the Global Capital Securities are credited and
only in respect of the aggregate Liquidation Amount of the Capital Securities
represented by the Global Capital Securities as to which such Participant or
Participants has or have given such direction.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Capital Securities among Participants of
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. The Global
Capital Security is exchangeable for definitive Capital Securities in registered
certificated form if (i) DTC advises the Corporation and the Property Trustee
that it is no longer willing or able to properly discharge its responsibilities
with respect to the Global Capital Securities, and the Property Trustee is
unable to locate a qualified successor, (ii) the Issuer Trust at its option
advises DTC in writing that it elects to terminate the book-entry system through
DTC or (iii) after the occurrence of a Debenture Event of Default.
So long as DTC or its nominee is the registered holder of the Global
Capital Security, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Capital Securities represented by the Global
Capital Securities for all purposes under the Trust Agreement governing the
Capital Securities. Except as provided above, owners of beneficial interests in
the Global Capital Securities will not be entitled to have any of the individual
Capital Securities represented by the Global Capital Securities registered in
their names, will not receive or be entitled to receive physical delivery of any
such Capital Securities in definitive form and will not be considered the owners
or holders thereof under the Trust Agreement.
Payment and Paying Agency
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are not held by DTC, such payments will be made by
check mailed to the address of the holder entitled thereto as such address
appears
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on the securities register for the Trust Securities. The paying agent (the
"Paying Agent") will initially be The Bank of New York and any co-paying agent
chosen by such Paying Agent and acceptable to the Administrative Trustees. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrative Trustees. If The Bank of
New York is no longer the Paying Agent, the Property Trustee will appoint a
successor (which must be a bank or trust company reasonably acceptable to the
Administrative Trustees) to act as Paying Agent.
Registrar and Transfer Agent
The Bank of New York will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Capital Securities after the Capital Securities
have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative courses of
action, or 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 Trust Securities are entitled under the Trust Agreement
to vote, then the Property Trustee will take such action as it deems advisable
and in the best interests of the holders of the Trust Securities and will have
no liability except for its own bad faith, negligence or willful misconduct.
For information concerning the relationships between The Bank of New York,
the Property Trustee, and the Corporation, see "-- Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
Inspection of Trust Records; Reports by Property Trustee
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Issuer Trust shall be open to inspection by any
holder of Trust Securities during normal business hours for any purpose
reasonably related to such holder's interest as a holder of Trust Securities.
Within 60 days after December 31 of each year commencing with December 31,
1997, the Property Trustee shall transmit to all holders of Trust Securities and
to the Corporation a brief report dated as of the immediately preceding December
31 with respect to: (i) its eligibility under the Trust Agreement and the Trust
Indenture Act or, in lieu thereof, if to the best of its knowledge it has
continued to be eligible under each, a written statement to such effect; (ii) a
statement that the Property Trustee has complied with all of its obligations
under the Trust Agreement during the twelve-month period (or, in the case of the
initial report, the period since the date of issuance of the Capital Securities)
ending with such December 31 or, if the Property Trustee has not complied in any
material respect with such obligations, a description of such noncompliance; and
(iii) any change in the property and funds in its possession as Property Trustee
since the date of its last report and any action taken by the Property Trustee
in the performance of its duties hereunder which it has not previously reported
and which in its opinion materially affects the Trust Securities.
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Governing Law
The Trust Agreement and the rights and obligations of each of the Trust
Securities holders, the Issuer Trust, the Depositor, the Issuer Trustees and the
Administrative Trustees with respect to the Trust Agreement and the Trust
Securities shall be construed in accordance with and governed by the laws of the
State of Delaware.
Miscellaneous
The Administrative Trustees and the Property Trustee are authorized and
directed to conduct the affairs of and to operate the Issuer Trust in such a way
that the Issuer Trust will not be deemed to be an "investment company" required
to be registered under the Investment Company Act or 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 Junior 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 Common Securities (i.e., the Corporation) are authorized to take any
action, not inconsistent with applicable law, the certificate of trust of the
Issuer Trust or the Trust Agreement, that the Property Trustee and the holder of
Common Securities determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not materially adversely affect the
interests of the holders of the Capital Securities.
The receipt and acceptance of a Trust Security or any interest therein by
or on behalf of a holder or any beneficial owner, without any signature or
further manifestation of assent, shall constitute the unconditional acceptance
by the holder and all others having a beneficial interest in such Trust Security
of all the terms and provisions of the Trust Agreement, the Guarantee and the
Indenture, and agreement to the subordination provisions and other terms of the
Guarantee and the Indenture, and shall constitute the agreement of the Issuer
Trust, such holder and such others that the terms and provisions of the Trust
Agreement shall be binding, operative and effective as between the Issuer Trust
and such holder and such others.
Each holder of Capital Securities shall be deemed to have agreed not to
hold the Corporation, the Property Trustee, the Delaware Trustee or the
Administrative Trustees accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures will be issued as separate series under the Indenture,
under which The Bank of New York is acting as Debenture Trustee. This summary of
certain terms and provisions of the Junior Subordinated Debentures and the
Indenture, which describes the material terms thereof, does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions therein of
certain terms. Whenever particular defined terms of the Indenture (as amended or
supplemented from time to time) are referred to herein, such defined terms are
incorporated herein by reference. A copy of the form of Indenture is available
from the Debenture Trustee upon request.
General
Concurrently with the issuance of the Capital Securities, the Issuer Trust
invested the proceeds thereof, together with the consideration paid by the
Corporation for the Common Securities, in the Old Junior Subordinated Debentures
issued by the Corporation. Pursuant to the Exchange Offer, the Corporation will
exchange the Old Junior Subordinated Debentures for the New Junior Subordinated
Debentures as soon as practicable after the date hereof. No Old Junior
Subordinated Debentures will remain outstanding after such exchange. The
following is a description of the New Junior Subordinated Debentures (referred
to in this subsection as the "Junior Subordinated Debentures"). The Junior
Subordinated Debentures will bear interest, accruing from the date of initial
issuance, at the annual rate of 8.42% of the principal amount thereof, payable
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semi-annually in arrears on February 1 and August 1 of each year (each, an
"Interest Payment Date"), commencing August 1, 1997, to the person in whose name
each Junior Subordinated Debenture is registered at the close of business on the
fifteenth day (whether or not a Business Day) next preceding such Interest
Payment Date. It is anticipated that, until the liquidation, if any, of the
Issuer Trust, each Junior Subordinated Debenture will be held in the name of the
Property Trustee in trust for the benefit of the holders of the Trust
Securities. The amount of interest payable for any period less than a full
interest period will be computed on the basis of a 360-day year of twelve 30-day
months and the actual days elapsed in a partial month in such period. The amount
of interest payable for any full interest period will be computed by dividing
the rate per annum by two. If any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of 8.42%, compounded semi-annually and
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by two. The term "interest" as used herein includes semi-annual
interest payments, interest on semi-annual interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Junior Subordinated Debentures will mature on February 1, 2027, subject
to the Corporation's right to shorten the maturity thereof as described below
under "-- Conditional Right to Shorten Maturity or Redeem upon a Tax Event or
Capital Treatment Event."
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Corporation. Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary of
the Corporation, upon such subsidiary's dissolution, winding-up, liquidation or
reorganization or otherwise (and thus the ability of holders of the Junior
Subordinated Debentures 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 a creditor of that subsidiary and its
claims are recognized. The principal source of funds for the Corporation to
satisfy its obligations under the Junior Subordinated Debentures and the
Guarantee are the Corporation's subsidiaries. There are various legal
limitations on the extent to which the Corporation's subsidiaries may extend
credit, pay dividends or otherwise supply funds to the Corporation or certain of
its other subsidiaries. Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries, and holders of Junior Subordinated Debentures should
look only to the assets of the Corporation for payments on the Junior
Subordinated Debentures. See "Cullen/Frost Bankers, Inc." The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt by the
Corporation, including Senior Indebtedness, whether under the Indenture or any
existing or other indenture that the Corporation may enter into in the future or
otherwise. See "-- Subordination."
