<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-55947
333-55947-01
PROSPECTUS
- -------------------------------------------------------------------------------
6,000,000 Capital Securities
CNB CAPITAL TRUST I
6.0% Shared Preference Redeemable Securities ("SPuRS"sm)
(Liquidation Amount $25 per Capital Security)
guaranteed, as described herein by, and
convertible into common stock of,
LOGO
- -------------------------------------------------------------------------------
The 6.0% Shared Preference Redeemable Securities (the "SPuRS" or "Capital
Securities") offered hereby represent preferred undivided beneficial ownership
interests in the assets of CNB Capital Trust I, a statutory business trust
created under the laws of the State of Delaware (the "Issuer"). CNB
Bancshares, Inc., an Indiana corporation (the "Company"), will be the owner of
all the beneficial ownership interests represented by the common securities of
the Issuer (the "Common Securities" and, together with the SPuRS, the "Trust
Securities").
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 10 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public(1) Commission(2)(3) Issuer(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Capital Security $25.00 $0.625 $25.00
- -------------------------------------------------------------------------------
Total(4) $150,000,000 $3,750,000 $150,000,000
- -------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued distributions, if any, from June 23, 1998, to date of
delivery.
(2) The Issuer and the Company have each agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the SPuRS will be
invested in the Convertible Subordinated Debentures, the Company has
agreed to pay the Underwriters as compensation for their arranging the
investment therein of such proceeds $0.625 per SPuRS, or $3,750,000 in the
aggregate ($4,312,500 if the over-allotment option is exercised in full).
See "Underwriting." The Company also has agreed to pay the expenses of the
offering estimated to be $460,000.
(4) The Issuer has granted the Underwriters an option exercisable within 30
days from the date of this Prospectus to purchase up to 900,000 additional
SPuRS on the same terms and conditions set forth above to cover over-
allotments, if any. If all such additional SPuRS are purchased, the total
Price to Public and Proceeds to Issuer will be $172,500,000.
The SPuRS are offered hereby subject to prior sale when, as and if accepted by
the Underwriters named herein. It is expected that the SPuRS will be ready for
delivery in book-entry form only through the facilities of The Depository
Trust Company in New York, New York, on or about June 23, 1998, against
payment therefor in immediately available funds.
SBC WARBURG DILLON READ INC. CIBC OPPENHEIMER
STIFEL, NICOLAUS & COMPANY INCORPORATED
HOWE BARNES INVESTMENTS, INC.
NATCITY INVESTMENTS, INC.
KEEFE, BRUYETTE & WOODS, INC.
WEDGEWOOD PARTNERS, INC.
The date of this Prospectus is June 18, 1998
<PAGE>
(cover page continued)
The Bank of New York is the Property Trustee (as defined herein) of the
Issuer. The Issuer exists for the sole purpose of issuing the Capital
Securities and the Common Securities and investing the proceeds thereof in
6.0% Convertible Subordinated Debentures (the "Convertible Subordinated
Debentures") to be issued by the Company. The Convertible Subordinated
Debentures will mature on June 30, 2028 (the "Stated Maturity"). The Capital
Securities will have a preference under certain circumstances with respect to
cash distributions and amounts payable on liquidation or redemption over the
Common Securities. See "Description of Trust Securities--Subordination of
Common Securities."
Each Capital Security is convertible on or after August 22, 1998, at the
option of the holder thereof into shares of common stock, stated value $1.00
per share (the "Common Stock"), of the Company, at an initial conversion ratio
of 0.4605 shares of Common Stock for each Capital Security (equivalent to an
initial conversion price of $54.29 per share of Common Stock), subject to
adjustment under certain circumstances (such conversion ratio, as it may be
adjusted from time to time as described herein, the "Conversion Ratio"). The
Common Stock is listed on the New York Stock Exchange (the "NYSE") under the
symbol "BNK". On June 18, 1998, the last reported sale price of the Common
Stock on the NYSE Composite Tape was $44.50. The Capital Securities have been
approved for listing on the NYSE, subject to official notice of issuance,
under the symbol "BNK PrA".
Holders of the Capital Securities will be entitled to receive cumulative
cash distributions accruing from the date of original issuance and payable
quarterly in arrears on the last day of March, June, September and December of
each year, commencing September 30, 1998, at the annual rate of 6.0% of the
liquidation amount (the "Liquidation Amount") of $25 per Capital Security
("Distributions"). Subject to certain exceptions, as described herein, the
Company has the right to defer payment of interest on the Convertible
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 Convertible Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all
interest then accrued and unpaid (together with interest thereon at the rate
of 6.0% per annum, compounded quarterly, to the extent permitted by applicable
law), the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Convertible
Subordinated Debentures are so deferred, Distributions on the Capital
Securities also will 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 debt securities
that rank pari passu with or junior to the Convertible Subordinated
Debentures. During an Extension Period, interest on the Convertible
Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Capital Securities are entitled will
accumulate), at the rate of 6.0% per annum, compounded quarterly from the
relevant payment date for such interest, and holders of Capital Securities
will be required to accrue interest income for U.S. federal income tax
purposes. See "Description of Convertible Subordinated Debentures--Right to
Defer Interest Payments" and "Certain Federal Income Tax Consequences--
Potential Extension of Interest Payment Period and Original Issue Discount."
The Convertible Subordinated Debentures are unsecured and subordinated to
all Senior Debt (as defined herein) of the Company. Substantially all of the
Company's existing indebtedness constitutes Senior Debt. At June 18, 1998, the
aggregate amount of Senior Debt outstanding was $48.0 million. Because the
Company is a holding company, the right of the Company to participate in any
distribution of the assets of any subsidiary, including any bank subsidiary,
upon such subsidiary's liquidation or reorganization or otherwise (and thus
the ability of holders of the Trust Securities, or the holders of the Common
Stock which may be acquired upon conversion of the Capital Securities, to
benefit indirectly from such distribution) is subject to the prior claims of
creditors of that subsidiary, except to the extent that the Company may itself
be recognized as a creditor of that subsidiary. Accordingly, the Convertible
Subordinated Debentures (and therefore the Capital Securities) will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders thereof should only look to the assets of
the Company for payments on the Convertible Subordinated Debentures. See
"Description of Convertible Subordinated Debentures--Subordination."
