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Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-26585 and
333-26585-01
PROSPECTUS
NATIONAL PENN BANCSHARES INC. LOGO
$35,000,000
NPB Capital Trust
9.00% PREFERRED SECURITIES
(Liquidation Amount $25 per Preferred Security)
fully and unconditionally guaranteed, as described herein, by
NATIONAL PENN BANCSHARES, INC.
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The Preferred Securities offered hereby represent preferred undivided
beneficial interests in the assets of NPB Capital Trust, a statutory business
trust created under the laws of the State of Delaware (the "Issuer Trust").
National Penn Bancshares, Inc. (the "Company") will initially be the holder of
all of the beneficial interests represented by common securities of the Issuer
Trust (the "Common Securities" and together with
(Continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
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THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
INSURER OR GOVERNMENT AGENCY.
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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.
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<TABLE>
<S> <C> <C> <C>
PRICE PROCEEDS TO
TO UNDERWRITING ISSUER
PUBLIC(1) DISCOUNT(2) TRUST(3)(4)
- - - - -------------------------------------------------------------------------------------------------------------------
Per Preferred Security.................................... $25.00 (4) $25.00
- - - - -------------------------------------------------------------------------------------------------------------------
Total(5).................................................. $35,000,000 (4) $35,000,000
</TABLE>
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(1) Plus accrued Distributions, if any, from May 21, 1997.
(2) The Company and the Issuer Trust have each agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $200,000.
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriter, as compensation for its
arranging the investment therein of such proceeds, $0.7875 per Preferred
Security (or $1,102,500 in the aggregate). See "Underwriting."
(5) The Company has granted the Underwriter an option, exercisable not later
than the 30th day after the date of this Prospectus and subject to certain
conditions, to purchase up to an additional $5,250,000 aggregate liquidation
amount of the Preferred Securities on the same terms as set forth above,
solely to cover over-allotments, if any. If such over-allotment option is
exercised in full, the total Price to Public and Proceeds to Issuer Trust
will be $40,250,000 and $40,250,000, respectively. See "Underwriting."
------------------
The Preferred Securities are offered by the Underwriter subject to receipt
and acceptance by it, prior sale and the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about May 21, 1997 against payment therefor in immediately
available funds.
ALEX. BROWN & SONS
INCORPORATED
THE DATE OF THIS PROSPECTUS IS MAY 16, 1997
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(cover page continued)
the Preferred Securities, the "Trust Securities"). The Issuer Trust exists for
the sole purpose of issuing the Trust Securities and investing the proceeds
thereof in 9.00% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures," and together with the Trust Securities, the
"Securities") to be issued by the Company. The Junior Subordinated Debentures
will mature on June 30, 2027, which date may be shortened (such date, as it may
be shortened, the "Stated Maturity") to a date not earlier than June 30, 2002 if
certain conditions are met (including the Company having received the prior
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve") if then required under applicable capital guidelines or policies of
the Federal Reserve (such shortening of the maturity date, the "Maturity
Adjustment")). See "Description of Junior Subordinated Debentures -- General."
The Preferred Securities will have a preference under certain circumstances over
the Common Securities with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of Preferred
Securities -- Subordination of Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Application will be made to include the
Preferred Securities in NASDAQ's National Market. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred Securities
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from May 21, 1997 and
payable quarterly in arrears on March 31, June 30, September 30, and December 31
of each year, commencing June 30, 1997, at the annual rate of 9.00% of the
Liquidation Amount of $25 per Preferred Security ("Distributions"). The Company
has the right to defer payment of interest on the Junior Subordinated Debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarterly periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. No interest shall be due and
payable during any Extension Period, except at the end thereof. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will also
be deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock or with respect to debt securities of the Company that
rank pari passu in all respects with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate of
9.00% per annum, compounded quarterly, and holders of Preferred Securities will
be required to accrue interest income for United States federal income tax
purposes. See "Description of Junior Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities as described
below. See "Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
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of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust may have insufficient funds to pay Distributions on the Preferred
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 Preferred Securities may institute a legal proceeding
directly against the Company to enforce payment of such Distributions to such
holder. See "Description of Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of Preferred Securities." The obligations of the
Company under the Guarantee and the Preferred Securities are subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Junior Subordinated Debentures -- Subordination") of the
Company.
The Preferred Securities are subject to mandatory redemption (i) in whole,
but not in part, upon repayment of the Junior Subordinated Debentures at Stated
Maturity or their earlier redemption in whole upon the occurrence of a Tax
Event, an Investment Company Event or a Capital Treatment Event (each as defined
herein) and (ii) in whole or in part at any time on or after June 30, 2002
contemporaneously with the optional redemption by the Company of the Junior
Subordinated Debentures in whole or in part. The Junior Subordinated Debentures
are redeemable prior to maturity at the option of the Company (i) on or after
June 30, 2002, in whole at any time or in part from time to time, or (ii) in
whole, but not in part, at any time within 90 days following the occurrence and
continuation of a Tax Event, Investment Company Event or Capital Treatment
Event, in each case at a redemption price set forth herein, which includes the
accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to
the date fixed for redemption. The ability of the Company to exercise its rights
to redeem the Junior Subordinated Debentures or to cause the redemption of the
Preferred Securities prior to the Stated Maturity may be subject to prior
regulatory approval by the Federal Reserve, if then required under applicable
Federal Reserve capital guidelines or policies. See "Description of Junior
Subordinated Debentures -- Redemption" and "Description of Preferred
Securities -- Liquidation Distribution Upon Dissolution."
The holders of the outstanding Common Securities have the right at any time
to dissolve the Issuer Trust and, after satisfaction of liabilities to creditors
of the Issuer Trust as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company to dissolve the Issuer Trust may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Preferred
Securities -- Liquidation Distribution Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Preferred Securities will be entitled to receive a Liquidation
Amount of $25 per Preferred 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 Preferred Securities -- Liquidation Distribution Upon
Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures -- Subordination."
Prospective purchasers must carefully consider the information set forth in
"Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material also may be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
This Prospectus does not contain all the information set forth in the
Registration Statement and exhibits thereto, which the Company has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act") and to which reference is hereby made.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"NPB Capital Trust," "Description of Preferred Securities," "Description of
Junior Subordinated Debentures" and "Description of Guarantee." In addition, the
Company does not expect that the Issuer Trust will be filing reports under the
Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, previously filed by the Company with the Commission pursuant to Section 13
of the Exchange Act.
In addition, all reports and definitive proxy or information statements
filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of any
offering of securities made by this Prospectus shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
of such documents. Any statement contained herein, or in any document all or a
portion of which is incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement or this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than certain exhibits to such
documents). Written requests should be directed to the Office of the Secretary,
National Penn Bancshares, Inc., Philadelphia and Reading Avenues, Boyertown,
Pennsylvania 19512. Telephone requests may be directed to (610) 367-6001.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
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SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTING SHARES OF THE PREFERRED
SECURITIES AND BIDDING FOR AND PURCHASING SUCH SHARES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
As used herein, (i) the "Junior Subordinated Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time, between
the Company and Bankers Trust Company, as trustee (the "Debenture Trustee"),
pursuant to which the Junior Subordinated Debentures are issued, (ii) the "Trust
Agreement" means the Amended and Restated Trust Agreement relating to the Issuer
Trust, as amended and supplemented from time to time, among the Company, as
Depositor, Bankers Trust Company, as Property Trustee (the "Property Trustee")
and Bankers Trust (Delaware), as Delaware Trustee (the "Delaware Trustee")
(collectively, the "Issuer Trustees") and (iii) the "Guarantee" means the
Guarantee Agreement relating to the Preferred Securities, as amended and
supplemented from time to time, between the Company and Bankers Trust Company,
as Guarantee Trustee.
NATIONAL PENN BANCSHARES, INC.
The Company is a Pennsylvania business corporation and bank holding company
headquartered in Boyertown, Pennsylvania. The Company's principal subsidiary is
National Penn Bank, Boyertown, Pennsylvania (the "Bank"), a national banking
association. The Company also controls three wholly-owned nonbank subsidiaries
engaged in activities related to the business of banking. Through its
subsidiaries, the Company engages in a broad array of community banking
activities. The Company's strategy is to provide its customers with a diverse
variety of financial products and services, convenient office locations, and
personalized attention.
As of March 31, 1997, the Bank and its divisions, Chestnut Hill National
Bank and 1st Main Line Bank, provide banking services through 49 branches
located in southeastern Pennsylvania. The Company considers its primary market
area to be the Pennsylvania counties of Berks and Montgomery. The Company's
market area comprises a diverse base of business and retail customers.
NPB CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law
on May 2, 1997. The Issuer Trust will be governed by the Trust Agreement. The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of the Trust Securities
to acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
THE OFFERING
Securities Offered......... $35,000,000 aggregate Liquidation Amount of 9.00%
Preferred Securities (Liquidation Amount $25 per
Preferred Security).
The Issuer Trust has granted the Underwriter an
option, exercisable within 30 days after the date
of this Prospectus, to purchase up to an additional
$5,250,000 aggregate Liquidation Amount of
Preferred Securities at the offering price, solely
to cover over-allotments, if any.
Offering Price............. $25 per Preferred Security (Liquidation Amount
$25), plus accumulated Distributions, if any, from
May 21, 1997.
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Distribution Dates......... March 31, June 30, September 30, and December 31 of
each year, commencing June 30, 1997.
Extension Periods.......... Distributions on Preferred Securities may be
deferred for the duration of any Extension Period
selected by the Company with respect to the payment
of interest on the Junior Subordinated Debentures.
No Extension Period will exceed 20 consecutive
quarterly periods or extend beyond the Stated
Maturity. See "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment
Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount."
Ranking.................... The Preferred Securities will rank pari passu, and
payments thereon will be made pro rata, with the
Common Securities except as described under
"Description of Preferred
Securities -- Subordination of Common Securities."
The Junior Subordinated Debentures will be
unsecured and subordinate and junior in right of
payment to the extent and in the manner set forth
in the Junior Subordinated Indenture to all Senior
Indebtedness (as defined herein). See "Description
of Junior Subordinated Debentures." The Guarantee
will constitute an unsecured obligation of the
Company and will rank subordinate and junior in
right of payment to the extent and in the manner
set forth in the Guarantee to all Senior
Indebtedness. See "Description of Guarantee."
Redemption................. The Trust Securities are subject to mandatory
redemption (i) in whole, but not in part, at the
Stated Maturity upon repayment of the Junior
Subordinated Debentures, (ii) in whole, but not in
part, contemporaneously with the optional
redemption at any time by the Company of the Junior
Subordinated Debentures upon the occurrence and
continuation of a Tax Event, Investment Company
Event or Capital Treatment Event and (iii) in whole
or in part, at any time on or after June 30, 2002,
contemporaneously with the optional redemption by
the Company of the Junior Subordinated Debentures
in whole or in part, in each case at the applicable
Redemption Price. See "Description of Preferred
Securities -- Redemption."