Option To Extend Interest Payment Period
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. At the end of
such Extension Period, the Corporation must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of 8.42%, compounded
semi-annually and computed on the basis of a 360-day year of twelve 30-day
months and the actual days elapsed in a partial month in such period, to the
extent permitted by applicable law). The amount of additional interest payable
for any full interest period will be computed by dividing the rate per annum by
two. During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (or holders of Capital
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Securities while outstanding) will be required to accrue interest income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) make any
payment of principal of or 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 Junior Subordinated Debentures or
(ii) 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 (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
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the 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 an 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 stockholders' rights plan, or
the issuance of rights, stock or other property under any stockholders' rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Corporation may further defer the payment of
interest, provided that no Event of Default has occurred and is continuing and
provided that no Extension Period may exceed 10 consecutive semi-annual periods
or extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Corporation may elect to begin a new Extension Period subject to the
above conditions. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Corporation must give the Issuer Trustees
notice of its election of such Extension Period at least five Business Days
prior to the earlier of (i) the date the Distributions on the Capital Securities
would have been payable but for the election to begin such Extension Period and
(ii) the date the Property Trustee is required to give notice to holders of the
Capital Securities of the record date or the date such Distributions are
payable. The Property Trustee will 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.
Redemption
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Corporation (i) on or after February 1, 2007, in whole at any time
or in part from time to time, or (ii) prior to February 1, 2007, in whole (but
not in part) at any time within 90 days following the occurrence and during the
continuation of a Tax Event or Capital Treatment Event (each as defined under
"-- Description of Capital Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem a Like Amount of the Capital Securities. The
Corporation has committed to the Federal Reserve that the Corporation will not
exercise its right to redeem the Junior Subordinated Debentures prior to the
Stated Maturity without having received the prior approval of the Federal
Reserve to do so, if then required under applicable Federal Reserve capital
guidelines or policies.
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The redemption price for Junior Subordinated Debentures in the case of a
redemption under (i) above shall equal the following prices, expressed in
percentages of the principal amount, together with accrued interest to but
excluding the date fixed for redemption. If redeemed during the 12-month period
beginning February 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2007........................................................ 104.210%
2008........................................................ 103.789
2009........................................................ 103.368
2010........................................................ 102.947
2011........................................................ 102.526
2012........................................................ 102.105
2013........................................................ 101.684
2014........................................................ 101.263
2015........................................................ 100.842
2016........................................................ 100.421
</TABLE>
and at 100% on or after February 1, 2017.
The redemption price for Junior Subordinated Debentures, in the case of a
redemption prior to February 1, 2007 following a Tax Event or Capital Treatment
Event, as described under (ii) above, will equal the Make-Whole Amount (as
defined under "-- Description of Capital Securities -- Redemption"), together
with accrued and unpaid interest to but excluding the date fixed for redemption.
Additional Sums
The Corporation has covenanted in the Indenture that, so long as no Event
of Default has occurred and is continuing, if and for so long as (i) the Issuer
Trust is the holder of all Junior Subordinated Debentures and (ii) the Issuer
Trust is required to pay any additional taxes, duties or other governmental
charges as a result of a Tax Event, the Corporation will pay Additional Sums on
the Junior Subordinated Debentures. See "-- Description of Capital
Securities -- Redemption."
Conditional Right to Shorten Maturity or Redeem upon a Tax Event or Capital
Treatment Event
If a Tax Event or a Capital Treatment Event occurs and (i) in the opinion
of counsel to the Corporation experienced in such matters, there would in all
cases, after effecting the termination of the Issuer Trust and the distribution
of the Junior Subordinated Debentures to the holders of the Capital Securities
in exchange therefor, be more than an insubstantial risk that an Adverse Tax
Consequence (as defined in "Risk Factors -- Tax Event or Capital Treatment
Event") would continue to exist, (ii) in the reasonable determination of the
Corporation, there would in all cases, after effecting the termination of the
Issuer Trust and the distribution of the Junior Subordinated Debentures to the
holders of the Capital Securities in exchange therefor upon liquidation of the
Issuer Trust, be more than an insubstantial risk that the Corporation will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier I Capital" (or the equivalent thereof) or (iii) the Junior
Subordinated Debentures are not held by the Issuer Trust, then the Corporation
shall have the right:
(a) to shorten the Stated Maturity of the Junior Subordinated
Debentures to the minimum extent required, but in any event to a date not
earlier than February 1, 2017 (the action referred to in this clause (a)
being referred to herein as a "Maturity Advancement"), such that, in the
opinion of counsel to the Corporation experienced in such matters, after
advancing the Stated Maturity, interest paid on the Junior Subordinated
Debentures will be deductible for federal income tax purposes, or
(b) if either (x) in the opinion of counsel to the Corporation
experienced in such matters, there would in all cases, after effecting a
Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence would continue to exist or (y) in the reasonable
determination of the
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Corporation, there would in all cases, after effecting a Maturity
Advancement, be more than an insubstantial risk that the Corporation will
not be entitled to treat an amount equal to the Liquidation Amount of the
Capital Securities as "Tier I Capital" (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then
in effect and applicable to the Corporation, to redeem the Junior
Subordinated Debentures, prior to February 1, 2007, in whole but not in
part, at any time within 90 days following the occurrence of the Tax Event
or Capital Treatment Event at a Redemption Price equal to the Make-Whole
Amount (as defined under "-- Description of Capital
Securities -- Redemption") plus accrued and unpaid interest thereon to the
Redemption Date. See "-- Certain Terms of Capital Securities -- Liquidation
of Issuer Trust and Distribution of Junior Subordinated Debentures to
Holders" and "-- Redemption" and "Certain Terms of Junior Subordinated
Debentures -- General" and "-- Redemption."
Holders of Capital Securities should consult their own tax advisors
regarding the tax consequences to them of a Maturity Advancement.
See "Certain Federal Tax Law Consequences -- Possible Tax Law Changes" for
a discussion of certain legislative proposals that, if adopted, could give rise
to a Tax Event, which may permit the Corporation to shorten the Stated Maturity
of the Junior Subordinated Debentures or cause a redemption of the Capital
Securities prior to February 1, 2007.
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the name
of the Property Trustee, as trustee of the Issuer Trust. If the Junior
Subordinated Debentures are distributed to holders of Capital Securities, it is
anticipated that the depositary arrangements for the Junior Subordinated
Debentures will be substantially identical to those in effect for the Capital
Securities. See "-- Description of Capital Securities -- Book Entry, Delivery
and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Corporation within 90 days of receipt of notice from DTC to such effect, the
Corporation will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede, the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "-- Description of the
Capital Securities -- Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee 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.
The Junior Subordinated Debentures will be issuable only in registered form
without coupons in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof. Junior Subordinated Debentures will be exchangeable
for other Junior Subordinated Debentures of like tenor, of any authorized
denominations, and of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Indenture or at the office of any transfer agent designated by the Corporation
for such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. The Corporation will appoint
the Debenture Trustee as securities registrar under the Indenture. The
Corporation may at any time designate additional transfer agents with respect to
the Junior Subordinated Debentures.