(continued on next page)
<PAGE>
(cover page continued)
The Company has, through the Guarantee, the Trust Agreement, the Convertible
Subordinated Debentures and the Indenture (each as defined herein), taken
together, fully, irrevocably and unconditionally guaranteed all obligations of
the Issuer under the Capital Securities. See "Relationship Among the Capital
Securities, the Convertible Subordinated Debentures and the Guarantee--Full
and Unconditional Guarantee." The Guarantee of the Company (the "Guarantee")
guarantees the payment of Distributions and payments on liquidation of the
Issuer or redemption of the Capital Securities, but only in each case to the
extent of funds held by the Issuer, as described herein. See "Description of
Guarantee." If the Company does not make interest payments on the Convertible
Subordinated Debentures held by the Issuer, the Issuer will have insufficient
funds to pay Distributions on the Capital Securities. The Guarantee does not
cover payment of Distributions when the Issuer has insufficient funds to pay
such Distributions. In such event, a holder of Capital Securities may
institute a legal proceeding directly against the Company pursuant to the
terms of the Indenture to enforce payment of amounts equal to such
Distributions to such holder. See "Description of Convertible Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities."
The obligations of the Company under the Guarantee are subordinate and junior
in right of payment to all Senior Debt of the Company.
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Convertible Subordinated Debentures at their
Stated Maturity or earlier redemption. Subject to the Company having received
prior approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve") to do so if then required under applicable capital
guidelines or policies, the Convertible Subordinated Debentures are redeemable
prior to their Stated Maturity at the option of the Company (i) on or after
June 23, 2001, in whole at any time or in part from time to time, or (ii) at
any time in certain circumstances as described under "Description of
Convertible Subordinated Debentures--Conditional Right to Redeem upon a Tax
Event or Capital Treatment Event," in whole (but not in part), within 90 days
following the occurrence of a Tax Event or Capital Treatment Event (as such
terms are defined herein). See "Description of Capital Securities--Redemption"
and "Description of Convertible Subordinated Debentures--Redemption."
The Capital Securities have been approved for listing on the NYSE, subject
to official notice of issuance. If Convertible Subordinated Debentures are
distributed to the holders of Capital Securities in exchange therefor upon the
liquidation of the Issuer, the Company will use its best efforts to list the
Convertible Subordinated Debentures on the NYSE or such other stock exchanges
or automated quotation systems, if any, on which the Capital Securities are
then listed or traded.
The Company, as the holder of the outstanding Common Securities of the
Issuer, will have the right at any time to terminate the Issuer, subject to
the Company having received prior approval of the Federal Reserve to do so if
then required under applicable capital guidelines or policies. See
"Description of Capital Securities--Liquidation of Issuer and Distribution of
Convertible Subordinated Debentures to Holders." In the event of the
termination of the Issuer, after satisfaction of liabilities to creditors of
the Issuer as required by applicable law, the holders of the Capital
Securities will be entitled to receive a Liquidation Amount of $25 per Capital
Security plus accumulated and unpaid Distributions thereon to the date of
payment, which may be in the form of a distribution of such amount in
Convertible Subordinated Debentures in exchange therefor, subject to certain
exceptions. See "Description of Capital Securities--Liquidation Distribution
Upon Termination."
The Capital Securities will be represented by one or more global
certificates registered in the name of The Depository Trust Company ("DTC") or
its nominee. Beneficial interests in the Capital Securities will be shown on,
and transfers thereof will be effected only through, records maintained by DTC
and its participants. Except as described herein, Capital Securities in
certificated form will not be issued in exchange for the global certificates.
See "Description of Capital Securities--Registration of Capital Securities."
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES AND THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE OVERALLOTMENT,
STABILIZING TRANSACTIONS, THE PURCHASE OF CAPITAL SECURITIES TO COVER SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF SUCH
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended December
31,1997;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (as amended by the Company's Quarterly Report on Form 10-Q/A
filed with the Commission on May 28, 1998);
(c) The Company's Current Reports on Form 8-K, as filed with the
Commission on May 1, 1998 (as amended by the Company's Current Report on
Form 8-K/A filed with the Commission on June 3, 1998), and June 3, 1998 (as
amended by the Company's Current Report on Form 8-K/A filed with the
Commission on June 16, 1998); and
(d) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, dated April 1, 1996, filed
pursuant to Section 12 of the Exchange Act, including any amendments or
reports filed for the purpose of updating such description.
On April 17, 1998, the Company acquired Pinnacle Financial Services, Inc., a
Michigan corporation ("Pinnacle") (File No. 0-17937). Pinnacle's Annual Report
on Form 10-K for the year ended December 31, 1997 is incorporated herein by
reference.
All reports filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Capital
Securities offered hereby shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUEST FOR SUCH COPIES SHOULD BE
DIRECTED TO KATHRYN P. WILLIAMS, CNB BANCSHARES, INC., 20 N.W. THIRD STREET,
EVANSVILLE, INDIANA 47739. TELEPHONE REQUESTS MAY BE DIRECTED TO 812-456-3400.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company and the Issuer with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Capital Securities, the Convertible Subordinated Debentures, the Common Stock
and the Guarantee. This Prospectus does not contain all of the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, although it does
include a summary of the material terms of the Trust Agreement, the Indenture
and the Guarantee. Reference is made to such Registration Statement and to the
exhibits relating thereto for further information with respect to the Company,
the Issuer, the Capital Securities, the Convertible Subordinated Debentures,
the Common Stock and the Guarantee. Any statements contained herein concerning
the provisions of any document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission or incorporated by reference
herein are not necessarily complete and, in each instance, reference is made
to the copy of such document so filed for a more complete description of the
matter involved. Each such statement is qualified in its entirety by such
reference.
1
<PAGE>
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports and other information with the
Commission. The Issuer is not currently subject to the information reporting
requirements of the Exchange Act and, although the Issuer will become subject
to such requirements upon the effectiveness of the Registration Statement, it
is not expected that the Issuer will be filing separate reports under the
Exchange Act. The Company's reports and other information can be inspected and
copied at the following public reference facilities maintained by the
Commission: 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade
Center, Suite 1300, New York, New York 10048; and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers who file electronically with the Commission. The address of that site
is http://www.sec.gov. Such reports, proxy statements and information also can
be inspected at the office of the NYSE, 20 Broad Street, New York, New York
10005.
No separate financial statements of the Issuer have been included herein.