ERISA Considerations....... Prospective purchasers must carefully consider the
information set forth under "Certain ERISA
Considerations."
Use of Proceeds............ All the proceeds to the Issuer Trust from the sale
of the Preferred Securities will be invested by the
Issuer Trust in the Junior Subordinated Debentures.
All the net proceeds to be received by the Company
from the sale of the Junior Subordinated Debentures
will be used for general corporate purposes. See
"Use of Proceeds." The Trust Securities will
qualify as Tier 1 or core capital of the Company,
subject to the 25% Capital Limitation (as defined
herein), under the risk-based capital guidelines of
the Federal Reserve. The portion of the Trust
Securities that exceeds the 25% Capital Limitation
will qualify as Tier 2 or supplementary capital of
the Company. See "Use of Proceeds."
Rating..................... The Preferred Securities are expected to be rated
"BBB" by Thomson BankWatch, Inc. A security rating
is not a recommenda-
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tion to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by
the assigning rating organization.
NASDAQ National Market
Symbol................... Application has been made to have the Preferred
Securities approved for quotation on the NASDAQ
National Market and the Company anticipates that
the Preferred Securities will be traded under the
symbol "NPBCP."
For additional information regarding the Preferred Securities, see
"Description of Preferred Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee," "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures and the Guarantee" and "Certain
Federal Income Tax Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors," beginning on page 9.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases such as
"intended," "will be positioned," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
the Company's current expectations. To the extent any of the information
contained or incorporated by reference in this Prospectus constitutes a
"forward-looking statement" as defined in Section 27A(i)(1) of the Securities
Act, the risk factors set forth below are cautionary statements identifying
important factors that could cause actual results to differ materially from
those in the forward-looking statement.
Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures. The obligations of the Company under the Guarantee
issued by the Company for the benefit of the holders of Preferred Securities and
under the Junior Subordinated Debentures are subordinate and junior in right of
payment to all Senior Indebtedness. At March 31, 1997, the Company had no Senior
Indebtedness. None of the Junior Subordinated Indenture, the Guarantee or the
Trust Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Indebtedness, that may be incurred by the Company. See
"Description of Guarantee -- Status of the Guarantee" and "Description of Junior
Subordinated Debentures -- Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
Status of the Company as a Bank Holding Company. The Company is a legal
entity separate and distinct from the Bank, although the principal source of the
Company's cash revenues is dividends from the Bank. The right of the Company to
participate in the assets of any subsidiary upon the latter's liquidation,
reorganization or otherwise (and thus the ability of the holders of Preferred
Securities to benefit indirectly from any such distribution) will be subject to
the claims of the subsidiaries' creditors, which will take priority except to
the extent that the Company may itself be a creditor with a recognized claim. As
of March 31, 1997, the Company's subsidiaries had indebtedness and other
liabilities of approximately $1.27 billion.
Payment of dividends by the Bank is restricted by various legal and
regulatory limitations. At March 31, 1997, approximately $19 million was
available for payment of dividends to the Company from the Bank without prior
regulatory approval.
The Bank is also subject to restrictions under federal law which limit the
transfer of funds by the Bank to the Company, whether in the form of loans,
extensions of credit, investments, asset purchases or otherwise. Such transfers
by the Bank to the Company or any nonbanking subsidiary of the Company are
limited in amount to 10% of the Bank's capital and surplus and, with respect to
the Company and all such nonbanking subsidiaries, to an aggregate of 20% of the
Bank's capital and surplus. Furthermore, such loans and extensions of credit are
required to be secured in specified amounts.
Option to Extend Interest Payment Period; Tax Consequences. So long as no
Event of Default (as defined in the Junior Subordinated Indenture) has occurred
and is continuing with respect to the Junior Subordinated Debentures (a
"Debenture Event of Default"), the Company has the right under the Junior
Subordinated Indenture to defer the payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated Maturity
of the Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Debenture Events of Default." As a consequence of any such
deferral, quarterly Distributions on the Preferred Securities by the Issuer
Trust will be deferred
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during any such Extension Period. Distributions to which holders of the
Preferred Securities are entitled will accumulate additional Distributions
thereon during any Extension Period at the rate of 9.00% per annum, compounded
quarterly 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 four. The
term "Distribution" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company may not (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly 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 9.00%, compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extension
Period subject to the above conditions. No interest shall be due and payable
during an Extension Period, except at the end thereof. The Company must give the
Issuer Trustees notice of its election to begin an Extension Period at least one
Business Day prior to the earlier of (i) the date the Distributions on the
Preferred 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 Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Preferred Securities -- Distributions" and "Description of
Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Preferred 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
Preferred 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 Preferred Securities prior to the
10
<PAGE> 11
record date for the payment of Distributions. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" and "-- Sales of
Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be affected. A holder that disposes of his or its Preferred Securities during an
Extension Period, therefore, might not receive the same return on his or its
investment as a holder that continues to hold its Preferred Securities. In
addition, as a result of the existence of the Company's right to defer interest
payments, the market price of the Preferred Securities (which represent
preferred undivided beneficial interests in the assets of the Issuer Trust) may
be more volatile than the market prices of other securities on which original
issue discount or interest accrues that are not subject to such deferrals.
Tax Event, Investment Company Event or Capital Treatment Event
Redemption. Upon the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event, the Company has the right
to redeem the Junior Subordinated Debentures in whole, but not in part, at any
time within 90 days following the occurrence of such Tax Event, Investment
Company Event or Capital Treatment Event and thereby cause a mandatory
redemption of the Preferred Securities. Any such redemption shall be at a price
equal to liquidation amount of the Preferred Securities, together with
accumulated Distributions to but excluding the date fixed for redemption. The
ability of the Company to exercise its rights to redeem the Junior Subordinated
Debentures prior to the stated maturity may be subject to prior regulatory
approval by the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Junior Subordinated
Debentures -- Redemption" and "Description of Preferred
Securities -- Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
See "Certain Federal Income Tax Consequences -- Possible Tax Law Changes"
for a discussion of certain legislative proposals that, if adopted, could give
rise to a Tax Event, which may permit the Company to cause a redemption of the
Preferred Securities prior to June 30, 2002.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
11
<PAGE> 12
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof),
except as otherwise restricted under the 25% Capital Limitation (as defined
herein), for purposes of the risk-based capital adequacy guidelines of the
Federal Reserve, as then in effect and applicable to the Company.
Exchange of Preferred Securities for Junior Subordinated Debentures. The
holders of all the outstanding Common Securities have the right at any time to
dissolve the Issuer Trust and, after satisfaction of liabilities to creditors of
the Issuer Trust as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Preferred Securities and
Common Securities in liquidation of the Issuer Trust. The ability of the Company
to dissolve the Issuer Trust may be subject to prior regulatory approval of the
Federal Reserve, if then required under applicable Federal Reserve capital
guidelines or policies. See "Description of Preferred Securities -- Liquidation
Distribution Upon Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain Federal Income Tax Consequences -- Distribution of Junior Subordinated
Debentures to Securityholders."
Rights Under the Guarantee. Bankers Trust Company will act as the trustee
under the Guarantee and will hold the Guarantee for the benefit of the holders
of the Preferred Securities. Bankers Trust Company will also act as Debenture
Trustee for the Junior Subordinated Debentures and as Property Trustee under the
Trust Agreement. Bankers Trust (Delaware) will act as Delaware Trustee under the
Trust Agreement. The Guarantee guarantees to the holders of the Preferred
Securities the following payments, to the extent not paid by or on behalf of the
Issuer Trust: (i) any accumulated and unpaid Distributions required to be paid
on the Preferred Securities, to the extent that the Issuer Trust has funds on
hand available therefor at the payment date, (ii) the Redemption Price with
respect to any Preferred Securities called for redemption, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding up or liquidation of the
Issuer Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Preferred Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Issuer Trust has funds on hand available
therefor at such time, and (b) the amount of assets of the Issuer Trust
remaining available for distribution to holders of the Preferred Securities on
liquidation of the Issuer Trust. The Guarantee is subordinated as described
under "-- Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures" and "Description of Guarantee -- Status of the
Guarantee." The holders of not less than a majority in aggregate Liquidation
Amount of the outstanding Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust power conferred upon the Guarantee Trustee under the Guarantee. Any
holder of the Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
12
<PAGE> 13
instituting a legal proceeding against the Issuer Trust, the Guarantee Trustee
or any other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Junior Subordinated Indenture to the extent of any payment
made by the Company to such holder of Preferred Securities in the Direct Action.
Except as described herein, holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Preferred Securities,"
"-- Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
Limited Voting Rights. Holders of Preferred Securities will have limited
voting rights relating generally to the modification of the Preferred Securities
and the Guarantee and the exercise of the Issuer Trust's rights as holder of
Junior Subordinated Debentures. Holders of Preferred Securities will not be
entitled to appoint, remove or replace the Property Trustee or the Delaware
Trustee except upon the occurrence of certain events specified in the Trust
Agreement. The Property Trustee and the holders of all the Common Securities
may, subject to certain conditions, amend the Trust Agreement without the
consent of holders of Preferred Securities to cure any ambiguity or make other
provisions not inconsistent with the Trust Agreement or to ensure that the
Issuer Trust (i) will not be taxable as a corporation for United States federal
income tax purposes, or (ii) will not be required to register as an "investment
company" under the Investment Company Act. See "Description of Preferred
Securities -- Voting Rights; Amendment of Trust Agreement" and "-- Removal of
Issuer Trustees; Appointment of Successors."
Absence of Market. The Preferred Securities are a new issue of securities
with no established trading market. Application has been made to list the
Preferred Securities in the Nasdaq National Market, but one of the requirements
for listing and continued listing is the presence of two market makers for the
Preferred Securities. The Company and the Issuer Trust have been advised by the
Underwriter that it intends to make a market in the Preferred Securities.
However, the Underwriter is not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion of
the Underwriter. Moreover, there can be no assurance of a second market maker
for the Preferred Securities. Accordingly, no assurance can be given as to the
development or liquidity of any market for the Preferred Securities.
Market Prices. There can be no assurance as to the market prices for
Preferred Securities, or the market prices for Junior Subordinated Debentures
that may be distributed in exchange for Preferred Securities if a liquidation of
the Issuer Trust occurs. Accordingly, the Preferred Securities or the Junior
Subordinated Debentures that a holder of Preferred Securities may receive on
liquidation of the Issuer Trust may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby. Because
holders of Preferred Securities may receive Junior Subordinated Debentures on
termination of the Issuer Trust, prospective purchasers of Preferred Securities
are also making an investment decision with regard to the Junior Subordinated
Deben-
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<PAGE> 14
tures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of Junior
Subordinated Debentures."