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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
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any 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 Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Corporation, be repaid
to the Corporation and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Corporation for
payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Corporation
The Corporation has covenanted that it will not (i) make any payment of
principal of, or 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 Junior Subordinated Debentures or (ii) 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
(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 any one or
more employees, officers, directors or consultants, in connection with a
dividend reinvestment or stockholder stock purchase plan or in connection with
the issuance of capital stock of the Corporation (or securities convertible into
or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable event, (b) as a result of an
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 stockholders' rights plan, or the issuance of
rights, stock or other property under any stockholders' rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock), if at such time (i) there has occurred any event (a)
of which the Corporation has actual knowledge that with the giving of notice or
the lapse of time, or both, would constitute a Debenture Event of Default and
(b) that the Corporation has not taken reasonable steps to cure, (ii) if the
Junior Subordinated Debentures are held by the Issuer Trust, the Corporation is
in default with respect to its payment of any obligations under the Guarantee or
(iii) the Corporation has given notice of its selection of an Extension Period
as provided in the Indenture and has not rescinded such notice, or such
Extension Period, or any extension thereof, is continuing.
The Corporation has covenanted in the Indenture (i) to continue to hold,
directly or indirectly, 100% of the Common Securities, provided that certain
successors that are permitted pursuant to the Indenture may succeed to the
Corporation's ownership of the Common Securities, (ii) as holder of the Common
Securities, not to voluntarily terminate, wind-up or liquidate the Issuer Trust,
other than (a) in connection with a distribution of Junior Subordinated
Debentures to the holders of the Capital Securities in liquidation of the Issuer
Trust or (b) in connection with certain mergers, consolidations or amalgamations
permitted by the Trust Agreement and (iii) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Issuer Trust to continue not to be taxable as a corporation and to be taxable as
a grantor trust for United States federal income tax purposes. In addition, the
Corporation has committed to the Federal Reserve that, so long as the
Corporation is the holder of the Common Securities, the Corporation will not
voluntarily terminate or liquidate the Issuer Trust prior to the Stated Maturity
without having received the
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prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve capital guidelines or policies.
Modification of Indenture
From time to time the Corporation and the Debenture Trustee may, without
the consent of the holders of the Junior Subordinated Debentures, amend, waive
or supplement the provisions of 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 interests of the
holders of the Junior 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
the Junior Subordinated Debentures, to modify the Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Indenture. Furthermore, so long as any
of the Capital Securities remain outstanding, no such modification may be made
that adversely affects the holders of such Capital Securities in any material
respect, and no termination of the 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 the outstanding Capital
Securities unless and until the principal of (and premium, if any, on) the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes an "Event of Default" with respect to the Junior
Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Corporation from the Debenture Trustee or the holders of at least
25% in aggregate outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) certain events of bankruptcy, insolvency or reorganization of the
Corporation.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "-- Description of Capital
Securities -- Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable
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immediately upon a Debenture Event of Default, and, should the Debenture Trustee
or such holders of Junior Subordinated Debentures fail to make such declaration,
the holders of at least 25% in aggregate Liquidation Amount of the outstanding
Capital Securities shall have such right. The holders of a majority in aggregate
principal amount of outstanding Junior Subordinated Debentures may annul such
declaration and waive the default if all defaults (other than the non-payment of
the principal of Junior Subordinated Debentures which has become due solely by
such acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Capital Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Indenture cannot be modified or amended without the
consent of the holder of each outstanding Junior Subordinated Debenture. See
"-- Modification of Indenture." 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.
If a Debenture Event of Default occurs and is continuing, the Debenture
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the
Indenture, to be forthwith due and payable and to enforce its other rights as a
creditor with respect to the Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Capital Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Corporation to pay any amounts
payable in respect of the Junior Subordinated Debentures on the date such
amounts are otherwise payable, a registered holder of Capital Securities may
institute a legal proceeding directly against the Corporation for enforcement of
payment to such holder of an amount equal to the amount payable in respect of
Junior Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder (a "Direct
Action"). The Corporation may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of the holders
of all of the Capital Securities. The Corporation will have 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 available to the holders of the Junior Subordinated
Debentures except under the circumstances described in the preceding paragraph.
See "-- Description of Capital Securities -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Corporation may not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, and no Person may consolidate
with or merge into the Corporation or convey, transfer or lease its properties
and assets substantially as an entirety to the Corporation, unless (i) if the
Corporation consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Corporation's obligations in respect of the Junior Subordinated Debentures;
(ii) immediately after giving effect thereto, no Debenture Event of Default, and
no event which, after notice or lapse of time or both, would constitute a
Debenture Event of Default, has occurred and is continuing; and (iii) certain
other conditions as prescribed in the Indenture are satisfied.
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The provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
Satisfaction and Discharge
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at the 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 sufficient to pay and discharge the entire indebtedness on the
Junior Subordinated Debentures not previously delivered to the Debenture Trustee
for cancellation, for the principal (and premium, if any) and interest to the
date of the deposit or to the Stated Maturity, as the case may be, then the
Indenture will cease to be of further effect (except as to the Corporation's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Corporation will be deemed to have satisfied and discharged the Indenture.
Subordination
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Indenture, to all Senior Indebtedness
(as defined below) of the Corporation. If the Corporation defaults in the
payment of any principal, premium, if any, or interest, if any, or any other
amount payable on any Senior Indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for redemption or by declaration of
acceleration or otherwise, then, unless and until such default has been cured or
waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by set-off or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means any obligation of the
Corporation to its creditors, whether now outstanding or subsequently incurred,
other than any obligation as to which, in the instrument creating or evidencing
the obligation or pursuant to which the obligation is outstanding, it is
provided that such obligation is not Senior Indebtedness, but does not include
trade accounts payable and accrued liabilities arising in the ordinary course of
business. Senior Indebtedness will include any subordinated debt securities
issued in the future other than the Junior Subordinated Debentures or any junior
subordinated debt securities issued in the future with subordination terms
substantially similar to those of the Junior Subordinated Debentures. The
Corporation has no outstanding Senior Indebtedness.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv) any
other marshalling of the assets of the Corporation, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Corporation
ranking on a parity with the Junior Subordinated Debentures, will be entitled to
be paid from
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the remaining assets of the Corporation the amounts at the time due and owing on
the Junior Subordinated Debentures and such other obligations before any payment
or other distribution, whether in cash, property or otherwise, will be made on
account of any capital stock or obligations of the Corporation ranking junior to
the Junior Subordinated Debentures and such other obligations. If any payment or
distribution on account of the Junior Subordinated Debentures of any character
or any security, whether in cash, securities or other property is received by
any holder of any Junior Subordinated Debentures in contravention of any of the
terms hereof and before all the Senior Indebtedness has been paid in full, such
payment or distribution or security will be received in trust for the benefit
of, and must be paid over or delivered and transferred to, the holders of the
Senior Indebtedness at the time outstanding in accordance with the priorities
then existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. By reason of such subordination, in the event of the
insolvency of the Corporation, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Corporation. Such subordination will
not prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Corporation. The Corporation may from
time to time incur additional indebtedness constituting Senior Indebtedness.
Governing Law
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
Information Concerning the Debenture Trustee
The Debenture Trustee, other than during the occurrence and continuance of
a Debenture Event of Default, undertakes to perform only such duties as are
specifically set forth in the Junior Subordinated Debenture and, after the
occurrence and continuance of a Debenture 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. The Debenture Trustee, other than during the
occurrence and continuance of a default by the Corporation in performance of its
obligations under the Indenture, is under no obligation to exercise any of the
powers vested in it by the Indenture at the request of any holder of Junior
Subordinated Debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities that might be incurred thereby. The
Debenture Trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
Debenture Trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
The Bank of New York, the Debenture Trustee, may serve from time to time as
trustee under other indentures or trust agreements with the Corporation or its
subsidiaries relating to other issues of their securities. The Bank of New York
is the registrar and transfer agent for the Corporation's common stock. In
addition, the Corporation and certain of its affiliates may have other banking
relationships with The Bank of New York.