The Company and the Issuer do not consider that such financial statements
would be material to holders of Capital Securities because (i) all of the
voting securities of the Issuer will be owned by the Company, a reporting
company under the Exchange Act, (ii) the Issuer has no independent operations
but exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Issuer and investing the proceeds
thereof in Convertible Subordinated Debentures issued by the Company, and
(iii) the obligations of the Company described herein to provide certain
indemnities in respect of and be responsible for certain costs, expenses,
debts and liabilities of the Issuer under the Indenture and pursuant to the
Trust Agreement, the Guarantee issued by Company with respect to the Capital
Securities, the Convertible Subordinated Debentures purchased by the Issuer
and the related Indenture, taken together, constitute a full and unconditional
guarantee of payments due on the Capital Securities. See "Description of
Convertible Subordinated Debentures" and "Description of Guarantee."
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Prospectus and in documents
incorporated herein by reference that are not historical facts, including,
without limitation, statements of future expectations, projections of results
of operations and financial condition, statements of future economic
performance and other forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to differ materially from
those contemplated in such forward-looking statements. The words "intend,"
"expect," "project," "estimate," "predict," "anticipate," "should," "believe"
and similar expressions also are intended to identify forward-looking
statements. Important factors which may cause actual results to differ from
those contemplated in such forward-looking statements include, but are not
limited to: (i) the specific matters referred to herein, including, without
limitation, those noted under the caption "Risk Factors," (ii) the results of
the Company's efforts to implement its business strategy, (iii) expected cost
savings that may be associated with future and recently completed or announced
acquisitions, including Pinnacle and National Bancorp, cannot be fully
realized and/or revenues following such acquisitions are lower than expected
and/or expenses following such acquisitions are higher than expected, (iv)
greater than expected deposit attrition or customer loss following the
acquisition of Pinnacle, (v) costs or difficulties related to the integration
of the businesses of the Company and Pinnacle are greater than expected, (vi)
changes in the interest rate environment reduce margins, (vii) legislation or
regulatory requirements or changes adversely affecting the businesses in which
the Company is engaged, (viii) adverse changes in business conditions and
inflation, (ix) general economic conditions, either nationally or regionally,
which are less favorable than expected and that result in, among other things,
a deterioration in credit quality, (x) competitive pressures among financial
institutions increase significantly, (xi) changes in the securities markets,
(xii) actions of the Company's competitors and the Company's ability to
respond to such actions, (xiii) the cost of the Company's capital, which may
depend in part on the Company's portfolio quality, ratings, prospects and
outlook, (xiv) changes in governmental regulation, tax rates and similar
matters, (xv) "year 2000" computer and data processing issues, and (xvi) other
risks detailed in the Company's other filings with the Commission. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the foregoing factors. Investors are cautioned
not to place undue reliance on such statements, which speak only as of the
date hereof. The Company undertakes no obligation to release publicly any
revisions to these forward-looking statements after the completion of this
offering to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
2
<PAGE>
The Company, headquartered in Evansville, Indiana, has banking offices in
four states. The map below highlights the states and counties in which the
Company has banking offices.
LOGO
The distribution of the Company's banking offices, deposits and assets as of
March 31, 1998 is as follows ($ in millions):
<TABLE>
<CAPTION>
BANKING
OFFICES ASSETS DEPOSITS
------- ------ --------
<S> <C> <C> <C>
Indiana........................................... 94 $4,524 $3,294
Illinois.......................................... 12 687 497
Kentucky.......................................... 19 727 440
Michigan.......................................... 14 630 430
--- ------ ------
139 $6,568 $4,661
=== ====== ======
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere (or incorporated by reference) in this
Prospectus. Unless otherwise indicated, (i) the information in this Prospectus
assumes that the Underwriters' over-allotment option will not be exercised,
(ii) all financial information in this Prospectus has been restated to give
retroactive effect to the Company's acquisition of Pinnacle on April 17, 1998
(the "Pinnacle Acquisition"), and (iii) the term "Company," as used under
"Prospectus Summary--CNB Bancshares, Inc." and "The Company," refers
collectively to CNB Bancshares, Inc. and its direct and indirect subsidiaries,
unless the context requires otherwise. Prospective investors should carefully
consider the information set forth under the heading "Risk Factors."
CNB BANCSHARES, INC.
CNB Bancshares, Inc. (the "Company"), headquartered in Evansville, Indiana,
is the largest bank holding company based in Indiana. The Company operates with
a super community bank philosophy--decentralizing day-to-day customer services
such as pricing and lending decisions, while centralizing data processing
systems, product development and back office support functions. Through its 139
banking offices, 29 consumer finance offices, and 190 ATMs, the Company
provides a wide range of commercial banking, retail banking, trust, insurance
and investment services to customers in Indiana, Illinois, Michigan, Kentucky
and Tennessee. At March 31, 1998 (giving effect to the Pinnacle Acquisition),
the Company had assets of $6.6 billion, deposits of $4.7 billion, loans of $3.9
billion and shareholders' equity of $525 million.
The Company has grown significantly through 32 acquisitions of banks and non-
banks since 1986. The Company consummated its largest acquisition to date on
April 17, 1998, when it acquired Pinnacle, a $2.1 billion bank holding company
headquartered in St. Joseph, Michigan. Pinnacle operated 14 offices in
southwestern Michigan and 30 offices in northwestern Indiana. The Pinnacle
Acquisition represents the Company's first entry into these markets. For
additional information regarding the Pinnacle Acquisition, see "Risk Factors--
Pinnacle Acquisition."
The Company's principal executive offices are located at 20 N.W. Third
Street, Evansville, Indiana 47739, and its telephone number is 812-456-3400.
For additional information regarding the Company, see "The Company."
CNB CAPITAL TRUST I
CNB Capital Trust I (the "Issuer") is a statutory business trust created
under Delaware law pursuant to (i) the trust agreement, executed by the
Company, as Depositor, The Bank of New York (Delaware) as Delaware Trustee, and
the Administrative Trustees named therein, and (ii) the filing of a certificate
of trust with the Delaware Secretary of State on June 1, 1998. The initial
trust agreement will be amended and restated in its entirety (as so amended and
restated, the "Trust Agreement") substantially in the form filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Issuer exists for the
exclusive purposes of (i) issuing and selling the Capital Securities and the
Common Securities, (ii) using the proceeds from the sale of the Capital
Securities and the Common Securities to acquire the Convertible Subordinated
Debentures issued by the Company, and (iii) engaging in only those other
activities necessary or incidental thereto (such as registering the transfer of
the Trust Securities). Accordingly, the Convertible Subordinated Debentures
will be the sole assets of the Issuer, and payments under the Convertible
Subordinated Debentures will be the sole revenue of the Issuer. Upon issuance
of the Trust Securities, the purchasers thereof will own all of the Trust
Securities. All of the Common Securities will be owned by the Company. The
principal executive office of the Issuer is c/o CNB Bancshares, Inc., 20 N.W.