Possible Tax Law Changes Affecting the Preferred Securities. On February
6, 1997, President Clinton released his budget proposals for fiscal year 1998.
One of the tax proposals therein (the "Tax Proposal") would generally deny
corporate issuers a deduction for interest on certain debt obligations that have
a maximum term in excess of 15 years and are not shown as indebtedness on the
separate balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder or some other related
party issues a related instrument that is not shown as indebtedness on the
issuer's consolidated balance sheet. As currently drafted, the Tax Proposal
would be effective generally for instruments issued on or after the date of
first Congressional committee action. Although it is not clear from the
President's proposals as to what constitutes Congressional "committee action"
with respect to the Tax Proposal, it appears that, as drafted, the Tax Proposal
would not apply retroactively to the Junior Subordinated Debentures. However, if
the Tax Proposal (or similar legislation) is enacted with retroactive effect
with respect to the Junior Subordinated Debentures, the Company would not be
entitled to an interest deduction with respect to the Junior Subordinated
Debentures. There can be no assurance that the Tax Proposal, if enacted, will
not apply retroactively to the Junior Subordinated Debentures or that other
legislation enacted after the date hereof will not otherwise adversely affect
the ability of the Company to deduct the interest payable on the Junior
Subordinated Debentures. Accordingly, there can be no assurance that a Tax Event
will not occur. See "Description of the Preferred Securities -- Redemption" and
"Description of the Junior Subordinated Debentures -- Proposed Tax Law Changes."
Competition. The banking business is highly competitive. In its primary
market area, the Bank competes with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking firms operating locally and
elsewhere. The Bank's primary competitors have substantially greater resources
and lending limits than the Bank and may offer certain services that the Bank
does not provide at this time. The profitability of the Company depends upon the
Bank's ability to compete in its primary market area.
Developments in Technology. The market for financial services, including
banking services, is increasingly affected by advances in technology, including
developments in telecommunications, data processing, computers, automation,
Internet-based banking, telebanking, debit cards and so-called "smart" cards.
The ability of the Company to compete successfully in its markets may depend on
the extent to which it is able to exploit such technological changes. However,
there can be no assurance that the development of these or any other new
technologies, or the Company's success or failure in anticipating or responding
to such developments, will materially affect the Company's business, financial
condition and operating results.
14
<PAGE> 15
NATIONAL PENN BANCSHARES, INC.
The Company is a Pennsylvania chartered, registered bank holding company
headquartered in Boyertown, Pennsylvania, with a wholly-owned banking
subsidiary, National Penn Bank (the "Bank"). The Bank also operates the Chestnut
Hill National Bank and 1st Main Line Bank divisions under the single bank
charter. Investors Trust Company ("ITC") is also a wholly-owned subsidiary of
the Company.
The Company operates principally through the Bank, which is engaged in the
commercial banking business in southeastern Pennsylvania, with its major
presence in Berks County and western Montgomery County. The Company currently
operates an executive office, 49 retail branch offices (including ten
supermarket branches) and a loan production office. The Company also operates a
telephone call center through which a substantial amount of the Company's
products and services are sold. As of March 31, 1997, the Company had
consolidated total assets of $1.39 billion, total deposits of $1.03 billion, and
total shareholders' equity of $114 million.
The Company's primary operating strategy is to maintain a reputation and
market presence as a "super community bank" where consumers and business
customers can obtain sophisticated products and services generally only
available from major financial institutions, while providing the personal
attention, service and responsiveness available from a community bank. The
Company believes that this strategy results in higher margins and greater growth
than a wholesale strategy.
Accordingly, the Company provides a wide range of banking services for both
individuals and businesses. For individuals, the Company provides deposit
services which include demand, NOW, money market, certificates of deposit, and
other savings accounts. The Company also offers consumer loan programs
(including installment loans for home repairs and for the purchase of consumer
goods), home equity loans, credit card plans with Visa and MasterCard, revolving
lines of credit, residential construction loans, permanent mortgages for
single-family and multi-family houses, telephone transfer services, automatic
teller services through the MAC inter-bank automated teller system, night
depository services, safe-deposit facilities, and on-line bill-paying services.
The Company endeavors to serve the full range of consumers, including high net
worth individuals.
For businesses, the Company additionally offers short-term loans for
seasonal and working capital purposes, term loans secured by real estate and
other assets, loans for construction and expansion needs, asset-based loans,
revolving credit plans, and other commercial loans. Business customers of the
Bank generally require relatively small amounts of credit (almost never in
excess of $5 million, and often less than $1 million), but often seek customized
solutions to their financial requirements, which the Bank endeavors to provide.
Trust services are offered through ITC which manages approximately $470
million for over 1,200 individual and corporate customers. The Company, through
Compulife Investor Services, Inc., a third-party vendor, also offers a full
range of investment products, including mutual funds, annuities and discount
brokerage.
The Company maintains its principal executive offices at Reading and
Philadelphia Avenues, Boyertown, Pennsylvania 19512.
NEITHER THE PREFERRED SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES ARE
OBLIGATIONS OF OR GUARANTEED BY ANY BANK.
15
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
Presented below is selected unaudited consolidated financial information
for the Company for the periods specified. The consolidated financial
information is not necessarily indicative of the results for any future period
and is qualified in its entirety by the detailed information available in the
Company's reports as described under "Available Information":
<TABLE>
<CAPTION>
AS OF AND FOR THE
QUARTER ENDED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income...................... $ 69,073 $ 71,272 $ 84,259 $ 99,020 $ 106,558 $ 25,719 $ 28,168
Interest expense..................... 26,699 23,839 28,848 43,836 46,018 11,269 12,469
-------- -------- ---------- ---------- ---------- ---------- ----------
Net interest income.................. 42,374 47,433 55,411 55,184 60,540 14,450 15,699
Provision for credit losses.......... 6,225 5,145 3,200 3,200 3,900 975 1,200
-------- -------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for credit losses.................. 36,149 42,288 52,211 51,984 56,640 13,475 14,499
Non-interest income.................. 4,494 4,931 5,409 7,608 9,088 1,945 3,295
Non-interest expense................. 23,846 28,629 36,914 37,542 41,258 9,449 11,218
-------- -------- ---------- ---------- ---------- ---------- ----------
Income before income taxes........... 16,797 18,590 20,706 22,050 24,470 5,971 6,576
Income taxes......................... 5,484 5,782 6,057 6,668 7,548 1,856 2,042
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ 11,313 $ 12,808 $ 14,649 $ 15,382 $ 16,922 $ 4,115 $ 4,534
======== ======== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets......................... $775,888 $933,736 $1,137,174 $1,251,378 $1,358,013 $1,279,741 $1,385,140
Total loans.......................... 603,961 737,765 830,612 939,065 1,051,080 948,131 1,072,420
Allowance for credit losses.......... 12,448 17,909 19,310 20,366 22,746 20,723 23,340
Investment securities................ 129,794 144,488 238,102 240,902 236,814 239,063 222,961
Deposits............................. 631,186 748,229 864,640 914,890 980,808 937,809 1,031,746
Securities sold under repurchase
agreements......................... 13,735 30,240 50,274 138,550 164,996 154,142 113,745
Common shareholders' equity.......... 70,700 82,222 84,871 106,615 114,721 106,811 114,453
SELECTED OPERATING RATIOS:
Return on average assets............. 1.50% 1.60% 1.41% 1.30% 1.31% 1.31% 1.33%
Return on average common equity...... 17.1% 17.4% 17.3% 16.3% 15.6% 15.2% 15.6%
Return on average realized
shareholders' equity(1)............ n/a n/a n/a 16.3% 16.1% 16.2% 16.2%
Dividend payout ratio................ 33.1% 33.1% 36.5% 40.7% 41.5% 40.6% 42.3%
SELECTED CAPITAL AND ASSET QUALITY
RATIOS:
Average Equity/Average Assets........ 8.72% 9.22% 8.12% 7.93% 8.43% 8.62% 8.55%
Non-performing loans/total
loans(2)........................... 1.46% 1.18% 1.12% 0.77% 0.83% 0.85% 0.78%
Non-performing assets/total loans and
non-performing assets(3)........... 1.92% 1.60% 1.37% 0.85% 0.86% 0.92% 0.81%
Allowance for credit losses/total
loans.............................. 2.06% 2.43% 2.32% 2.17% 2.16% 2.19% 2.18%
Allowance for credit losses/non-
performing assets(3)............... 106.64% 151.51% 169.76% 254.04% 251.59% 237.57% 270.20%
Net charge-offs/average loans........ 0.77% 0.30% 0.23% 0.24% 0.15% 0.26% 0.23%
RATIO OF EARNINGS TO FIXED CHARGES:(4)
Including interest on deposits....... 1.63 1.77 1.71 1.50 1.53 1.53 1.52
Excluding interest on deposits....... 5.67 5.68 4.27 2.92 3.01 2.88 2.94
</TABLE>
- - - - ---------------
(1) Excludes unrealized gain (loss) on securities available for sale.
(2) Non-performing loans consist entirely of non-accrual loans and exclude loans
past due 90 days or more still accruing interest. Effective January 1, 1995,
the Company adopted SFAS No. 114, "Accounting for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting for Impairment of a Loan -- Income
Recognition and Disclosures." The effect upon adoption was not material to
the Company's financial position or results of operations.
(3) Non-performing assets consist of non-accrual loans and other real estate
owned and exclude loans past due 90 days or more still accruing interest.
(4) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes, cumulative effect of changes in
accounting principles and fixed charges, by fixed charges. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits), amortization of notes and debentures
expense and the portion of net rental expense which is deemed to be
equivalent to interest on debt. Interest expense (other than on deposits)
includes interest on notes and debentures, federal funds purchased and
securities sold under agreements to repurchase, mortgages, commercial paper
and other funds borrowed.
16
<PAGE> 17
RECENT DEVELOPMENTS
SUMMARY OF OPERATIONS
Net income for the quarter ended March 31, 1997 was $4.5 million, 10.2%
more than the $4.1 million reported for the same period in 1996. On a per share
basis, net income was $.57 for the quarter ended March 31, 1997, versus $.51 for
the quarter ended March 31, 1996, an 11.8% increase. Annualized return on assets
and return on realized equity were 1.33% and 16.2%, respectively, for the first
quarter 1997 compared with 1.31% and 16.2% for the first quarter 1996. The
Company's performance has been and will continue to be in part influenced by the
strength of the economy and conditions in the real estate market.
Net interest income increased $1.2 million or 8.6% to $15.7 million during
the first quarter of 1997 from $14.5 million in the first quarter 1996. The
increase in interest income is a result of growth in loan outstandings and
higher rates on loans that was partially offset by growth in deposits and higher
rates on deposits and borrowings. The Company's prime rate from January 1, 1997
to March 25, 1997 was 8.25%. On March 26, 1997, the prime rate changed to 8.50%.