DESCRIPTION OF GUARANTEE
The Old Guarantee was executed and delivered by the Corporation
concurrently with the issuance of Old Capital Securities by the Issuer Trust for
the benefit of the holders from time to time of the Capital Securities. As soon
as practicable after the date hereof, the Old Guarantee will be exchanged by the
Corporation for the New Guarantee. The Bank of New York will act as Guarantee
Trustee under the Guarantee. This summary of certain provisions of the
Guarantee, which describes the material provisions thereof, does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Guarantee, including the definitions therein of
certain terms. A copy of the form of Guarantee is available upon request from
the Guarantee Trustee. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Capital Securities.
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General
The Corporation has irrevocably and unconditionally agreed (and under the
New Guarantee will irrevocably and unconditionally agree) to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments (as
defined below) to the holders of the Capital Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Issuer
Trust may have or assert other than the defense of payment. The following
payments with respect to the Capital Securities, to the extent not paid by or on
behalf of the Issuer Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
such Capital Securities, to the extent that the Issuer Trust has funds on hand
available therefor at such time, (ii) the Redemption Price with respect to any
Capital Securities called for redemption, to the extent that the Issuer Trust
has funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary termination, winding-up or liquidation of the Issuer Trust (unless
the Junior Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the Liquidation Distribution, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (b) the
amount of assets of the Issuer Trust remaining available for distribution to
holders of the Capital Securities on liquidation of the Issuer Trust. The
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 Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Capital Securities, but will apply only
to the extent that the Issuer Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
If the Corporation does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
any amounts payable in respect of the Capital Securities and will not have funds
legally available therefor. The Guarantee will rank subordinate and junior in
right of payment to all Senior Indebtedness of the Corporation. See "-- Status
of the Guarantee." Because the Corporation is a holding company, the right of
the Corporation to participate in any distribution of assets of any subsidiary
of the Corporation upon such subsidiary's dissolution, winding-up, liquidation
or reorganization or otherwise is subject to the prior claims of creditors of
that subsidiary, except to the extent that the Corporation may itself be a
creditor of that subsidiary and its claims are recognized. The principal source
of funds for the Corporation to satisfy its obligations under the Junior
Subordinated Debentures and the Guarantee are the Corporation's subsidiaries.
There are also various legal limitations on the extent to which the
Corporation's subsidiaries, may extend credit, pay dividends or otherwise supply
funds to the Corporation or certain of its other subsidiaries. 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 under the Guarantee should look only
to the assets of the Corporation for payments thereunder. See "Cullen/Frost
Bankers, Inc." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Corporation, including Senior Indebtedness,
whether under the Indenture or any other indenture that the Corporation may
enter into in the future or otherwise.
The Corporation has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer
Trust's obligations under the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Issuer Trust's obligations in respect of the Capital Securities. See
"Relationship Among the Capital Securities, the Junior Subordinated Debentures,
the Guarantee and the Expense Agreement."
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Corporation
and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Corporation in the same manner as the Junior Subordinated
Debentures.
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The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures.
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "-- Description of the Capital Securities -- Voting
Rights; Amendment of Trust Agreement." All guarantees and agreements contained
in the Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the 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, or to
perform any non-payment obligation if such nonpayment default remains unremedied
for 30 days. The holders of not less than a majority in aggregate Liquidation
Amount of the outstanding Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The 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 the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Corporation in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default with respect to the Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested in
it by the Guarantee at the request of any holder of the Capital Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationship between The Bank of New York,
the Guarantee Trustee, and the Corporation, see "-- Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities, upon full
payment of the amounts payable with respect to the Capital Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Capital Securities. The Guarantee will continue
to be effective or will be reinstated, as the case
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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.
THE EXPENSE AGREEMENT
Pursuant to an Agreement as to Expenses and Liabilities entered into by the
Corporation and the Issuer Trust pursuant to the Trust Agreement (as amended or
supplemented from time to time, the "Expense Agreement"), the Corporation, as
Depositor, will irrevocably and unconditionally guarantee to each person or
entity to whom the Issuer Trust becomes indebted or liable, the full payment of
any costs, expenses or liabilities of the Issuer Trust, other than obligations
of the Issuer Trust to pay to holders of the Trust Securities of the amounts due
such holders pursuant to the terms of the Trust Securities. The Expense
Agreement will constitute an unsecured obligation of the Corporation and will
rank subordinate and junior in right of payment to all Senior Indebtedness of
the Corporation in the same manner as the Guarantee and the Junior Subordinated
Debentures.
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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 applicable 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
Junior Subordinated Debentures will not provide for any increase in the interest
rate thereon. The Registration Rights Agreement provides that in the event (i)
the registration statement relating to the New Securities is not filed on or
prior to the 150th day after the issuance of the Old Capital Securities, (ii)
such registration statement is not declared effective within 30 days of the
required filing date, (iii) the Exchange Offer is not consummated on or before
the date 30 days after the effectiveness of such registration statement, or,
(iv) in certain limited circumstances, a shelf registration statement (the
"Shelf Registration Statement") with respect to the resale of the Old Capital
Securities is not filed or declared effective within a specified time, then
interest will accrue (in addition to the stated interest rate on the Junior
Subordinated Debentures) at the rate of 0.25% per annum on the principal amount
of the Junior 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 relevant event has been
cured or no longer exists. 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 --
Consequences of Failure to Exchange Old Capital Securities" and "Description of
New Securities."
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, THE GUARANTEE AND THE EXPENSE AGREEMENT
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Corporation as and to the extent set forth under
"Description of New Securities -- Description of Guarantee." Taken together, the
Corporation's obligations under the Junior Subordinated Debentures, the
Indenture, the Trust Agreement, the Expense Agreement and the Guarantee provide,
in the aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Capital Securities. If and to the extent that the Corporation does not make
payments on the Junior Subordinated Debentures, the Issuer Trust will not have
sufficient funds to pay Distributions or other amounts due on the Capital
Securities. The Guarantee does not cover payment of amounts payable with respect
to the Capital Securities when the Issuer Trust does not have sufficient funds
to pay such amounts. In such event, the remedy of a holder of the Capital
Securities is to institute a legal proceeding directly against the Corporation
for enforcement of payment of the Corporation's obligations under Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Capital Securities held by such holder.
The obligations of the Corporation under the Junior Subordinated
Debentures, the Guarantee and the Expense Agreement are subordinate and junior
in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Capital Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Capital Securities
and Common Securities; (ii) the interest rate
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and interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate, Distribution Dates and other payment dates for the
Capital Securities; (iii) the Corporation will pay for all and any costs,
expenses and liabilities of the Issuer Trust except the Issuer Trust's
obligations to holders of the Trust Securities; and (iv) the Trust Agreement
further provides that the Issuer Trust will not engage in any activity that is
not consistent with the limited purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Indenture, the Corporation
has the right to set-off any payment it is otherwise required to make thereunder
against and to the extent the Corporation has theretofore made, or is
concurrently on the date of such payment making, a payment under the Guarantee
or in connection with a Direct Action.
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 Trust
or any other person or entity. See "Description of New Securities -- Description
of Guarantee."
A default or event of default under any Senior Indebtedness of the
Corporation would not constitute a default or Event of Default in respect of the
Capital Securities. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Corporation, the subordination
provisions of the Indenture provide that no payments may be made in respect of
the Junior Subordinated Debentures until such Senior Indebtedness has been paid
in full or any payment default thereunder has been cured or waived. Failure to
make required payments on the Junior Subordinated Debentures would constitute an
Event of Default under the Trust Agreement. See "Description of New
Securities -- Description of Junior Subordinated Debentures -- Subordination."
LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent beneficial interests in the assets of the
Issuer Trust, and the Issuer Trust exists for the sole purpose of issuing its
Capital Securities and Common Securities and investing the proceeds thereof in
Junior Subordinated Debentures and engaging in only those other activities
necessary or incidental thereto. A principal difference between the rights of a
holder of a Capital Security and a holder of a Junior Subordinated Debenture is
that a holder of a Junior Subordinated Debenture is entitled to receive from the
Corporation payments on Junior Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions or other amounts
distributable with respect to the Capital Securities from the Issuer Trust (or
from the Corporation under the Guarantee) only if and to the extent the Issuer
Trust 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 Trust, other than any such termination, winding-up or liquidation
involving the distribution of the Junior Subordinated Debentures, after
satisfaction of liabilities to creditors of the Issuer Trust as required by
applicable law, the holders of the Capital Securities will be entitled to
receive, out of assets held by the Issuer Trust, the Liquidation Distribution in
cash. See "Description of 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
registered holder of the Junior Subordinated Debentures, would be a subordinated
creditor of the Corporation, subordinated and junior in right of payment to all
Senior Indebtedness as set forth in the Indenture, but entitled to receive
payment in full of all amounts payable with respect to the Junior Subordinated
Debentures before any stockholders of the Corporation receive payments or
distributions. Since the Corporation is the guarantor under the Guarantee and
has agreed under the Expense Agreement to pay for all costs, expenses and
liabilities of the Issuer Trust (other than the Issuer Trust's obligations to
the holders of the Trust Securities), the positions of a holder of the Capital
Securities and a holder of such Junior Subordinated Debentures relative to other
creditors and to stockholders of the
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Corporation in the event of liquidation or bankruptcy of the Corporation are
expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material 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 the District of Columbia 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 United States 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, counsel to the Corporation and
the Issuer Trust. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, Internal Revenue Service ("IRS")
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 in the past
that could adversely affect the Corporation's ability to deduct interest on the
Junior 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 United States 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 UNITED STATES 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 THE JUNIOR SUBORDINATED DEBENTURES AND THE ISSUER TRUST
In connection with the issuance of the Old Capital Securities, under
current law and assuming compliance with the terms of the Trust Agreement, the
Issuer Trust will not be 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 original issue discount ("OID"), paid or
accrued with respect to the Junior Subordinated Debentures whether or not cash
is actually distributed to the Securityholders. 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 such debt
instrument is
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issued with OID. As a result of the terms and conditions of the Junior
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 of interest is remote. Based on the
foregoing, the Corporation believes that the Junior 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
Securityholder's allocable share of paid or accrued interest on the Junior
Subordinated Debentures. The following disclosure assumes that unless and until
the Corporation exercises its option to defer interest on the Junior
Subordinated Debentures, the Junior Subordinated Debentures will not be issued
with OID.
Under the Regulations, if the Corporation exercises its option to defer any
payment of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior Subordinated
Debentures remained outstanding. In such event, all of a Securityholder's
taxable interest income with respect to the Junior Subordinated Debentures would
be accounted for as OID on an economic accrual basis regardless of such
Securityholder'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 IRS, and it is possible that the IRS 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.
Subsequent uses of the term "interest" in this summary include income in
the form of OID.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO SECURITYHOLDERS
Under current law, a distribution by the Issuer Trust of the Junior
Subordinated Debentures as described under "Description of New
Securities -- Description of Capital Securities -- Liquidation Distribution Upon
Termination" will be non-taxable and will result in the Securityholder receiving
directly his or her pro rata share of the Junior Subordinated Debentures
previously held indirectly through the Issuer Trust, 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 Trust were to occur because the Issuer
Trust is subject to United States federal income tax with respect to income
accrued or received on the Junior Subordinated Debentures, the distribution of
Junior Subordinated Debentures to Securityholders by the Issuer Trust would be a
taxable event to the Issuer Trust and each Securityholder, and the
Securityholder would recognize gain or loss as if the Securityholder had
exchanged its Capital Securities for the Junior Subordinated Debentures it
received upon the liquidation of the Issuer Trust. A Securityholder will include
interest in income in respect of Junior Subordinated Debentures received from
the Issuer Trust in the manner described above under "-- Interest Income and
Original Issue Discount."
SALES OR REDEMPTIONS 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 Junior Subordinated Debentures, a
Securityholder's adjusted tax basis in the Capital Securities generally will be
its initial purchase price. If the Junior Subordinated Debentures are deemed to
be issued with OID as a result of the Corporation's deferral of any interest
payment, a Securityholder's tax basis in the Capital Securities generally will
be its initial purchase price, increased by OID previously includible in such
Securityholder'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
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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 Junior
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.
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 or accrued on the Capital Securities
held of record by United States Persons (other than corporations and other
exempt Securityholders) will be reported to the IRS. "Backup" withholding at a
rate of 31% 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.
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 Securityholder 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 IRS.
It is anticipated that income on the Capital Securities will be reported to
Securityholders on Form 1099 and mailed to Securityholders by January 31
following each calendar year.
POSSIBLE TAX LAW CHANGES
On February 6, 1997, the revenue portion of President Clinton's 1997 budget
proposal (the "Budget Proposal"), was released. If enacted, the Budget Proposal
would generally deny interest deductions for interest on an instrument issued by
a corporation that has a maximum term of more than 15 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. The above described
provision of the Budget Proposal is proposed to be effective generally for
instruments issued on or after the date of first Congressional committee action.
If this provision were to apply to the New Junior Subordinated Debentures, the
Corporation would be unable to deduct interest on the New Junior Subordinated
Debentures. Under current law, the Corporation will be able to deduct interest
on the New Junior Subordinated Debentures. There can be no assurance, however,
that current or future legislative proposals or final legislation will not
affect the ability of the Corporation to deduct interest on the New Junior
Subordinated Debentures. Such a change could give rise to a Tax Event, which may
permit the Corporation, if certain conditions are met, to shorten the maturity
of the Junior Subordinated Debentures to a date not earlier than February 1,
2017 or to cause a redemption of the Capital Securities before February 1, 2007.
See "Description of New Securities -- Description of Capital
Securities -- Redemption" and "Description of New Securities -- Description of
Junior Subordinated Debentures--Conditional Right to Shorten Maturity or Redeem
upon a Tax Event or Capital Treatment Event." A shortening of the Stated
Maturity of the Junior Subordinated Debentures might result in a taxable
exchange to holders of Capital Securities.
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CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), 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 Trust 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 Trust 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 Trust would not be deemed to be "plan assets" of investing
Plans if, immediately after the most recent acquisition of any equity interest
in the Issuer Trust, less than 25% of the value of each class of equity
interests in the Issuer Trust were held by Plans, other employee benefit plans
not 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% of the total value of such Capital Securities at the completion of
the initial offering or thereafter, and no monitoring or other measures will be
taken with respect to the satisfaction of the conditions to this exception. All
of the Common Securities were purchased and are held by the Corporation.
Certain transactions involving the Issuer Trust 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 such Plan and the assets of the Issuer Trust were deemed
to be "plan assets" of Plans investing in the Issuer Trust. 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 the Bank or other subsidiaries),
extensions of credit between the Corporation and the Issuer Trust (as
represented by the Junior Subordinated Debentures and the Guarantee) would
likely be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B)
of the Code, unless exemptive relief were available under an applicable
administrative exemption (see below). In addition, if the Corporation were
considered to be a fiduciary with respect to the Issuer Trust as a result of
certain powers it holds (such as the powers to remove and replace the Property
Trustee and the Administrative Trustees), the optional redemption or
acceleration of the Junior Subordinated Debentures could be considered to be
prohibited transactions under Section 406(b) of ERISA and Section 4975(c)(1)(E)
of the Code. In order to avoid such prohibited transactions, each investing
Plan, by purchasing the Capital Securities, will be deemed to have directed the
Issuer Trust to invest in the Junior Subordinated Debentures and to have
appointed the Property Trustee.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or
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holding of the Capital Securities if assets of the Issuer Trust were deemed to
be "plan assets" of Plans investing in the Issuer Trust as described above.