Third Street, Evansville, Indiana 47739, and its telephone number is 812-456-
3400. For additional information regarding the Issuer, see "The Issuer."
4
<PAGE>
THE OFFERING
Securities Offered........ 6,000,000 Capital Securities having a Liquida-
tion Amount of $25 per Capital Security. The
Capital Securities represent beneficial owner-
ship interests in the Issuer, which will con-
sist solely of the Convertible Subordinated
Debentures and payments thereunder.
Distributions............. The Distributions payable on each Capital Secu-
rity will be fixed at a rate per annum of 6.0%
of the Liquidation Amount of $25 per Capital
Security, will be cumulative, will accrue from
June 23, 1998, the date of original issuance
of the Capital Securities, and will be payable
quarterly in arrears, on March 31, June 30,
September 30 and December 31 of each year,
commencing September 30, 1998. The first Dis-
tribution payable on September 30, 1998, will
be in the amount of $0.404167 per Capital Se-
curity and thereafter quarterly Distributions
will be in the amount of $0.3750 per Capital
Security. See "Description of Capital Securi-
ties--Distributions--Payment of Distribu-
tions."
Right to Defer Interest... The Company has the right, at any time, so long
as no Debenture Event of Default (as defined
herein) has occurred and is continuing, to de-
fer payments of interest on the Convertible
Subordinated Debentures for a period not ex-
ceeding 20 consecutive quarters; provided,
that no Extension Period may extend beyond the
Stated Maturity of the Convertible Subordi-
nated Debentures. As a consequence of the ex-
tension by the Company of the interest payment
period, quarterly Distributions on the Capital
Securities will be deferred (though such Dis-
tributions will continue to accrue with inter-
est thereon compounded quarterly, since inter-
est will continue to accrue and compound on
the Convertible Subordinated Debentures) dur-
ing any such Extension Period. During an Ex-
tension Period, the Company will, among other
things, be prohibited, subject to certain ex-
ceptions described herein, from declaring or
paying any cash distributions with respect to
its capital stock or debt securities that rank
pari passu with or junior to the Convertible
Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all
amounts then due, the Company may commence a
new Extension Period, subject to the foregoing
requirements. See "Description of Capital Se-
curities--Distributions--Extension Period" and
"Description of Convertible Subordinated De-
bentures--Right to Defer Interest Payments."
Should an Extension Period occur, holders of
Capital Securities will be required to include
deferred interest income in their gross income
for U.S. federal income tax purposes in ad-
vance of receipt of the cash distributions
with respect to such deferred interest pay-
ments. See "Certain Federal Income Tax Conse-
quences--Potential Extension of Interest Pay-
ment Period and Original Issue Discount."
Conversion into Common Each Capital Security is convertible on or af-
Stock.................... ter August 22, 1998, at the option of the
holder into shares of Common Stock, at the
initial
5
<PAGE>
Conversion Ratio of 0.4605 shares of Common
Stock for each Capital Security (equivalent to
an initial conversion price of $54.29 per
share of Common Stock), subject to adjustment
under certain circumstances. The last reported
sales price of the Common Stock on the NYSE
Composite Tape on June 18, 1998, was $44.50.
In connection with any conversion of a Capital
Security, the Conversion Agent (as defined
herein) will exchange such Capital Security
for the appropriate principal amount of Con-
vertible Subordinated Debentures held by the
Issuer and immediately convert such Convert-
ible Subordinated Debentures into shares of
Common Stock. No fractional shares of Common
Stock will be issued as a result of conver-
sion, but in lieu thereof such fractional in-
terest will be paid by the Company in cash. In
addition, no additional shares of Common Stock
will be issued upon conversion of the Convert-
ible Subordinated Debentures to account for
any accrued and unpaid Distributions on the
Capital Securities at the time of conversion.
See "Description of Capital Securities--Con-
version Rights."
Convertible Subordinated The Trust will invest the proceeds from the is-
Debentures............... suance of the Capital Securities and the Com-
mon Securities in an equivalent amount of Con-
vertible Subordinated Debentures of the Compa-
ny. The Convertible Subordinated Debentures
will mature on June 30, 2028. The Convertible
Subordinated Debentures will rank subordinate
and junior in right of payment to all Senior
Debt of the Company. In addition, the
Company's obligations under the Convertible
Subordinated Debentures will be structurally
subordinated to all existing and future lia-
bilities and obligations of its subsidiaries.
See "Risk Factors--Ranking of Subordinated Ob-
ligations Under Guarantee and Convertible Sub-
ordinated Debentures," and "Description of
Convertible Subordinated Debentures--Subordi-
nation."
Redemption................ The Capital Securities are subject to mandatory
redemption, in whole or in part, upon repay-
ment of the Convertible Subordinated Deben-
tures at maturity or their earlier redemption.
Subject to Federal Reserve approval, if then
required under applicable capital guidelines
or policies of the Federal Reserve, the Con-
vertible Subordinated Debentures are redeem-
able prior to maturity at the option of the
Company (i) on or after June 23, 2001, in
whole at any time or in part from time to
time, or (ii) at any time, in whole (but not
in part), within 90 days following the occur-
rence of a Tax Event or a Capital Treatment
Event, in each case at the redemption price
equal to 100% of the principal amount of the
Convertible Subordinated Debenture, together
with any accrued but unpaid interest to the
date fixed for redemption. See "Description of
Capital Securities--Redemptions" and "Descrip-
tion of Convertible Subordinated Debentures--
Redemption."
Distribution of
Convertible Subordinated
Debentures...............
The Company, as the holder of the outstanding
Common Securities of the Issuer, has the right
at any time to terminate the Issuer and cause
the Convertible Subordinated Debentures to be
distributed to holders
6
<PAGE>
of Capital Securities in liquidation of the
Issuer, subject to the Company having received
prior approval of the Federal Reserve to do so
if then required under applicable capital
guidelines or policies of the Federal Reserve.