Interest expense during the first three months of 1997 increased $1.2 million or
10.65% compared to the prior year's three months.
The provision for credit losses is determined by periodic reviews of the
loan quality, current economic conditions, loss experience and loan growth.
Based on these factors, the provision for credit losses increased $225,000 for
the first quarter of 1997 compared to the same period in 1996. The allowance for
credit losses of $23.3 million at March 31, 1997 and $22.7 million at December
31, 1996, as a percentage of total loans, was 2.2% at both dates. The Company's
net charge-offs of $606,000 and $617,000 during the first three months of 1997
and 1996, respectively, continue to be comparable to those of the Company's
peers, as reported in the Bank Holding Company Performance Report.
Non-interest income increased $1.4 million or 69.4% during the first
quarter of 1997, as a result of increased gains on the sale of securities and
mortgages of $1.0 million, increased service charges on deposit accounts of
$171,000, increased other income of $155,000, and increased trust income of
$5,000. Non-interest expense increased $1.8 million or 18.7% during the quarter
ended March 31, 1997. Of this amount, salaries, wages and employee benefits
increased $1.4 million, other expenses increased $251,000 and premises and
equipment increased $136,000.
Income before income taxes increased by $605,000 or 10.1% compared to the
first quarter of 1996. Income taxes increased $186,000 or 10.0%, compared to the
first quarter of 1996.
FINANCIAL POSITION
Total assets increased to $1.385 billion at March 31, 1997, an increase of
$27.1 million or 2.0% over the $1.358 billion at December 31, 1996. This
increase is reflected primarily in the loan category and federal funds sold, the
result of the investment of deposits, the Company's primary source of funds.
Total cash and cash equivalents increased $17.1 million or 40.7% at March
31, 1997 when compared to December 31, 1996. This increase was primarily in
federal funds sold and cash and due from banks.
Loans increased to $1.049 billion at March 31, 1997. The increase of $20.7
million or 2.0% compared to December 31, 1996 was primarily the result of the
investment of deposits and long-term borrowings. Loans originated for immediate
resale during the first three months of the year amounted to $4.2 million.
Investments, the Company's secondary use of funds, decreased $13.9 million
or 5.8% to $223.0 million at March 31, 1997 when compared to December 31, 1996.
The decrease is due to investment
17
<PAGE> 18
sales and maturities and the amortization of mortgage-backed securities, which
was partially offered by investment purchases of $12.6 million.
As the primary source of funds, aggregate deposits of $1.032 billion at
March 31, 1997 increased $50.9 million or 5.2% compared to December 31, 1996.
The increase in deposits during the first three months of 1997 was primarily in
interest bearing deposits which increased $47.3 million while non-interest
bearing deposits increased $3.7 million. Certificates of deposit in excess of
$100,000 increased $15.0 million. In addition to deposits, earning assets are
funded to some extent through purchased funds and borrowings. These include
securities sold under repurchase agreements, federal funds purchased, short-term
borrowings and long-term debt obligations. In aggregate, these funds totaled
$221.8 million at March 31, 1997, and $248.0 million at December 31, 1996. The
decrease of $26.3 million represents a shift from short-term obligations,
primarily securities sold under repurchase agreement and federal funds purchased
to long-term obligations and federal funds sold.
Shareholders' equity decreased slightly through March 31, 1997. This
decrease was due to a decrease in the change in valuation adjustment for
securities available for sale, which represents the accounting treatment
required under Statement of Financial Accounting Standards 115, "Accounting for
Certain Investments in Debt and Equity Securities," applied to the decrease in
market value of the Company's investment portfolio. Cash dividends paid during
the first three months of 1997 increased $248,000 or 14.8% compared to the cash
dividends paid during the first three months of 1996. Earnings retained during
the first three months of 1997 were 57.7% compared to 59.4% during the first
three months of 1996. At March 31, 1997, the Company's Tier 1 leverage ratio,
Tier 1 and total risk-based capital ratios were 7.83%, 10.65%, and 11.91%,
respectively. The Company and the Bank are both classified as "well
capitalized."
CREDIT QUALITY
The Company's credit quality is reflected by the annualized ratio of net
charge-offs to total loans of .23% for the first quarter of 1997 versus .14% for
the year 1996, and the ratio of non-performing assets to total loans of 1.27% at
March 31, 1997 compared to 1.21% at December 31, 1996. Non-performing assets,
including non-accruals, loans 90 days past due, restructured loans and other
real estate owned, were $13.6 million at March 31, 1997 compared to $12.7
million at December 31, 1996. Of these amounts, non-accrual loans represented
$8.4 million and $8.7 million at March 31, 1997 and December 31, 1996,
respectively. Loans 90 days past due and still accruing interest were $4.9
million and $3.7 million at March 31, 1997 and December 31, 1996, respectively.
Other real estate owned was $231,000 and $319,000 at March 31, 1997 and December
31, 1996, respectively. The Company had no restructured loans at March 31, 1997
or December 31, 1996. The allowance for credit losses to total non-performing
assets was 171.8% and 179.2% at March 31, 1997 and December 31, 1996,
respectively. The Company has no significant exposure to energy and
agricultural-related loans.
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<PAGE> 19
NPB CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on May 2, 1997. The Issuer Trust will be governed by an Amended and
Restated Trust Agreement among the Company, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company, as Property Trustee.
Two individuals will be selected by the holders of the Common Securities to act
as administrators with respect to the Issuer Trust (the "Administrators"). The
Company, while holder of the Common Securities, intends to select two
individuals who are employees or officers of or affiliated with the Company to
serve as the Administrators. See "Description of Preferred
Securities -- Miscellaneous." The Issuer Trust exists for the exclusive purposes
of (i) issuing and selling the Trust Securities, (ii) using the proceeds from
the sale of the Trust Securities to acquire the Junior Subordinated Debentures
and (iii) engaging in only those other activities necessary, convenient or
incidental thereto (such as registering the transfer of the Trust Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Issuer Trust, and payments under the Junior Subordinated Debentures will be the
sole source of revenue of the Issuer Trust.
All the Common Securities will initially be owned by the Company. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Preferred Securities, except that upon the occurrence and during
the continuation of a Debenture Event of Default arising as a result of any
failure by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of Preferred Securities -- Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee is Bankers Trust
(Delaware), 1001 Jefferson Street, Wilmington, Delaware 19801, telephone number
(302) 576-3301. The address of the Property Trustee, the Guarantee Trustee and
the Debenture Trustee is Bankers Trust Company, Four Albany Street, 4th Floor,
New York, New York 10006, telephone number (212) 250-2500.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The proceeds from the sale of the Preferred Securities are expected
to qualify as Tier 1 or core capital with respect to the Company under the
risk-based capital guidelines established by the Federal Reserve, however,
capital received from the proceeds of the sale of the Preferred Securities
cannot constitute more than 25% of the total Tier 1 capital of the Company (the
"25% Capital Limitation"). Amounts in excess of the 25% Capital Limitation will
constitute Tier 2 or supplementary capital of the Company. The net proceeds to
be received by the Company from the sale of the Junior Subordinated Debentures
will be used for general corporate purposes, which may include the repayment of
indebtedness of the Company or the Bank, investments in or extensions of credit
to its subsidiaries, the financing of possible acquisitions, and the repurchase
of shares of the Company's outstanding common stock. Pending such use, the net
proceeds may be temporarily invested in short-term obligations. The precise
amounts and timing of the application of proceeds will depend upon the funding
requirements of the Company and its subsidiaries and the availability of other
funds. In view of anticipated funding requirements, the Company may from time to
time engage in additional financings of a character and in amounts to be
determined.
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<PAGE> 20
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1997 and as adjusted to give effect to the
consummation of the offering of the Preferred Securities. The following data
should be read in conjunction with the Company's reports filed with the
Commission under the Exchange Act. See "Available Information":
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT RATIOS)
<S> <C> <C>
Long-term debt:..................................................... $ -0- $ -0-
-------- --------
-0- -0-
-------- --------
Guaranteed preferred beneficial interests in Company's Junior
Subordinated Debentures(1)........................................ 35,000(3)
--------
35,000(3)
--------
Shareholders' Equity:
Preferred stock, no stated par value; 1,000,000 authorized, none
issued......................................................... -0- -0-
Common stock, $2.50 par value; 20,000,000 authorized, 7,995,590
shares issued net of 38,262 shares in Treasury................. 20,085 20,085
Additional paid-in-capital........................................ 83,718 83,718
Retained earnings................................................. 9,975 9,975
Net unrealized gain on investment securities available-for-sale... 1,812 1,812
Treasury stock at cost.................................... (1,137) (1,137)
-------- --------
Total stockholder's equity................................ 114,453 114,453
-------- --------
Total Capitalization...................................... $114,453 $ 149,453
======== ========
Risk-based capital ratios:
Tier 1 capital to risk-weighted assets(2)......................... 10.65% 13.68%
Regulatory minimum................................................ 4.00 4.00
Total capital to risk-weighted assets(2).......................... 11.91 14.94
Regulatory minimum................................................ 8.00 8.00
Leverage ratio.................................................... 7.83 10.16
Regulatory minimum................................................ 3.00 3.00
</TABLE>
- - - - ---------------
(1) As described herein, the sole assets of the Trust will be $36,082,475
principal amount of Junior Subordinated Debentures issued by the Company to
the Trust (not including the $5,412,375 aggregate principal amount of Junior
Subordinated Debentures to be purchased in the event the Underwriter
exercises its over-allotment option). The Junior Subordinated Debentures
will bear interest at a fixed rate of 9.00% and will mature on June 30,
2027, subject to the Maturity Adjustment. The Company will own all of the
Common Securities of the Trust.
(2) Assumes net proceeds of the offering of the Preferred Securities are
invested in assets with a 100% risk weighting under the risk-based capital
rules of the Federal Reserve.
(3) Does not reflect the up to $5,250,000 aggregate liquidation amount of the
Preferred Securities subject to the Underwriter's over-allotment option. See
"Underwriting."
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<PAGE> 21
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Preferred Securities will be recorded in the
consolidated statements of income of the Company.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Preferred
Securities and the Common Securities. The Preferred Securities will represent
preferred undivided beneficial interests in the assets of the Issuer Trust and
the holders thereof will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Preferred Securities and
the Trust Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trustees.
GENERAL
The Preferred Securities will be limited to $35,000,000 aggregate
Liquidation Amount outstanding (which amount may be increased by up to
$5,250,000 aggregate liquidation amount of Preferred Securities for exercise of
the Underwriter's over-allotment option). See "Underwriting." The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under " -- Subordination of
Common Securities." The Junior Subordinated Debentures will be registered in the
name of the Issuer Trust and held by the Property Trustee in trust for the
benefit of the holders of the Preferred Securities and Common Securities. The
Guarantee will be a guarantee on a subordinated basis with respect to the
Preferred Securities but will not guarantee payment of Distributions or amounts
payable on redemption or liquidation of such Preferred Securities when the
Issuer Trust does not have funds on hand available to make such payments. See
"Description of Guarantee."
DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and Distributions on each Preferred Security
will be payable at the annual rate of 9.00% of the stated Liquidation Amount of
$25, payable quarterly in arrears on March 31, June 30, September 30, and
December 31 of each year (each a "Distribution Date"), to the holders of the
Preferred Securities at the close of business on March 15, June 15, September
15, or December 15 (whether or not a Business Day (as defined below)) next
preceding the relevant Distribution Date. Distributions on the Preferred
Securities will be cumulative. Distributions will accumulate from May 21, 1997.
The first Distribution Date for the Preferred Securities will be June 30, 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 four. If any date on which Distributions are payable on the
Preferred 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
21
<PAGE> 22
other payment in respect of any such delay), with the same force and effect as
if made on the date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly 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 deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate of 9.00% per annum,
compounded quarterly 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 four. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or shareholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company must
give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Preferred 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 Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Junior Subordinated Debentures -- Option To Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount."
22
<PAGE> 23
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Preferred Securities. The payment
of Distributions and other amounts payable on the Preferred Securities (if and
to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Preferred Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date") and the related amount of the premium, if any, paid by the Company upon
the concurrent redemption of such Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Redemption." If less than all
the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after June 30, 2002, in whole at any time or in part from time to time, or
(ii) in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event, Investment Company Event
or Capital Treatment Event (each as defined below), in each case subject to
possible regulatory approval. See " -- Liquidation Distribution Upon
Dissolution." A redemption of the Junior Subordinated Debentures would cause a
mandatory redemption of a Like Amount of the Preferred Securities and Common
Securities at the Redemption Price.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York or the Borough of
Boyertown, Pennsylvania 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.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Preferred 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 $25 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United
23
<PAGE> 24
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official or administrative pronouncement or action or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is announced
on or after the date of issuance of the Preferred Securities, there is more than
an insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the delivery of such opinion, will not be, deductible
by the Company, in whole or in part, for United States federal income tax
purposes or (iii) the Issuer Trust is, or will be within 90 days of the delivery
of such opinion, subject to more than a de minimis amount of other taxes, duties
or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or decision
is announced on or after the date of issuance of the Preferred Securities, there
is more than an insubstantial risk that the Company will not be entitled to
treat an amount equal to the Liquidation Amount of the Preferred Securities as
"Tier 1 Capital" (or the then equivalent thereof), except as otherwise
restricted under the 25% Capital Limitation, for purposes of the risk-based
capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to the Company.
PAYMENT OF ADDITIONAL SUMS
If a Tax Event described in clause (i) or (iii) of the definition of Tax
Event above has occurred and is continuing and the Issuer Trust is the holder of
all the Junior Subordinated Debentures, the Company will pay Additional Sums (as
defined below), if any, on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on the
outstanding Preferred 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.
REDEMPTION PROCEDURES
Preferred 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 Preferred
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."
24
<PAGE> 25
If the Issuer Trust gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred 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 Preferred Securities. With respect to Preferred 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 Preferred
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
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
shall be payable to the holders of the Preferred 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 Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. If
any date fixed for redemption of Preferred Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (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 Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer Trust or by the Company pursuant to
the Guarantee as described under "Description of Guarantee," Distributions on
such Preferred Securities will continue to accumulate at the then applicable
rate, from the Redemption Date originally established by the Issuer Trust for
such Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from the outstanding
Preferred Securities not previously called for redemption, or if the Preferred
Securities are then held in the form of a Global Preferred Security (as defined
below), in accordance with DTC's customary procedures. The Property Trustee
shall promptly notify the securities registrar for the Trust Securities in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless
25
<PAGE> 26
payment of the Redemption Price in respect of the Preferred Securities is
withheld or refused and not paid either by the Issuer Trust or the Company
pursuant to the Guarantee, Distributions will cease to accumulate on the
Preferred Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or Liquidation Distribution in respect
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all the outstanding Preferred
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
Preferred Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Preferred Securities have been cured, waived or otherwise eliminated.
See "-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events of Default." Until all such Events of Default
under the Trust Agreement with respect to the Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Preferred Securities and not on behalf of the
holders of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $25 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities, dissolves
the Issuer Trust prior to the stated maturity of the Preferred Securities and
the dissolution of the Issuer Trust is deemed to
26
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constitute the redemption of capital instruments by the Federal Reserve under
its risk-based capital guidelines or policies, the dissolution of the Issuer
Trust by the Company may be subject to the prior approval of the Federal
Reserve. Moreover, any changes in applicable law or changes in the Federal
Reserve's risk-based capital guidelines or policies could impose a requirement
on the Company that it obtain the prior approval of the Federal Reserve to
dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Preferred
Securities in connection with the redemption of all the Trust Securities as
described under "-- Redemption" and (iv) the entry of an order for the
dissolution of the Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer Trust available for distribution to holders, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, an
amount equal to, in the case of holders of Preferred 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
Preferred Securities shall be paid on a pro rata basis. The holders of the
Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Preferred Securities, except that
if a Debenture Event of Default has occurred and is continuing as a result of
any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities shall have a priority
over the Common Securities. See "-- Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred 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
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an
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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 Preferred
Securities offered hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Company by the holders of at least 25% in aggregate Liquidation Amount
of the outstanding Preferred Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "-- Subordination of
Common Securities," "-- Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures -- Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Preferred Securities. If an Issuer Trustee resigns,
such Trustee will appoint its successor. If an Issuer Trustee fails to appoint a
successor, the holders of at least 25% in Liquidation Amount of the outstanding
Preferred Securities may appoint a successor. If a successor has not been
appointed by the holders, any holder of Preferred Securities or Common
Securities or the other
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Issuer Trustee may petition a court in the State of Delaware to appoint a
successor. Any Delaware Trustee must meet the applicable requirements of
Delaware law. Any Property Trustee must be a national or state-chartered bank,
and at the time of appointment have securities rated in one of the three highest
rating categories by a nationally recognized statistical rating organization and
have capital and surplus of at least $50,000,000. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred 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 Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (v) 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 Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act,
and (vii) the Company or any permitted successor or assignee owns all the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other 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
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the Issuer Trust or the successor entity to be taxable as a corporation for
United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Preferred Securities, (i) to cure any ambiguity, correct
or supplement any provisions in the Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under the Trust Agreement, provided that any such
amendment does not adversely affect in any material respect the interests of any
holder of Trust Securities, or (ii) to modify, eliminate or add to any
provisions of the Trust Agreement to such extent as may be necessary to ensure
that the Issuer Trust will not be taxable as a corporation for United States
federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Issuer Trust will not be required to register
as an "investment company" under the Investment Company Act, and any amendments
of the Trust Agreement will become effective when notice of such amendment is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the holders of a majority of the Common Securities and the Property Trustee with
(i) the consent of holders representing not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities and (ii) receipt by
the Issuer Trustees of an opinion of counsel to the effect that such amendment
or the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Issuer Trust's not being taxable as a
corporation for United States federal income tax purposes or the Issuer Trust's
exemption from status as an "investment company" under the Investment Company
Act, except that, without the consent of each holder of Trust Securities
affected thereby, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without the prior consent of each holder
of the Preferred Securities. The Property Trustee may not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee will notify each holder of Preferred Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, before taking any of the foregoing actions, the Property Trustee
will obtain an opinion of counsel experienced in such matters to the effect that
the Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
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Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each registered holder of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Preferred Securities) and all
costs and expenses of the Issuer Trust (including costs and expenses relating to
the organization of the Issuer Trust, the fees and expenses of the Trustees and
the costs and expenses relating to the operation of the Issuer Trust) and to pay
any and all taxes and all costs and expenses with respect thereto (other than
United States withholding taxes) to which the Issuer Trust might become subject.
The foregoing obligations of the Company under the Indenture are for the benefit
of, and shall be enforceable by, any person to whom any such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
the Company directly against the Company, and the Company has irrevocably waived
any right or remedy to require that any such Creditor take any action against
the Issuer Trust or any other person before proceeding against the Company. The
Company has also agreed in the Indenture to execute such additional agreements
as may be necessary or desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it is exchangeable
in whole or in part for the Preferred Securities in definitive form, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of such Depository or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the Participants' accounts with their respective principal
amounts of the Preferred Securities represented by such global security.
Ownership of beneficial interests in such global security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of Participants) and on the records
of Participants (with respect to interests of Persons held through
Participants). Beneficial owners will not receive written confirmation from DTC
of their purchase, but are expected to receive written confirmations from the
Participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests will be accomplished by entries on the books of
Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to
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receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Preferred
Securities under the Junior Subordinated Indenture. The Company understands
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trustees, the Administrators, any Paying Agent or any
other agent of the Company or the Trustees will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global security for such Preferred
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Disbursements of Distributions to
Participants shall be the responsibility of DTC. DTC's practice is to credit
Participants' accounts on a payable date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payable date. Payments by Participants to beneficial
owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participant
and not of DTC, the Company, the Trustees, the Paying Agent or any other agent
of the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Trustees. If DTC notifies the Company that it is unwilling to
continue as such, or if it is unable to continue or ceases to be a clearing
agency registered under the Exchange Act and a successor depository is not
appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (such as the Underwriter), banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
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SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the Underwriter in
immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Preferred Securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust company reasonably acceptable to the
Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred 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 Preferred Securities after the Preferred
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 Preferred Securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
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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 Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money, issue debt or mortgage or pledge any
of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Issuer
Trust will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from May 21, 1997, at the annual rate of 9.00% of the principal amount
thereof, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each, an "Interest Payment Date"), commencing June 30,
1997, to the person in whose name each Junior Subordinated Debenture is
registered at the close of business on March 15, June 15, September 15, or
December 15 (whether or not a Business Day) next preceding such Interest Payment
Date. It is anticipated that, until the liquidation, if any, of the Issuer
Trust, each Junior Subordinated Debenture will be registered in the name of the
Issuer Trust and held by the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The amount of interest payable for any period
less than a full interest period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual days elapsed in a partial month in such
period. The amount of interest payable for any full interest period will be
computed by dividing the rate per annum by four. 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 9.00%,
compounded quarterly 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 four. The term "interest" as used
herein includes quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date and Additional Sums
(as defined below), as applicable.