Those class exemptions are PTCE 96-23 (for certain transactions determined by
in-house asset managers), 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 professional asset managers).
Because the Capital Securities may be deemed to be equity interests in the
Issuer Trust for purposes of applying ERISA and Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any 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.
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 considering purchasing 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 Trust
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 Trust 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 Trust will not receive any cash 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 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.
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EXPERTS
The consolidated financial statements of the Corporation at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, incorporated by reference in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, included therein,
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Article 2.02-1 of the Texas Business Corporation Act grants to each
Texas corporation the power to indemnify its directors and officers against
liability for certain of their acts.
(b) Article V of the Corporation's Bylaws provides for indemnification of
any person who was, is or is threatened to be made, party to any threatened,
pending or completed action, suit or proceeding, by reason of the fact that he
or she is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, trust, or other enterprise,
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding. Reasonable expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of (i) a written affirmation by the director, officer, employee or agent who may
be entitled to such indemnification of his or her good faith belief that he or
she has met the standard of conduct necessary for indemnification under the
applicable statute, and (ii) a written undertaking by or on behalf of the
director, officer, employee or agent who may be entitled to such indemnification
to repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Corporation. The Corporation's obligation to
indemnify and to prepay expenses shall arise, and all rights granted to
directors, officers, employees or agents hereunder shall vest, at the time of
the occurrence of the transaction or event to which such action, suit or
proceeding relates, or at the time that the action or conduct to which such
action, suit or proceeding relates was first taken or engaged in (or omitted to
be taken or engaged in), regardless of when such action, suit or proceeding is
first threatened, commenced or completed.
(c) Article 11 of the Amended and Restated Articles of Incorporation of the
Corporation provides, as permitted by the Texas Miscellaneous Corporation Laws
Act, Art. 1302-7.06, that the directors of the Company have no personal
liability for monetary damages for breach of directors' fiduciary duty of care.
The provision does not change the liability of a director for breach of his or
her duty of loyalty to the Corporation or to shareholders, acts or omissions not
in good faith or which involve intentional misconduct, or a knowing violation of
law, an act or omission for which the liability of a director is expressly
provided for by an applicable statute, or in respect of any transaction from
which a director received an improper personal benefit.
(d) The Corporation maintains liability insurance coverage for its
directors and officers and those of its subsidiaries. This coverage insures such
persons against certain losses that may be incurred by them in their respective
capacities as directors or officers with respect to which they may or may not be
indemnified under the provisions of Article V of the Bylaws of the Corporation
or otherwise.
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ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
4(a) Junior Subordinated Indenture, dated as of February 3, 1997,
between Cullen/Frost Bankers, Inc. and The Bank of New York,
as Trustee
4(b) Form of 8.42% Junior Subordinated Debenture (included in
Exhibit 4(a))
4(c) Certificate of Trust of Cullen/Frost Capital Trust I, dated
February 3, 1997
4(d) Declaration of Trust of Cullen/Frost Capital Trust I, dated
February 3, 1997
4(e) Amended and Restated Trust Agreement of Cullen/Frost Capital
Trust I (including the related form of Expense Agreement),
dated as of February 3, 1997
4(f) Form of Capital Securities Certificate (included in Exhibit
4(e))
4(g) Form of Guarantee Agreement
4(h) Registration Rights Agreement, dated February 3, 1997, among
Cullen/Frost Bankers, Inc., Cullen/Frost Capital Trust I,
J.P. Morgan Securities, Inc. and Credit Suisse First Boston
Corporation
5(a) Opinion of Baker & Botts L.L.P.*
5(b) Opinion of Richards, Layton & Finger*
5(c) Opinion of Sullivan & Cromwell*
8 Opinion of Sullivan & Cromwell as to certain federal income
tax matters
12 Computations of Consolidated Ratios of Earnings to Fixed
Charges
23(a) Consent of Ernst & Young LLP
23(b) Consent of Baker & Botts L.L.P. (included in Exhibit 5(a))*
23(c) Consent of Richards, Layton & Finger (included in Exhibit
5(b))*
23(d) Consent of Sullivan & Cromwell (included in Exhibit 5(c))*
23(e) Consent of Sullivan & Cromwell (included in Exhibit 8)
24(a) Power of Attorney (included in Signature Page)
24(b) Certified copy of Resolutions of the Board of Directors of
Cullen/Frost Bankers, Inc. granting a power of attorney to
designated officers
25(a) Form T-1 Statement of Eligibility of The Bank of New York to
act as Trustee under the Amended and Restated Trust
Agreement
25(b) Form T-1 Statement of Eligibility of The Bank of New York to
act as Property Trustee under the Junior Subordinated
Indenture
25(c) Form T-1 Statement of Eligibility of The Bank of New York to
act as Guarantee Trustee under the Guarantee for the benefit
of Holders of the Capital Securities
27 The Corporation's Financial Data Schedule (incorporated by
reference to Exhibit (27) to the Corporation's Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 1996)
99(a) Form of Letter of Transmittal and instructions thereto
99(b) Form of Notice of Guaranteed Delivery
99(c) Form of Exchange Agent Agreement among Cullen/Frost Bankers,
Inc., Cullen/Frost Capital Trust I and The Bank of New York
</TABLE>
- ---------------
* Filed herewith
ITEM 22. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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<PAGE> 75
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of a
Registrant pursuant to the foregoing provisions, or otherwise, each of the
undersigned Registrants has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by a
Registrant of expenses incurred by a director, officer or controlling person of
a Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, each of the undersigned Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Each of the Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Cullen/Frost Bankers, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-4 and has duly caused
this Amendment No. 1 to Form S-4 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Antonio, State of Texas, as of the
25th day of March, 1997.
CULLEN/FROST BANKERS, INC.
By: /s/ PHILLIP D. GREEN
------------------------------------
Phillip D. Green
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated and on
March 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* T.C. FROST Senior Chairman, Chief Executive Officer and
- ----------------------------------------------------- Director
T.C. Frost
* RICHARD W. EVANS, JR. Chairman of the Board, Chief Operating
- ----------------------------------------------------- Officer and Director
Richard W. Evans, Jr.
* ROBERT S. MCCLANE President and Director
- -----------------------------------------------------
Robert S. McClane
* PHILLIP D. GREEN Executive Vice President and Chief Financial
- ----------------------------------------------------- Officer
Phillip D. Green
* JERRY SALINAS Senior Vice President and Controller
- -----------------------------------------------------
Jerry Salinas
* ISAAC ARNOLD, JR. Director
- -----------------------------------------------------
Isaac Arnold, Jr.
* ROYCE S. CALDWELL Director
- -----------------------------------------------------
Royce S. Caldwell
* RUBEN R. CARDENAS Director
- -----------------------------------------------------
Ruben R. Cardenas
* HENRY E. CATTO Director
- -----------------------------------------------------
Henry E. Catto
* HARRY H. CULLEN Director
- -----------------------------------------------------
Harry H. Cullen
* ROY H. CULLEN Director
- -----------------------------------------------------
Roy H. Cullen
* EUGENE H. DAWSON, SR. Director
- -----------------------------------------------------
Eugene H. Dawson, Sr.