See "Description of Capital Securities--Re-
demption--Liquidation of Issuer and Distribu-
tion of Convertible Subordinated Debentures."
Guarantee................. The Company has guaranteed the payment of Dis-
tributions and payments on liquidation or re-
demption of the Capital Securities, but only
in each case to the extent of funds held by
the Issuer, as described herein. The Company
has, through the Guarantee, the Trust Agree-
ment, the Convertible Subordinated Debentures,
and the Indenture taken together, fully, ir-
revocably and unconditionally guaranteed all
of the obligations of the Issuer under the
Capital Securities. The obligations of the
Company under the Guarantee and the Capital
Securities are subordinate and junior in right
of payment to all Senior Debt of the Company.
If the Company does not make principal or in-
terest payments on the Convertible Subordi-
nated Debentures, the Issuer will not have
sufficient funds to make Distributions on the
Capital Securities; in which event, the Guar-
antee will not apply to such Distributions un-
til the Issuer has sufficient funds available
therefor. See "Description of Guarantee."
Limited Voting Rights..... The holders of the Capital Securities will have
no voting rights except in limited circum-
stances. See "Description of Capital Securi-
ties--Voting Rights; Amendment of Trust Agree-
ment."
Use of Proceeds........... The proceeds from the sale of the Capital Secu-
rities offered hereby will be used by the Is-
suer to purchase the Convertible Subordinated
Debentures issued by the Company. The Company
intends to use the net proceeds from the sale
of the Convertible Subordinated Debentures for
general corporate purposes including, without
limitation, the repayment of debt, the funding
of investments in or extensions of credit to
its subsidiaries, the financing of acquisi-
tions and the repurchase of its Common Stock.
Pending their application for any or all of
such purposes, the net proceeds will be in-
vested primarily in investment grade financial
instruments. See "Use of Proceeds" and "Capi-
talization."
Trading Symbol............ The Capital Securities have been approved for
listing on the NYSE under the symbol "BNK
PrA", subject to official notice of issuance.
7
<PAGE>
SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The summary supplemental consolidated financial data presented below have
been prepared in accordance with generally accepted accounting principles, have
been restated to reflect the Pinnacle Acquisition which was accounted for under
the pooling of interests method of accounting, and should be read in
conjunction with the Company's Current Report on Form 8-K filed with the
Commission on June 3, 1998 (as amended by the Company's Current Report on Form
8-K/A filed with the Commission on June 16, 1998). Generally accepted
accounting principles prescribe giving effect to a consummated business
combination, such as the Pinnacle Acquisition, accounted for by the pooling of
interests method in financial statements that do not include the date of
consummation. This summary supplemental consolidated financial data does not
extend through the date of consummation of the Pinnacle Acquisition; however,
it will become the historical summary consolidated financial data of the
Company after the consolidated financial statements covering the date of
consummation of the business combination are issued. The unaudited summary
supplemental consolidated financial data presented below for, and as of, the
three-month periods ended March 31, 1998 and 1997 reflect, in the opinion of
management, all adjustments considered necessary for fair presentation. Interim
results for the three months ended March 31, 1998 are not necessarily
indicative of results which may be expected for future periods, including the
year ending December 31, 1998. See "Available Information," "Incorporation of
Certain Documents by Reference," "Risk Factors--Pinnacle Acquisition" and "The
Company--Recent Developments."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------------------------
1998 1997 1997(5) 1996(6) 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Interest income........ $ 123,157 $ 120,147 $ 500,694 $ 451,728 $ 387,880 $ 314,414 $ 305,748
Interest expense....... 65,792 63,562 267,112 234,496 198,448 146,342 147,194
Net interest income.... 57,365 56,585 233,582 217,232 189,432 168,072 158,554
Provision for loan
losses................ 3,316 3,563 24,886 13,283 8,349 7,538 5,679
Non-interest income.... 22,155 17,126 79,091 68,686 56,437 56,126 53,251
Non-interest expense... 47,619 43,745 198,224 191,940 157,108 146,942 135,854
Net income............. 19,582 17,548 59,874 53,682 52,847 45,954 47,043
Per share data:
Net income
Basic................ $ .58 $ .53 $ 1.80 $ 1.61 $ 1.70 $ 1.48 $ 1.54
Diluted.............. .58 .52 1.78 1.59 1.67 1.45 1.51
Dividends declared(1).. .23 .21 .86 .78 .53 .68 .64
Book value............. 15.64(4) 14.55 15.39 15.26 15.32 14.26 13.14
Balance sheet data at
period end:
Assets................. $6,568,285(4) $6,395,754 $6,595,718 $6,351,785 $5,576,314 $4,806,175 $4,413,795
Earning assets......... 6,101,945 5,992,409 6,144,991 5,928,180 5,177,427 4,479,696 4,034,543
Loans.................. 3,941,716 3,731,399 3,988,016 3,690,944 3,227,232 3,081,314 2,674,577
Deposits............... 4,660,897 4,552,296 4,614,555 4,593,441 4,255,135 3,631,957 3,560,483
FHLB advances and
long-term debt........ 654,000 597,090 722,393 545,968 202,939 252,384 236,119
Shareholders' equity... 524,635(4) 484,860 515,463 495,673 475,789 401,630 396,091
Financial ratios:
Return on average
assets(2)............. 1.20% 1.13% .93% .91% 1.05% 1.02% 1.09%
Return on average
equity(2)............. 15.32 14.41 12.02 11.16 12.31 11.37 12.68
Net interest
margin(2)............. 3.89 3.95 3.94 4.03 4.09 4.07 4.04
Equity to assets....... 7.99(4) 7.58 7.82 7.80 8.53 8.36 8.97
Tier 1 risk-based
capital............... 11.77(4) 11.93 11.49 11.92 11.93 11.87 12.63
Net charge-offs to
average loans(2)...... .34 .37 .42 .36 .27 .15 .20
Allowance for loan
losses to loans....... 1.40 1.25 1.38 1.25 1.34 1.33 1.32
Non-performing loans
to loans.............. .76 .84 .70 .91 1.00 .65 .80
Allowance for loan
losses to non-
performing loans...... 184 149 197 137 134 205 164
Risk assets to loan-
related assets(3)..... 1.12 1.23 1.10 1.36 1.38 1.11 1.35
</TABLE>
8
<PAGE>
- --------
(1) Not restated for pooling transactions. In the years prior to 1995, CNB
declared a dividend in one quarter and paid it in the next quarter. During
1995, CNB changed this policy and began declaring and paying dividends in
the same quarter. The fourth quarter dividend for 1995 was declared and
paid in January 1996.