The Junior Subordinated Debentures will mature on June 30, 2027, subject to
the Maturity Adjustment (such date, as it may be shortened by the Maturity
Adjustment is referred to herein as the
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Stated Maturity). The Maturity Adjustment represents the right of the Company to
shorten the maturity date once at any time to any date not earlier than June 30,
2002, subject to the Company having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies of the
Federal Reserve. In the event the Company elects to shorten the Stated Maturity
of the Junior Subordinated Debentures, it will give notice to the registered
holders of the Junior Subordinated Debentures, the Debenture Trustee and the
Issuer Trust of such shortening no less than 90 days prior to the effectiveness
thereof. The Property Trustee must give notice to the holders of the Trust
Securities of the shortening of the Stated maturity at least 30 but not more
than 60 days before such date.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"-- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. During any such Extension Period
the Company shall have the right to make partial payments of interest on any
interest payment date. At the end of such Extension Period, the Company must pay
all interest then accrued and unpaid (together with interest thereon at the
annual rate of 9.00%, compounded quarterly 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 four. During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or holders of
Preferred Securities while outstanding) will be required to accrue interest
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholders rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
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warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin a
new Extension Period subject to the above conditions. No interest shall be due
and payable during an Extension Period, except at the end thereof. The Company
must give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Preferred 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 Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. There is no limitation on the number of times that the
Company may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after June 30, 2002, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Preferred Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Preferred Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company prior
to their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve. The redemption of the
Junior Subordinated Debentures also could be subject to the additional prior
approval of the Federal Reserve under its current risk-based capital guidelines.
The redemption price for Junior Subordinated Debentures is the outstanding
principal amount of the Junior Subordinated Debentures plus accrued interest
(including any Additional Interest or any Additional Sums) thereon to but
excluding the date fixed for redemption.
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by the Issuer Trust will
not be reduced as a result
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of any such additional taxes, duties or other governmental charges. See
"Description of Preferred Securities -- Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Issuer Trust. If the Junior Subordinated Debentures are distributed to
holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "Description of the Preferred
Securities -- Book Entry, Delivery and Form." If Junior Subordinated Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Junior Subordinated Debentures will be registrable, and Junior
Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate trust office of the Debenture Trustee in New York, New York or at the
offices of any Paying Agent or transfer agent appointed by the Company, provided
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto. However, a holder of $1
million or more in aggregate principal amount of Junior Subordinated Debentures
may receive payments of interest (other than interest payable at the Stated
Maturity) by wire transfer of immediately available funds upon written request
to the Debenture Trustee not later than 15 calendar days prior to the date on
which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium,
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if any) or interest has become due and payable shall, at the request of the
Company, be repaid to the Company and the holder of such Junior Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Company for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or shareholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event (a) of which the Company has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute a Debenture
Event of Default and (b) that the Company has not taken reasonable steps to
cure, (ii) if the Junior Subordinated Debentures are held by the Issuer Trust,
the Company is in default with respect to its payment of any obligations under
the Guarantee or (iii) the Company has given notice of its election of an
Extension Period as provided in the Junior Subordinated Indenture and has not
rescinded such notice, or such Extension Period, or any extension thereof, is
continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to: (1) evidence succession of another corporation or association to the Company
and the assumption by such person of the obligations of the Company under the
Junior Subordinated Debentures, (2) add further covenants, restrictions or
conditions for
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the protection of holders of the Junior Subordinated Debentures, (3) cure
ambiguities or correct the Junior Subordinated Debentures in the case of defects
or inconsistencies in the provisions thereof, so long as any such cure or
correction does not adversely affect the interest of the holders of the Junior
Subordinated Debentures in any material respect, (4) change the terms of the
Junior Subordinated Debentures to facilitate the issuance of the Junior
Subordinated Debentures in certificated or other definitive form, (5) evidence
or provide for the appointment of a successor Debenture Trustee, or (6) qualify,
or maintain the qualification of, the Junior Subordinated Indentures under the
Trust Indenture Act. The Junior Subordinated Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture.
Furthermore, so long as any of the Preferred Securities remain outstanding, no
such modification may be made that adversely affects the holders of such
Preferred Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Junior Subordinated Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the outstanding Preferred
Securities unless and until the principal of (and premium, if any, on) the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated Debentures
when due (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at maturity, upon
redemption, by declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Junior Subordinated Indenture for 90 days
after written notice to the Company from the Debenture Trustee or the
holders of at least 25% in aggregate outstanding principal amount of the
outstanding Junior Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Preferred
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.
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The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred 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
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture affected thereby. See "-- Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Preferred
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Preferred Securities by
the Company in connection with a Direct Action.
The holders of the Preferred Securities are not 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 Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an
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entirety to any Person, and no Person may consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless (i) if the Company consolidates with or
merges into another Person or conveys or transfers its properties and assets
substantially as an entirety to any Person, the successor Person is organized
under the laws of the United States or any state or the District of Columbia,
and such successor Person expressly assumes the Company's obligations in respect
of the Junior Subordinated Debentures; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would constitute a Debenture Event of Default, has
occurred and is continuing; and (iii) certain other conditions as prescribed in
the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable, (ii) will become due
and payable at the Stated Maturity within one year, or (iii) are to be called
for redemption within one year under arrangements satisfactory to the Debenture
Trustee for the giving of notice of redemption, and, in each case, the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if any)
and interest to the date of the deposit or to the Stated Maturity, as the case
may be, then the Junior Subordinated Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will be
deemed to have satisfied and discharged the Junior Subordinated Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If the Company defaults
in the payment of any principal, premium, if any, or interest, if any, or any
other amount payable on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by setoff or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all or
a portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity
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contracts and similar arrangements; and (vii) every obligation of the type
referred to in clauses (i) through (vi) of another person and all dividends of
another person the payment of which, in either case, the Company has guaranteed
or is responsible or liable, directly or indirectly, as obligor or otherwise;
provided that "Senior Indebtedness" shall not include (i) any obligations which,
by their terms, are expressly stated to rank pari passu in right of payment
with, or to not be superior in right of payment to, the Junior Subordinated
Debentures, (ii) any Senior Indebtedness of the Company which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company, (iii)
any Indebtedness of the Company to any of its subsidiaries, (iv) Indebtedness to
any executive officer or director of the Company, or (v) any indebtedness in
respect of debt securities issued to any trust, or a trustee of such trust,
partnership or other entity affiliated with the Company that is a financing
entity of the Company in connection with the issuance of such financing entity
of securities that are similar to the Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
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INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to time
as trustee under other indentures or trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Preferred Securities by the Issuer Trust for the benefit of
the holders from time to time of the Preferred Securities. Bankers Trust Company
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred 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
Preferred 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 Preferred
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 Preferred
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining available for distribution to holders of the
Preferred Securities on liquidation of the Issuer Trust. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the holders of the Preferred 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 Preferred 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.
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If the Company does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "-- Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Preferred Securities on a subordinated basis. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred 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 Preferred 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 Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. The manner of obtaining any such approval will
be as set forth under "Description of Preferred Securities -- Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
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The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his 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 Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
the Guarantee Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Preferred Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the Preferred Securities must restore payment of any sums
paid under the Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed, on a subordinated basis, by the Company as and to the
extent set forth under "Description of Guarantee." Taken together, the Company's
obligations under the Junior Subordinated Debentures, the Junior Subordinated
Indenture, the Trust Agreement and the Guarantee provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the Preferred Securities. No single document standing alone
or operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Preferred Securities. If and to the
extent that the Company does not make payments on the Junior Subordinated
Debentures, the Issuer Trust will not have sufficient funds to pay Distributions
or other amounts due on the Preferred Securities. The Guarantee does not cover
payment of amounts payable with respect to the Preferred Securities when the
Issuer Trust does not have sufficient funds to pay such amounts. In such event,
the remedy of a holder of the Preferred Securities is to institute a legal
proceeding directly against the Company for enforcement of payment of the
Company's obligations under Junior Subordinated Debentures
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having a principal amount equal to the Liquidation Amount of the Preferred
Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Preferred 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 Preferred
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Preferred Securities;
(iii) the Company will pay for any and all costs, expenses and liabilities of
the Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Preferred
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the Junior
Subordinated Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures -- Subordination."
LIMITED PURPOSE OF ISSUER TRUST
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Preferred Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Preferred Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company payments on Junior Subordinated Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions or other amounts distributable with respect to the Preferred
Securities from the Issuer Trust (or from the Company under the Guarantee) only
if and to the extent the Issuer Trust has funds available for the payment of
such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution 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 Preferred Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
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Distribution in cash. See "Description of Preferred Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Issuer Trust, as registered holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Junior Subordinated Indenture, but entitled to receive payment in
full of all amounts payable with respect to the Junior Subordinated Debentures
before any stockholders of the Company receive payments or distributions. Since
the Company is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of the Preferred Securities and a
holder of such Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Ellsworth, Wiles & Chalphin, P.C., Wyomissing,
Pennsylvania, in its capacity as special tax counsel to the Company ("Tax
Counsel"), the following discussion summarizes the material United States
federal income tax consequences of the purchase, ownership and disposition of
the Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions of Tax Counsel
are not binding on the Internal Revenue Service (the "IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought from the IRS with respect to the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with the Preferred
Securities held as a capital asset by a holder who or which (i) purchased the
Preferred Securities upon original issuance (an "Initial Holder") at their
original offering price and (ii) is a US Holder (as defined below). This summary
does not address all the tax consequences that may be relevant to a US Holder,
nor does it address the tax consequences, except as stated below, to holders
that are not US Holders ("Non-US Holders") or to holders that may be subject to
special tax treatment (such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies, brokers
and dealers in securities or currencies, other financial institutions,
tax-exempt organizations, persons holding the Preferred Securities as a position
in a "straddle," as part of a "synthetic security," "hedging," "conversion" or
other integrated investment, persons having a functional currency other than the
U.S. Dollar and certain United States expatriates). Further, this summary does
not address (a) the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the Preferred Securities, (b) the United States
federal alternative minimum tax consequences of the purchase, ownership or
disposition of the Preferred Securities, or (c) any state, local or foreign tax
consequences of the purchase, ownership and disposition of Preferred Securities.
A "US Holder" is a holder of the Preferred Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United
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States is able to exercise primary supervision over the administration of the
trust and (b) one or more United States trustees have the authority to control
all substantial decisions of the trust.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
US HOLDERS
Characterization of the Issuer Trust. In connection with the issuance of
the Preferred Securities, Tax Counsel will render its opinion generally to
effect that, under then current law and based on the representations, facts and
assumptions set forth in this Prospectus, and assuming full compliance with the
terms of the Trust Agreement (and other relevant documents), and based on
certain assumptions and qualifications referenced in the opinion, the Issuer
Trust will be characterized for United States federal income tax purposes as a
grantor trust and will not be characterized as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of the Preferred Securities generally will be considered the owner of an
undivided interest in the Junior Subordinated Debentures owned by the Issuer
Trust, and each US Holder will be required to include all income or gain
recognized for United States federal income tax purposes with respect to its
allocable share of the Junior Subordinated Debentures on its own income tax
return.