</TABLE>
II-4
<PAGE> 77
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* RUBEN M. ESCOBEDO Director
- -----------------------------------------------------
Ruben M. Escobedo
* W.N. FINNEGAN, III Director
- -----------------------------------------------------
W.N. Finnegan, III
* JAMES W. GORMAN, JR. Director
- -----------------------------------------------------
James W. Gorman, Jr.
* JAMES L. HAYNE Director
- -----------------------------------------------------
James L. Hayne
* RICHARD M. KLEBERG, III Director
- -----------------------------------------------------
Richard M. Kleberg, III
* IDA CLEMENT STEEN Director
- -----------------------------------------------------
Ida Clement Steen
* CURTIS VAUGHAN, JR. Director
- -----------------------------------------------------
Curtis Vaughan, Jr.
* MARY BETH WILLIAMSON Director
- -----------------------------------------------------
Mary Beth Williamson
</TABLE>
*Phillip D. Green, as
Attorney-in-fact
/s/ PHILLIP D. GREEN
------------------------------------
Phillip D. Green
Date: March 25, 1997
II-5
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Cullen/Frost Capital Trust I certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-4 and has duly caused
this Amendment to Form S-4 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Orleans, State of Louisiana, as of
March 25, 1997.
CULLEN/FROST CAPITAL TRUST I
By: CULLEN/FROST BANKERS, INC., as
Depositor
By: /s/ JERRY SALINAS
----------------------------------
Jerry Salinas
Senior Vice President and
Controller
II-6
<PAGE> 79
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
4(a) Junior Subordinated Indenture, dated as of February 3, 1997,
between Cullen/Frost Bankers, Inc. and The Bank of New York,
as Trustee
4(b) Form of 8.42% Junior Subordinated Debenture (included in
Exhibit 4(a))
4(c) Certificate of Trust of Cullen/Frost Capital Trust I, dated
February 3, 1997
4(d) Declaration of Trust of Cullen/Frost Capital Trust I, dated
February 3, 1997
4(e) Amended and Restated Trust Agreement of Cullen/Frost Capital
Trust I (including the related form of Expense Agreement),
dated as of February 3, 1997
4(f) Form of Capital Securities Certificate (included in Exhibit
4(e))
4(g) Form of Guarantee Agreement
4(h) Registration Rights Agreement, dated February 3, 1997, among
Cullen/Frost Bankers, Inc., Cullen/Frost Capital Trust I,
J.P. Morgan Securities, Inc. and Credit Suisse First Boston
Corporation
5(a) Opinion of Baker & Botts L.L.P.*
5(b) Opinion of Richards, Layton & Finger*
5(c) Opinion of Sullivan & Cromwell*
8 Opinion of Sullivan & Cromwell as to certain federal income
tax matters
12 Computations of Consolidated Ratios of Earnings to Fixed
Charges
23(a) Consent of Ernst & Young LLP
23(b) Consent of Baker & Botts L.L.P. (included in Exhibit 5(a))*
23(c) Consent of Richards, Layton & Finger (included in Exhibit
5(b))*
23(d) Consent of Sullivan & Cromwell (included in Exhibit 5(c))*
23(e) Consent of Sullivan & Cromwell (included in Exhibit 8)
24(a) Power of Attorney (included in Signature Page)
24(b) Certified copy of Resolutions of the Board of Directors of
Cullen/Frost Bankers, Inc. granting a power of attorney to
designated officers
25(a) Form T-1 Statement of Eligibility of The Bank of New York to
act as Trustee under the Amended and Restated Trust
Agreement
25(b) Form T-1 Statement of Eligibility of The Bank of New York to
act as Property Trustee under the Junior Subordinated
Indenture
25(c) Form T-1 Statement of Eligibility of The Bank of New York to
act as Guarantee Trustee under the Guarantee for the benefit
of Holders of the Capital Securities
27 The Corporation's Financial Data Schedule (incorporated by
reference to Exhibit (27) to the Corporation's Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 1996)
99(a) Form of Letter of Transmittal and instructions thereto
99(b) Form of Notice of Guaranteed Delivery
99(c) Form of Exchange Agent Agreement among Cullen/Frost Bankers,
Inc., Cullen/Frost Capital Trust I and The Bank of New York
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
[LETTERHEAD OF BAKER & BOTTS, L.L.P.]
EXHIBIT 5(a)
MARCH 25, 1997
Cullen/Frost Bankers, Inc.
100 West Houston Street
San Antonio, Texas 78205
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4 (the
"Registration Statement"), filed by Cullen/Frost Capital Trust I (the "Issuer")
and Cullen/Frost Bankers, Inc., a Texas corporation (the "Company"), with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933 (the "Securities Act"), as amended, relating to the registration
under the Securities Act of (i) $100,000,000 in aggregate principal amount of
the Company's Junior Subordinated Debentures, Series A (the "Debentures"),
which have been issued pursuant to a Junior Subordinated Indenture (the
"Indenture") entered into between the Company and The Bank of New York, as
Trustee, (ii) $100,000,000 aggregate liquidation amount of capital securities
(the "Capital Securities") of the Issuer, and (iii) the Company's guarantee
with respect to the Capital Securities (the "Guarantee") which will be provided
pursuant to a guarantee agreement between the Company and The Bank of New York,
as trustee thereunder (the "Guarantee Agreement"). Capitalized terms used but
not otherwise defined herein shall have the meaning ascribed to them in the
Registration Statement.
In our capacity as your counsel in the connection referred to above, we
have examined the Company's Restated Articles of Incorporation and bylaws, each
as amended to date, and have examined the originals, or copies certified or
otherwise identified, of corporate records of the Company as furnished to us by
the Company, certificates of public officials and of representatives of the
Company furnished to you, statutes and other instruments and documents as a
basis for the opinions hereinafter expressed. We have assumed that (a) the
signatures on all documents examined by us are genuine, (b) all documents
submitted to us are authentic, and (c) all documents submitted as certified or
photostatic copies conform with the originals thereof.
Based upon and subject to the foregoing and other qualifications and
assumptions set forth below, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Texas, with
corporate power and authority to own its properties and conduct its business as
described in the Registration Statement.
2. The Debentures and the Guarantee have been duly authorized
by the Company.
<PAGE> 2
Cullen/Frost Bankers, Inc. -2- March 25, 1997
3. When the Registration Statement has become effective under the
Securities Act, the Debentures have been duly executed and authenticated in
accordance with the Indenture and issued and delivered as contemplated in the
Registration Statement, and the terms of the Debentures and the Guarantee and
of their issuance and delivery have been duly established in conformity with
the Indenture and the Guarantee Agreement, respectively, so as not to violate
any applicable law or result in a default under or breach of any agreement or
instrument binding upon the Corporation and so as to comply with any
requirement or restriction imposed by any court or governmental body having
jurisdiction over the Corporation, the Debentures and the Guarantee will
constitute valid and legally binding obligations of the Corporation insofar as
the laws of the State of Texas are concerned, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
4. The issue by the Company of the Guarantee and the Debentures,
the compliance by the Company with all of the provisions thereof, the
execution, delivery and performance by the Company of the Debentures and
Guarantee and the consummation of the transactions therein contemplated will
not result in a breach or violation of violation of the provisions of the
Restated Articles of Incorporation or bylaws of the Company or any Texas
statute or any order, rule or regulation known to us of any Texas court or
governmental agency or body having jurisdiction over, and binding on, the
Company or any of its properties, provided, however, that we express no opinion
as to Texas anti-fraud laws or fraudulent transfer laws.
5. No consent, approval, authorization, order, registration or
qualification of or with any Texas court or governmental agency or body is
required of the Company for the consummation by the Company of the transactions
contemplated by the Debentures and the Guarantee, except such as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities.