(2) Annualized in the case of interim financial data.
(3) Risk assets include non-performing loans, loans past due 90 days and still
accruing interest and foreclosed properties. Loan-related assets include
loans and foreclosed properties.
(4) Results for 1998 do not reflect the one-time merger-related charges of
$30.0 million, net of taxes, that will be recorded by the Company during
the second quarter of 1998 in connection with the Pinnacle Acquisition
consummated on April 17, 1998. Including the effect of the charges, book
value per share would have been $14.75, assets would have been $6,550,585,
shareholders' equity would have been $494,635, equity to assets ratio would
have been 7.55% and Tier 1 risk-based capital ratio would have been 11.07%.
(5) Net income for 1997 was negatively impacted by restructuring charges of
$8.4 million, net of taxes, and conforming loan loss methodology charges of
$6.0 million, net of taxes, in connection with Pinnacle's August 1997
acquisitions of Indiana Federal Corporation and CB Bancorp reducing basic
and diluted income per share by $.43.
(6) Net income for 1996 included a one-time assessment, required of all
financial institutions with deposits insured by the Savings Association
Insurance Fund (SAIF), which reduced net income by $6.6 million and basic
and diluted earnings per share by $.20.
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Capital Securities should carefully consider,
together with the information set forth under "Forward-Looking Statements" and
the other information contained herein and incorporated by reference herein,
the following risk factors in evaluating the Company and the Issuer. In
addition, because holders of Capital Securities may receive Convertible
Subordinated Debentures in exchange therefor upon liquidation of the Issuer,
and because the Capital Securities also are convertible into shares of Common
Stock of the Company as described herein, prospective purchasers of Capital
Securities also are making an investment decision with regard to the
Convertible Subordinated Debentures and the Common Stock and should carefully
review all the information herein or incorporated by reference herein
regarding the Convertible Subordinated Debentures and the Common Stock.
PINNACLE ACQUISITION
The Company acquired Pinnacle on April 17, 1998, increasing the Company's
total assets by approximately 50%. During the second quarter of 1998, the
Company will record one-time merger-related charges of $41.3 million ($30.0
million after taxes), which include $8.3 million for technology-related costs,
$9.7 million for severance and personnel costs, $6.7 million for professional
fees, $11.2 million in conforming accounting policies of Pinnacle to those of
the Company, and $5.4 million in other costs. During the two year period prior
to its agreement to merge with the Company, Pinnacle increased its assets from
$449 million to $2.1 billion as a result of three significant acquisitions. On
August 1, 1997, Pinnacle completed its most recent mergers with Indiana
Federal Corporation ("IFC"), headquartered in Valparaiso, Indiana, and CB
Bancorp ("CB"), headquartered in Michigan City, Indiana. In connection with
these two mergers, which increased its assets by approximately 95%, Pinnacle
experienced significant problems with the conversion of the data processing
systems and related reconcilement issues, the integration of operations, and
the departure of certain employees. These problems created customer service
issues, including the misposting of customer transactions, resulting in lower
than expected revenues and greater than expected expenses since the conversion
in the fourth quarter of 1997. The Company continues to work on clearing the
reconciling items and does not expect the resolution of such items to have a
material impact on the Company's future financial results.
The Company expects to achieve cost savings through the Pinnacle
Acquisition, principally from the consolidation of data processing and back
office operations and a reduction of corporate overhead, and also expects to
improve net interest income through a restructuring of the investment
portfolio and borrowed funds position and to increase non-interest income
through reduction in the waiver of fees, the sale of expanded product lines
and increased sales efforts. There can, however, be no assurance that such
cost savings and improvements will be achieved in the amounts or within the
time frames currently expected. The failure to achieve such cost savings and
improvements could adversely affect the market price for the Company's Common
Stock.
GROWTH THROUGH ACQUISITIONS
The Company has grown significantly through 32 acquisitions of banks and
non-banks since 1986. The future growth of the Company will be dependent in
part upon the ability of the Company to acquire businesses at favorable
prices, terms and conditions, and to properly manage and integrate their
operations. The Company's ability to expand successfully through acquisitions
depends upon many factors, including the successful identification and
acquisition of financial institutions and other related businesses and
management's ability to effectively integrate the acquired businesses. Future
acquisitions by the Company may involve the issuance of Common Stock which
would have the effect of diluting the ownership interests of the existing
shareholders of the Company.
Acquisitions entail risks that business judgments will prove inaccurate with
respect to anticipated market growth, projected revenue enhancements, and
expected operating expense savings. Acquisitions also entail the risks of the
diversion of management's attention and the conversion of the operations and
the assimilation of
10
<PAGE>
personnel of the acquired companies, each of which could adversely affect the
Company's operating results. In addition, the success of any acquisition will
depend in part upon the Company's ability to effectively integrate the
acquired company into the Company's operations and implement its business
style and philosophy.
There can be no assurance that future acquisition opportunities, if any, can
be consummated on favorable terms, that the Company will be successful in
acquiring or integrating any businesses, or that any such acquisitions,
including Pinnacle, will enhance the earnings of the Company.
RANKING OF SUBORDINATED OBLIGATIONS UNDER GUARANTEE AND CONVERTIBLE
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Trust Securities and under the Convertible
Subordinated Debentures are unsecured and rank subordinate and junior in right
of payment to all Senior Debt of the Company, whether now existing or
hereafter incurred. At June 18, 1998, the aggregate outstanding Senior Debt of
the Company was $48.0 million. Because the Company is a holding company, the
right of the Company to participate in any distribution of the assets of any
subsidiary, including any bank subsidiary, upon such subsidiary's liquidation
or reorganization or otherwise (and thus the ability of holders of the Trust
Securities, or the holders of the Common Stock which may be acquired upon
conversion of the Capital Securities, to benefit indirectly from such
distribution) is subject to the prior claims of creditors of that subsidiary
(including depositors in the case of the bank subsidiaries), except to the
extent that the Company may itself be recognized as a creditor of that
subsidiary. There are various legal limitations on the extent to which certain
of the Company's subsidiaries may extend credit, pay dividends or management
fees or otherwise supply funds to, or engage in transactions with, the Company
or certain of its other subsidiaries. The Convertible Subordinated Debentures
and the Guarantee, therefore, will be effectively subordinated to all existing
and future liabilities of the Company's subsidiaries and holders of
Convertible Subordinated Debentures, Capital Securities and beneficiaries of
the Guarantee should look only to the assets of the Company for payments on
the Convertible Subordinated Debentures or under the Guarantee, as the case
may be. Neither the Indenture, the Guarantee nor the Trust Agreement places
any limitation on the amount of secured or unsecured debt, including Senior
Debt that may be incurred by the Company or its subsidiaries. See "Description
of Guarantee--Status of Guarantee" and "Description of Convertible
Subordinated Debentures--Subordination."