Characterization of the Junior Subordinated Debentures. The Company and
the Issuer Trust will agree to treat the Junior Subordinated Debentures as
indebtedness for all United States federal income tax purposes. In connection
with the issuance of the Junior Subordinated Debentures, Tax Counsel will render
its opinion generally to the effect that, under then current law and based on
the representations, facts and assumptions set forth in this Prospectus, and
assuming full compliance with the terms of the Junior Subordinated Indenture
(and other relevant documents), and based on certain assumptions and
qualifications referenced in the opinion, the Junior Subordinated Debentures
will be characterized for United States federal income tax purposes as debt of
the Company.
Interest Income and Original Issue Discount. Under the terms of the Junior
Subordinated Debentures, the Company has the ability to defer payments of
interest from time to time by extending the interest payment period for a period
not exceeding 20 consecutive quarterly periods, but not beyond the maturity of
the Junior Subordinated Debentures. Recently issued Treasury regulations under
Section 1273 of the Code provide that debt instruments like the Junior
Subordinated Debentures will not be considered issued with original issue
discount ("OID") by reason of the Company's ability to defer payments of
interest if the likelihood of such deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the
date of this Prospectus, the likelihood of deferring payments of interest under
the terms of the Junior Subordinated Debentures is "remote" within the meaning
of the applicable Treasury regulations, in part because exercising that option
would prevent the Company from declaring dividends on its stock and would
prevent the Company from making any payments with respect to debt securities
that rank pari passu with or junior to the Junior Subordinated Debentures.
Therefore, the Junior Subordinated Debentures should not be treated as issued
with OID by reason of the Company's deferral option. Rather, stated interest on
the Junior Subordinated Debentures will generally be taxable to a US Holder as
ordinary income when paid or accrued in accordance with that holder's method of
accounting for income tax purposes. It should be noted, however, that these
Treasury regulations have not yet been interpreted in any rulings or any other
published authorities of the IRS. Accordingly, it is possible that the IRS could
take a position contrary to the interpretation described herein.
In the event the Company exercises its option to defer payments of
interest, the Junior Subordinated Debentures would be treated as redeemed and
reissued for OID purposes and the sum
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of the remaining interest payments (and any de minimis OID) on the Junior
Subordinated Debentures would thereafter be treated as OID, which would accrue,
and be includible in a US Holder's taxable income, on an economic accrual basis
(regardless of the US Holder's method of accounting for income tax purposes)
over the remaining term of the Junior Subordinated Debentures (including any
period of interest deferral), without regard to the timing of payments under the
Junior Subordinated Debentures. (Subsequent distributions of interest on the
Junior Subordinated Debentures generally would not be taxable.) The amount of
OID that would accrue in any period would generally equal the amount of interest
that accrued on the Junior Subordinated Debentures in that period at the stated
interest rate. Consequently, during any period of interest deferral, US Holders
will include OID in gross income in advance of the receipt of cash, and a US
Holder which disposes of a Preferred Security prior to the record date for
payment of distributions on the Junior Subordinated Debentures following that
period will be subject to income tax on OID accrued through the date of
disposition (and not previously included in income), but will not receive cash
from the Issuer Trust with respect to the OID.
If the possibility of the Company's exercise of its option to defer
payments of interest is not treated as remote, the Junior Subordinated
Debentures would be treated as initially issued with OID in an amount equal to
the aggregate stated interest (plus any de minimum OID) over the term of the
Junior Subordinated Debentures. That OID would generally be includible in a US
Holder's taxable income, over the term of the Junior Subordinated Debentures, on
an economic accrual basis.
Characterization of Income. Because the income underlying the Preferred
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Preferred Securities.
Market Discount and Bond Premium. Holders of the Preferred Securities
other than Initial Holders may be considered to have acquired their undivided
interests in the Junior Subordinated Debentures with market discount or
acquisition premium (as each phrase is defined for United States federal income
tax purposes).
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the
Issuer Trust. Under certain circumstances described herein (See "Description of
the Preferred Securities -- Liquidation Distribution Upon Dissolution"), the
Issuer Trust may distribute the Junior Subordinated Debentures to holders in
exchange for the Preferred Securities and in liquidation of the Issuer Trust.
Except as discussed below, such a distribution would not be a taxable event for
United States federal income tax purposes, and each US Holder would have an
aggregate adjusted basis in its Junior Subordinated Debentures for United States
federal income tax purposes equal to such holder's aggregate adjusted basis in
its Preferred Securities. For United States federal income tax purposes, a US
Holder's holding period in the Junior Subordinated Debentures received in such a
liquidation of the Issuer Trust would include the period during which the
Preferred Securities were held by the holder. If, however, the relevant event is
a Tax Event which results in the Issuer Trust being treated as an association
taxable as a corporation, the distribution would likely constitute a taxable
event to US Holders of the Preferred Securities for United States federal income
tax purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Such a redemption would be taxable for United States
federal income tax purposes, and a US Holder would recognize gain or loss as if
it had sold the Preferred Securities for cash. See "-- Sales of Preferred
Securities" below.
Sales of Preferred Securities. A US Holder that sells Preferred Securities
will recognize gain or loss equal to the difference between its adjusted basis
in the Preferred Securities and the amount realized on the sale of such
Preferred Securities. A US Holder's adjusted basis in the Preferred Securities
generally will be its initial purchase price, increased by OID previously
included (or
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currently includible) in such holder's gross income to the date of disposition,
and decreased by payments received on the Preferred Securities (other than any
interest received with respect to the period prior to the effective date of the
Company's first exercise of its option to defer payments of interest). Any such
gain or loss generally will be capital gain or loss, and generally will be a
long-term capital gain or loss if the Preferred Securities have been held for
more than one year prior to the date of disposition.
A holder who disposes of his Preferred Securities between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest (or OID) on the Junior Subordinated Debentures through the date of
disposition in its taxable income for United States federal income tax purposes
(notwithstanding that the holder may receive a separate payment from the
purchaser with respect to accrued interest), and to deduct that amount from the
sales proceeds received (including the separate payment, if any, with respect to
accrued interest) for the Preferred Securities (or as to OID only, to add such
amount to such holder's adjusted tax basis in its Preferred Securities). To the
extent the selling price is less than the holder's adjusted tax basis (which
will include accrued but unpaid OID, if any), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
PROPOSED TAX LAW CHANGES
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. The Tax Proposal would generally deny corporate issuers a
deduction for interest on certain debt obligations that have a maximum term in
excess of 15 years and are not shown as indebtedness on the separate balance
sheet of the issuer or, where the instrument is issued to a related party (other
than a corporation), where the holder or some other related party issues a
related instrument that is not shown as indebtedness on the issuer's
consolidated balance sheet. As currently drafted, the Tax Proposal would be
effective generally for instruments issued on or after the date of first
Congressional committee action. Although it is not clear from the President's
proposals as to what constitutes Congressional "committee action" with respect
to the Tax Proposal, it appears that, as drafted, the Tax Proposal would not
apply retroactively to the Junior Subordinated Debentures. However, if the Tax
Proposal (or similar legislation) is enacted with retroactive effect with
respect to the Junior Subordinated Debentures, the Company would not be entitled
to an interest deduction with respect to the Junior Subordinated Debentures.
There can be no assurance that the Tax Proposal, if enacted, will not apply
retroactively to the Junior Subordinated Debentures or that other legislation
enacted after the date hereof will not otherwise adversely affect the ability of
the Company to deduct the interest payable on the Junior Subordinated
Debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. See "Description of the Preferred Securities -- Redemption."
NON-US HOLDERS
The following discussion applies to a Non-US Holder.
Payments to a holder of a Preferred Security which is a Non-US Holder will
generally not be subject to withholding of income tax, provided that (a) the
beneficial owner of the Preferred Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Preferred Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Preferred Securities certifies to the Issuer Trust or
its agent, under penalties of perjury, that it is a Non-US Holder and provides
its name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Preferred
Security in such capacity, certifies to the Issuer Trust or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or
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by another Financial Institution between it and the beneficial owner in the
chain of ownership, and furnishes the Issuer Trust or its agent with a copy
thereof.
As discussed above (see "-- Proposed Tax Law Changes"), changes in
legislation affecting the income tax consequences of the Junior Subordinated
Debentures are possible, and could adversely affect the ability of the Company
to deduct the interest payable on the Junior Subordinated Debentures. Moreover,
any such legislation could adversely affect Non-US Holders by characterizing
income derived from the Junior Subordinated Debentures as dividends, generally
subject to a 30% income tax (on a withholding basis) when paid to a Non-US
Holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a Non-US Holder.
A Non-US Holder of a Preferred Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a Preferred Security.
A Non-US Holder which holds the Preferred Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Junior Subordinated Debentures.
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Preferred Securities held by a
noncorporate US Holder within the United States. In addition, payments made on,
and payments of the proceeds from the sale of, the Preferred Securities to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-United States status
or otherwise establishes an exemption from information reporting and backup
withholding. See "-- Backup Withholding." Taxable income on the Preferred
Securities for a calendar year should be reported to US Holders on the
appropriate form by the following January 31st.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification or exemption requirements. Any amounts so withheld
will be allowed as a credit against the holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE PREFERRED SECURITIES. POTENTIAL HOLDERS OF THE PREFERRED SECURITIES ARE
URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "disqualified person" within the
meaning of Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code") with respect to many employee benefit plans ("Plans") that are subject
to ERISA. The purchase of the Preferred Securities by a Plan that is subject to
the fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of Section 4975(e)(1) of the Code) and with respect to which the
Company, or any affiliate of the Company is a service provider (or otherwise is
a party in interest or a disqualified person) may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless the
Preferred Securities are acquired pursuant to and in accordance with an
applicable exemption. Any pension or other employee benefit plan proposing to
acquire any Preferred Securities should consult with its counsel.
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SUPERVISION, REGULATION AND OTHER MATTERS
The following information is not intended to be an exhaustive description
of the statutes and regulations applicable to the Company. The discussion is
qualified in its entirety by reference to all particular statutory or regulatory
provisions. Additional information regarding supervision and regulation is
included in the documents incorporated herein by reference. See "Incorporation
of Certain Documents by Reference."
The business of the Company is influenced by prevailing economic conditions
and governmental policies, both foreign and domestic. The actions and policy
directives of the Federal Reserve determine to a significant degree the cost and
the availability of funds obtained from money market sources for lending and
investing. The Federal Reserve's policies and regulations also influence,
directly and indirectly, the rates of interest paid by commercial banks on their
time and savings deposits. The nature and impact on the Company of future
changes in economic conditions and monetary and fiscal policies, both foreign
and domestic, are not predictable.
The Company and the Bank are subject to supervision and examination by
federal bank regulatory authorities. The Company's primary bank regulatory
authority is the Federal Reserve. The Bank's primary bank regulatory authority
is the Office of the Comptroller of the Currency.