The foregoing opinion is limited to the laws of the State of Texas,
and we are expressing no opinion as to the effect of the laws of any other
jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5(a) to the
Registration Statement. In giving such consent, we do not hereby concede that
we are within the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Commission
promulgated thereunder.
<PAGE> 3
Cullen/Frost Bankers, Inc. -3- March 25, 1997
We are delivering this opinion to the Company, and no person other than
the Company may rely upon it without our prior written consent.
Very truly yours,
Baker & Botts L.L.P.
<PAGE> 1
EXHIBIT 5(b)
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
March 25, 1997
Cullen/Frost Capital Trust I
c/o The Bank of New York (Delaware)
White Clay Center, Route 273
Newark, Delaware 19711
Re: Cullen/Frost Capital Trust I
----------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Cullen/Frost Bankers,
Inc., a Texas corporation (the "Company"), and Cullen/Frost Capital Trust I, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated February 3, 1997 (the
"Certificate"), as filed in the office of the Secretary of State of the State
of Delaware (the "Secretary of State") on February 3, 1997;
(b) The Declaration of Trust of the Trust, dated as of February 3,
1997, between the Company and The Bank of New York (Delaware), as trustee (the
"Delaware Trustee");
<PAGE> 2
Cullen/Frost Capital Trust I
March 25, 1997
Page 2
(c) The Registration Statement (the "Registration Statement") on Form
S-4, including a preliminary prospectus (the "Prospectus") relating to the
8.42% Capital Securities, Series A of the Trust representing preferred
undivided beneficial interests in the assets of the Trust (each, a "New Capital
Security" and collectively, the "New Capital Securities"), as originally filed
by the Company and the Trust with the Securities and Exchange Commission on or
about March 13, 1997;
(d) The Amended and Restated Trust Agreement of the Trust, dated as of
February 3, 1997 (including all Exhibits thereto) (the "Trust Agreement"),
among the Company, The Bank of New York, as Property Trustee, the Delaware
Trustee, Robert L. McDonald and Diane Jack, as Administrative Trustees, and the
several Holders of the Trust Securities; and
(e) A Certificate of Good Standing for the Trust, dated March 25,
1997, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (e) above. In particular,
we have not reviewed any document (other than the documents listed in
paragraphs (a) through (e) above) that is referred to in or incorporated by
reference into the documents reviewed by us. We have assumed that there exists
no provision in any document that we have not reviewed that is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material aspects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the Certificate are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, the due
creation or due organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us under
the laws of the jurisdiction governing its creation,
<PAGE> 3
Cullen/Frost Capital Trust I
March 25, 1997
Page 3
organization or formation (iii) the legal capacity of natural persons who are
parties to the documents examined by us, (iv) that each of the parties to the
documents examined by us has the power and authority to execute and deliver,
and to perform its obligations under, such documents, (v) the due
authorization, execution and delivery by all parties thereto of all documents
examined by us, (vi) the receipt by each Person to whom a New Capital Security
is to be issued by the Trust (collectively, the "New Capital Security Holders")
of an appropriate certificate for such New Capital Security and the payment for
the new Capital Security acquired by it, in accordance with the Trust Agreement
and the Registration Statement, and (vii) that the New Capital Securities are
issued and sold to the New Capital Security Holders in accordance with the
Trust Agreement and the Registration Statement. We have not participated in the
preparation of the Registration Statement and assume no responsibility for its
contents.
This opinion is limited to the Laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the exemptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. The New Capital Securities will represent valid and, subject to
the qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interest in the assets of the Trust.
3. The New Capital Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the New Capital Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In giving the
foregoing consent, we do not thereby admit that we come within the category
of Persons
<PAGE> 4
Cullen/Frost Capital Trust I
March 25, 1997
Page 4
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder. Except as stated above, without our prior written consent, this
opinion may not be furnished or quoted to, or relied upon by, any other Person
for any purpose.
Very truly yours,
Richards, Layton & Finger
<PAGE> 1
EXHIBIT 5(c)
[SULLIVAN & CROMWELL LETTERHEAD]
March 25, 1997
Cullen/Frost Bankers, Inc.
100 W. Houston Street,
San Antonio, Texas 78205
Dear Sirs:
In connection with the registration under the Securities Act of 1933 (the
"Act") of $100,000,000 aggregate principal amount of 8.42% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Debt Securities") of
Cullen/Frost Bankers, Inc., a Texas corporation (the "Corporation"),
$100,000,000 aggregate liquidation amount of 8.42% Capital Securities, Series A
(the "Capital Securities") of Cullen/Frost Capital Trust I, a business trust
created under the laws of the State of Delaware (the "Issuer"), and the
Guarantee with respect to the Capital Securities (the "Guarantee") to be
executed and delivered by the Corporation for the benefit of the holders from
time to time of the Capital Securities, we, as your counsel, have examined such
corporate records, certificates and other documents, and such questions of law,
as we have considered necessary or appropriate for the purposes of this opinion.
<PAGE> 2
Upon the basis of such examination, we advise you that, in our opinion,
when the Registration Statement relating to the Debt Securities, the Capital
Securities and the Guarantee has become effective under the Act, the Debt
Securities have been duly authorized, executed and delivered by the Corporation
under the laws of the State of Texas, duly executed and authenticated in
accordance with the Indenture relating to the Debt Securities and issued and
delivered as contemplated in the Registration Statement, the Guarantee Agreement
relating to the Guarantee with respect to the Capital Securities of the Issuer
has been duly authorized, executed and delivered by the Corporation under the
laws of the State of Texas and duly authorized, executed and delivered by the
Guarantee Trustee thereunder, the Capital Securities have been duly executed in
accordance with the Amended and Restated Trust Agreement of the Issuer and
issued and delivered as contemplated in the Registration Statement, the terms of
the Debt Securities and the Guarantee and of their issuance and delivery have
been duly established in conformity with the Indenture and the Guarantee
Agreement, respectively, so as not to violate any applicable law or result in a
default under or breach of any agreement or instrument binding upon the
Corporation and so as to comply with any requirement or restriction imposed by
any court or governmental body having jurisdiction over the Corporation, and the
terms of the Capital Securities of the Issuer and of their issuance and delivery
have been duly established in conformity with the Amended and Restated Trust
Agreement of the Issuer so as not to violate any applicable law or result in a
default under or breach of any
-2-
<PAGE> 3
agreement or instrument binding upon the Issuer and so as to comply with any
requirement or restriction imposed by any court or governmental body having
jurisdiction over the Issuer, the Debt Securities and the Guarantee relating to
the Capital Securities of the Issuer will constitute valid and legally binding
obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
The foregoing opinion is limited to the Federal laws of the United States,
and the laws of the State of New York, and we are expressing no opinion as to
the effect of the laws of any other jurisdiction.
We understand that you have received an opinion regarding the Debt
Securities and the Guarantee from Baker & Botts L.L.P., Texas counsel for the
Corporation and the Issuer, and an opinion regarding the Capital Securities from
Richards, Layton & Finger, LLP, special Delaware counsel for the Corporation and
the Issuer. We are expressing no opinion with respect to the matters contained
in such opinions.
-3-
<PAGE> 4
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Corporation and other sources believed by us
to be responsible, and we have assumed that (i) the Corporation has been duly
incorporated and is an existing corporation in good standing under the laws of
the State of Texas, (ii) the Issuer has been duly created and is validly
existing in good standing under the laws of the State of Delaware, and (iii)
the Indenture has been duly authorized, executed and delivered by the Trustee
thereunder and by the Corporation under the laws of the State of Texas,
assumptions which we have not independently identified.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7
of the Act.
Very truly yours,
SULLIVAN & CROMWELL