The ability of the Issuer to pay amounts due on the Capital Securities is
dependent solely upon the Company making payments on the Convertible
Subordinated Debentures as and when required.
HOLDING COMPANY SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, the Company is expected to act as a source of
financial strength to, and to commit resources to support, each of its
subsidiary banks. Such support may be required at times when, absent such
Federal Reserve policy, the Company may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
RIGHT TO DEFER INTEREST PAYMENTS; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture Event
of Default has occurred and is continuing, to defer the payment of interest on
the Convertible Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with respect to each Extension
Period; provided that no Extension Period may extend beyond the Stated
Maturity of the Convertible Subordinated Debentures. As a consequence of any
such deferral, quarterly Distributions on the Capital Securities by the Issuer
will be deferred (and the amount of Distributions to which holders of the
Capital Securities are entitled will accumulate additional Distributions
thereon at the rate of 6.0% per annum, compounded quarterly from the relevant
payment date for such Distributions) during any such Extension Period. During
any such Extension Period, the Company
11
<PAGE>
may not and may not permit any subsidiary of the Company to, (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any capital stock of the Company, (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Convertible Subordinated Debentures, or
(iii) make any guarantee payments with respect to any guarantee by the Company
of the debt securities of any subsidiary of the Company if such guarantee
ranks pari passu with or junior in interest to the Convertible Subordinated
Debentures (other than (a) dividends or distributions in capital stock of the
Company, (b) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the redemption or repurchase
of any such rights pursuant thereto, (c) purchases of Common Stock or rights
related to the rights under any of the Company's benefit plans for its
directors, officers or employees related to the issuance of Common Stock or
rights under a dividend reinvestment and stock purchase plan, or related to
the issuance of Common Stock (or securities convertible into or exchangeable
for Common Stock) as consideration in an acquisition transaction that was
entered into prior to the commencement of such Extension Period, and (d)
payments under the Guarantee). 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 quarters or extend beyond the
Stated Maturity of the Convertible 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 6.0%
compounded quarterly from the interest payment date for such interest, to the
extent permitted by applicable law), the Company may elect to begin a new
Extension Period, subject to the above requirements. Subject to the foregoing,
there is no limitation on the number of times that the Company may elect to
begin an Extension Period. See "Description of Capital Securities--
Distributions--Extension Period" and "Description of Convertible Subordinated
Debentures--Right to Defer Interest Payments."
Should an Extension Period occur, a holder of Capital Securities will be
required to accrue and recognize income (in the form of original issue
discount) in respect of its pro rata share of the stated interest accruing on
the Convertible Subordinated Debentures held by the Issuer for U.S. federal
income tax purposes. In this instance, a holder of Capital Securities must
include its pro rata share of the stated interest on the Convertible
Subordinated Debentures in gross income for U.S. federal income tax purposes
on a daily economic accrual basis, regardless of such holder's regular method
of tax accounting and in advance of the receipt of the cash attributable to
such income, and will not receive the cash related to such income from the
Issuer if the holder disposes of the Capital Securities prior to the record
date for the payment of the related Distributions. See "Certain Federal Income
Tax Consequences--Potential Extension of Interest Payment Period and Original
Issue Discount" and "--Disposition of Capital Securities."
The Company has no current intention of exercising its right to defer
payments of interest and it believes that, as a result of its inability to pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, its Common Stock during an Extension
Period and the additional restrictions imposed upon it as described above, the
likelihood of its exercising its right to defer payments of interest is
remote. Should the Company elect, however, to exercise such right in the
future, the market price of the Capital Securities is likely to be adversely
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. As a result of the
existence of the Company's right to defer interest payments, the market price
of the Capital Securities may be more volatile than the market prices of other
securities on which original issue discount accrues that are not subject to
such optional deferrals.
REDEMPTION UPON TAX EVENT OR CAPITAL TREATMENT EVENT
The Company has the right to redeem the Convertible Subordinated Debentures
in whole (but not in part) within 90 days following the occurrence and
continuance of a Tax Event or a Capital Treatment Event (whether occurring
before or after June 23, 2001), and, therefore, cause a mandatory redemption
of the Trust Securities. The exercise of such right is subject to the Company
having received prior approval of the Federal Reserve to do so if then
required under applicable capital guidelines or policies of the Federal
Reserve.
12
<PAGE>
A "Tax Event" means the receipt by the Issuer of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced proposed change) in, the laws (or any
regulations thereunder) of the U.S. or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer is, or will be within 90 days of the
date of such opinion, subject to U.S. federal income tax with respect to
income received or accrued on the Convertible Subordinated Debentures, (ii)
interest payable by the Company on the Convertible Subordinated Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by
the Company, in whole or in part, for U.S. federal income tax purposes, or
(iii) the Issuer is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges. With respect to Convertible Subordinated Debentures
which are no longer held by the Issuer or another issuer, "Tax Event" means
the receipt by the Company of an opinion of counsel experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced proposed change) in, the laws (or any regulations
thereunder) of the U.S. or any political subdivision or taxing authority
thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Convertible Subordinated Debentures under the Indenture, there is more than an
insubstantial risk that interest payable by the Company on the Convertible
Subordinated Debentures is not, or within 90 days of the date of such opinion
will not be, deductible by the Company, in whole or in part, for U.S. federal
income tax purposes (each of the circumstances referred to in clauses (i),
(ii) and (iii) of the preceding sentence and the circumstances referred to in
this sentence being referred to herein as an "Adverse Tax Consequence").
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of any amendment to, or change (including any
proposed change) in, the laws (or any regulations thereunder) of the U.S. 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
which proposed change, pronouncement, action or decision is announced on or
after the date of issuance of the Capital Securities under the Trust
Agreement, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes
of the capital adequacy guidelines of the Federal Reserve, as then in effect
and applicable to the Company.