The federal bank regulatory authorities have each adopted risk-based
capital guidelines to which the Company is subject. These guidelines are based
on an international agreement developed by the Basle Committee on Banking
Regulations and Supervisory Practices, which consists of representatives of
central banks and supervisory authorities in 12 countries including the United
States of America. The guidelines establish a systematic analytical framework
that makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations, takes off-balance sheet exposures into
explicit account in assessing capital adequacy and minimizes disincentives to
holding liquid, low-risk assets. Risk-based assets are determined by allocating
assets and specified off-balance sheet commitments and exposures into four
weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
The Bank is required to maintain minimum ratios of "qualifying total
capital" and Tier 1 capital to risk-weighted assets of 8% and 4% respectively.
In addition, the federal bank regulators have established leverage ratio (Tier 1
capital to total adjusted average assets) guidelines providing for a minimum
leverage ratio of 3% for banks meeting certain specified criteria, including
excellent asset quality, high liquidity, low interest rate exposure and the
highest regulatory rating. Institutions not meeting these criteria are expected
to maintain a ratio which exceeds the 3% minimum by at least 100 to 200 basis
points. The federal bank regulatory authorities may, however, set higher capital
requirements when a bank's particular circumstances warrant. Bank holding
companies are expected to serve as a source of strength to their subsidiary
banks under the Federal Reserve's regulations and policies.
Effective January 17, 1995, the federal bank regulatory agencies, including
the Federal Reserve, amended their respective agency risked-based capital
standards to include concentration of credit risk and the risks of
non-traditional activities. Those agencies, including the Federal Reserve, also
issued a joint policy statement, effective June 26, 1996, that provides guidance
on sound practices for interest rate risk management. The policy describes
critical factors affecting the agencies' evaluation of a bank's interest rate
risk when making a determination of capital adequacy.
The federal banking agencies possess broad powers to take corrective action
as deemed appropriate for an insured depository institution and its holding
companies. The extent of these powers depends upon whether the institution in
question is considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Generally, as an institution is deemed to be less well
capitalized, the scope and severity of the agencies' powers increase. The
agencies' corrective powers can include, among other things, requiring an
insured financial institution to adopt a capital restoration plan which cannot
be
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approved unless guaranteed by the institution's parent holding company; placing
limits on asset growth and restrictions on activities; placing restrictions on
transactions with affiliates; restricting the interest rates the institution may
pay on deposits; prohibiting the institution from accepting deposits from
correspondent banks; prohibiting the payment of principal or interest on
subordinated debt; prohibiting the holding company from making capital
distributions without prior regulatory approval; and, ultimately, appointing a
receiver for the institution. Business activities may also be influenced by an
institution's capital classification. For instance, only a "well capitalized"
depository institution may accept brokered deposits without prior regulatory
approval and only an "adequately capitalized" depository institution may accept
brokered deposits with prior regulatory approval. At March 31, 1997, the
Company, on a consolidated basis, and the Bank exceeded the required capital
ratios for classification as a "well capitalized" organization or institution,
as the case may be.
The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC") and are subject to FDIC insurance assessments. The
amount of FDIC assessments paid by individual insured depository institutions is
based on their relative risk as measured by regulatory capital ratios and
certain other factors. During 1995, the FDIC's Board of Directors significantly
reduced premium rates assessed for deposits insured by the Bank Insurance Fund
(the "BIF"), resulting in the Company not currently being assessed a premium on
its BIF-insured deposits. With respect to deposits insured by the Savings
Association Insurance Fund ("SAIF"), on September 30, 1996, President Clinton
signed into law legislation that mandated a one-time assessment on SAIF-insured
deposits to recapitalize the SAIF. As a result, for the quarter ended September
30, 1996, the Company recorded a pre-tax charge of $1,175,000 for this SAIF
assessment. The legislation also mandates reductions in deposit premium rates on
SAIF-insured deposits.
Under federal law, a financial institution insured by the FDIC under common
ownership with a failed institution can be required to indemnify the FDIC for
its losses resulting from the insolvency of the failed institution, even if such
indemnification causes the affiliated institution also to become insolvent. As a
result, the Company could, under certain circumstances, be obligated for the
liabilities of any of its affiliates, such as the Bank, that are FDIC-insured
institutions. In addition, if any insured depository institution becomes
insolvent and the FDIC is appointed its conservator or receiver, the FDIC may
disaffirm or repudiate any contract or lease to which such institution is a
party, the performance of which is determined to be burdensome and the
disaffirmance or repudiation of which is determined to promote the orderly
administration of the institution's affairs. If Federal law were construed to
permit the FDIC to apply these provisions to debt obligations of an insured
depository institution, the result could be that such obligations would be
prepaid without premium. Federal law also accords the claims of a receiver of an
insured depository institution for administrative expenses and the claims of
holders of deposit liabilities of such an institution priority over the claims
of general unsecured creditors of such an institution in the event of a
liquidation or other resolution of such institution.
The Bank Holding Company Act of 1956, as amended, currently permits
adequately capitalized and adequately managed bank holding companies from any
state to acquire banks and bank holding companies located in any other state,
subject to certain conditions. Effective June 1, 1997, the Bank will have the
ability, subject to certain restrictions, including state opt-out provisions, to
acquire by acquisition or merger branches outside of its home state. States may
affirmatively opt-in earlier, which Pennsylvania (among other states) has done.
Competition may increase as banks branch across state lines and enter new
markets.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), Alex. Brown & Sons Incorporated (the "Underwriter")
has agreed to purchase from the Issuer Trust $35,000,000 aggregate Liquidation
Amount of Preferred Securities at the public
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<PAGE> 54
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will
purchase all of the Preferred Securities offered hereby if any of such Preferred
Securities are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $0.50 per share. The Underwriter
may allow, and such dealers may reallow, a concession not in excess of $0.25 per
share to certain other dealers. After the public offering, the offering price
and other selling terms may be changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable not later
than the 30th day after the date of this Prospectus (or, if such 30th day shall
be a Saturday, Sunday or a holiday, on the next business day thereafter), to
purchase up to an additional $5,250,000 aggregate Liquidation Amount of the
Preferred Securities (the "Option Securities") at the public offering price,
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus, plus accrued interest, if any, from May 21, 1997. To the extent
that the Underwriter exercises such option, the Company will be obligated,
pursuant to the option, to sell the Option Securities to the Underwriter. The
Underwriter may exercise such option only to cover over-allotments made in
connection with the sale of the Preferred Securities offered hereby. If
purchased, the Underwriter will offer the Option Securities on the same terms as
those on which the $35,000,000 aggregate Liquidation Amount of the Preferred
Securities are being offered. If in the reasonable opinion of counsel to the
Company, following consultation with the Underwriter and its counsel, there is
more than an insubstantial risk that interest payable by the Company on the
Junior Subordinated Debentures will not be deductible by the Company for federal
income tax purposes, the Company shall not be obligated to sell any of the
Option Securities to the Underwriter.
In connection with the offering of the Preferred Securities, the
Underwriter and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which the Underwriter
creates a short position for its own account by selling more Preferred
Securities than it is committed to purchase from the Issuer Trust. In such a
case, to cover all or part of the short position, the Underwriter may exercise
the over-allotment option described above or may purchase Preferred Securities
in the open market following completion of the initial offering of the Preferred
Securities. The Underwriter also may engage in stabilizing transactions in which
it bids for, and purchases, shares of the Preferred Securities at a level above
that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Preferred
Securities. The Underwriter also may reclaim any selling concessions allowed to
a dealer if the Underwriter repurchases shares distributed by that dealer. Any
of the foregoing transactions may result in the maintenance of a price for the
Preferred Securities at a level above that which might otherwise prevail in the
open market. Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Preferred Securities. The
Underwriter is not required to engage in any of the foregoing transactions and,
if commenced, such transactions may be discontinued at any time without notice.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement
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provides that the Company will pay as compensation for the Underwriter's
arranging the investment therein of such proceeds an amount of $0.7875 per
Preferred Security (or $1,102,500 in the aggregate) for the account of the
Underwriter.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
The Preferred Securities are a new issue of securities with no established
trading market. The Company and the Issuer Trust have been advised by the
Underwriter that it intends to make a market in the Preferred Securities.
However, the Underwriter is not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion of
the Underwriter. Application has been made by the Company and the Issuer Trust
to list the Preferred Securities in the Nasdaq National Market, but one of the
requirements for listing and continuing listing is the presence of two market
makers for the Preferred Securities, and the presence of a second market maker
cannot be assured. Accordingly, no assurance can be given as to the development
or liquidity of any market for the Preferred Securities.
The Company and the Issuer Trust have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act.
The Underwriter has in the past performed and may in the future perform
various services to the Company, including investment banking services, for
which it has or may receive customary fees for such services.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and the Issuer Trust. The validity of the Guarantee and
the Junior Subordinated Debentures will be passed upon for the Company by
Ellsworth, Wiles & Chalphin, P.C., Wyomissing, Pennsylvania, counsel to the
Company, and for the Underwriter by Arnold & Porter, Washington, D.C. and New
York, New York. H. Anderson Ellsworth, a principal in Ellsworth, Wiles &
Chalphin, P.C., owns directly or indirectly 3,710 shares of the Company's common
stock.
EXPERTS
The consolidated financial statements of the Company as of and for the
years ended December 31, 1996 and 1995, appearing in the 1996 Annual Report of
the Company to its Shareholders and included in the Annual Report on Form 10-K
for the year ended December 31, 1996, are incorporated by reference in this
Prospectus or in the Registration Statement of which this Prospectus forms a
part, have been audited by Grant Thornton LLP, independent certified public
accountants, whose reports thereon appear therein, and in reliance upon such
reports of Grant Thornton LLP, given upon the authority of such firm as experts
in accounting and auditing.
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
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 COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Incorporation of Certain Documents by
Reference........................... 4
Prospectus Summary.................... 6
Risk Factors.......................... 9
National Penn Bancshares, Inc. ....... 15
Selected Consolidated Financial Data
and Other Information............... 16
Recent Developments................... 17
NPB Capital Trust..................... 19
Use of Proceeds....................... 19
Capitalization........................ 20
Accounting Treatment.................. 21
Description of Preferred Securities... 21
Description of Junior Subordinated
Debentures.......................... 34
Description of Guarantee.............. 43
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee........ 45
Certain Federal Income Tax
Consequences........................ 47
Certain ERISA Considerations.......... 51
Supervision, Regulation and Other
Matters............................. 52
Underwriting.......................... 53
Validity of Securities................ 55
Experts............................... 55
</TABLE>
======================================================
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NATIONAL PENN BANCSHARES INC. LOGO
$35,000,000
NPB Capital Trust
9.00% PREFERRED SECURITIES
(Liquidation Amount $25 per
Preferred Security)
Fully and Unconditionally Guaranteed,
to the Extent Described Herein, by
NATIONAL PENN
BANCSHARES, INC.
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
May 16, 1997
======================================================