The Company intends to deduct the interest accruing on the Convertible
Subordinated Debentures. Under the Taxpayer Relief Act of 1997, enacted on
August 5, 1997, issuers of certain convertible debt instruments are not
entitled to deduct interest thereon. For example, interest is not deductible
if the debt instrument is convertible into equity of the issuer (or a related
party) at the option of the holder and there is a substantial certainty that
the holder will exercise the conversion option. Similarly, interest is not
deductible if the debt instrument is part of an arrangement which is
reasonably expected to result in a conversion at the option of the issuer (or
a related party). The Company intends to take the position that this
legislation should not apply to the Convertible Subordinated Debentures. The
Internal Revenue Service (the "IRS"), however, has not yet issued any guidance
regarding its interpretation of the new legislation. There can be no assurance
that the IRS will not take the position that interest on the Convertible
Subordinated Debentures is not deductible. Accordingly, there can be no
assurance that an audit or future interpretation by the IRS of the new
legislation will not result in a Tax Event and an early redemption of the
Capital Securities before, or after, June 23, 2001.
In addition, in recent years, there have been several proposals to adopt
legislation which, if enacted and made applicable to the Convertible
Subordinated Debentures, would preclude the Company from deducting interest
thereon. The most recent proposal was made by the Clinton Administration on
March 19, 1997. Such proposals were not adopted by Congress, but there can be
no assurance that similar proposals will not be adopted in the future and made
applicable to the Convertible Subordinated Debentures. Accordingly, there can
be no
13
<PAGE>
assurance that any such legislation will not result in a Tax Event which would
permit the Company to cause a redemption of the Capital Securities before, or
after, June 23, 2001.
Recently, the IRS asserted that the interest payable on a security with
terms that are similar to the terms of the Convertible Subordinated Debentures
(but which are not convertible and which have a longer maturity than the
Convertible Subordinated Debentures) was not deductible for U.S. federal
income tax purposes. The taxpayer in that case has filed a petition in the
U.S. Tax Court challenging the IRS's position on this matter. If this matter
is in fact litigated and the Tax Court were to sustain the IRS's position on
this matter, such judicial decision could result in a Tax Event which would
permit the Company to cause a redemption of the Capital Securities before, or
after, June 23, 2001.
RIGHTS UNDER GUARANTEE
The Guarantee guarantees to the holders of the Trust Securities the
following payments, to the extent not paid by the Issuer: (i) any accumulated
and unpaid Distributions required to be paid on the Trust Securities, to the
extent that the Issuer has funds on hand available therefor at such time, (ii)
the redemption price with respect to any Trust Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding
up or liquidation of the Issuer (unless the Convertible Subordinated
Debentures are distributed to holders of the Trust Securities), the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer has funds
on hand available therefor at such time, and (b) the amount of assets of the
Issuer remaining available for distribution to holders of the Trust Securities
after payment of creditors of the Issuer as required by applicable law. The
Guarantee will be qualified as an indenture under the Trust Indenture Act. The
Guarantee is subordinate as described under "--Ranking of Subordinated
Obligations Under the Guarantee and the Convertible Subordinated Debentures."
The holders of not less than a majority in aggregate Liquidation Amount of
the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity. If the Company were to default on its obligation to pay amounts
payable under the Convertible Subordinated Debentures, the Issuer would lack
funds for the payment of Distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in such event, holders of the Capital
Securities would not be able to rely upon the Guarantee for payment of such
amounts. In the event that an Debenture Event of Default occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest on or principal of the Convertible Subordinated Debentures on the
applicable payment date, then a holder of Capital Securities may institute a
legal proceeding directly against the Company pursuant to the terms of the
Indenture for enforcement of payment to such holder of the principal of or
interest on such Convertible Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Capital Securities of such
holder (a "Direct Action"). In connection with such Direct Action, the Company
will have a right of set-off under the Indenture to the extent of any payment
made by the Company to such holder of Capital Securities in the Direct Action.
Except as described herein, holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the Convertible
Subordinated Debentures or assert directly any other rights in respect of the
Convertible Subordinated Debentures. The exercise by the Company of its right,
as described herein, to defer the payment of interest on the Convertible
Subordinated Debentures does not constitute a Debenture Event of Default. See
"Description of Convertible Subordinated Debentures--Enforcement of Certain
Rights by Holders of Capital Securities," "--Debenture Events of Default" and
"Description of Guarantee." The Trust Agreement provides that each holder of
Capital Securities by acceptance thereof agrees to the provisions of the
Guarantee and the Indenture.
14
<PAGE>
NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES
Holders of Capital Securities generally will have limited voting rights
relating only to the modification of the Capital Securities and the Guarantee
and the exercise of the Issuer's rights as holder of Convertible Subordinated
Debentures. Holders of Capital Securities will not be entitled to vote to
appoint, remove or replace the Property Trustee, the Delaware Trustee or any
Administrative Trustee (each as defined herein), as such voting rights are
vested exclusively in the holder of the Common Securities except, with respect
to the Property Trustee and the Delaware Trustee, upon the occurrence of
certain events described herein. The Property Trustee, the Administrative
Trustees and the Company may amend the Trust Agreement without the consent of
holders of Capital Securities to ensure that the Issuer will not be classified
for U.S. federal income tax purposes as an association or publicly traded
partnership subject to taxation as a corporation unless such action materially
and adversely affects the interests of such holders. See "Description of
Capital Securities--Removal of Issuer Trustees" and "--Voting Rights;
Amendment of Trust Agreement."
EXCHANGE OF CAPITAL SECURITIES FOR CONVERTIBLE SUBORDINATED DEBENTURES
The Company, as the holder of the outstanding Common Securities of the
Issuer, will have the right at any time to terminate the Issuer and, after
satisfaction of liabilities to creditors of the Issuer as required by
applicable law, cause the Convertible Subordinated Debentures to be
distributed to the holders of the Capital Securities in exchange therefor upon
liquidation of the Issuer. The exercise of such right is subject to the
Company having received prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies. See "Description of Capital
Securities--Redemption--Liquidation of Issuer and Distribution of Convertible
Subordinated Debentures."
Under current U.S. federal income tax law and interpretations and assuming,
as expected, that the Issuer is classified as a grantor trust for such
purposes, a distribution of the Convertible Subordinated Debentures upon a
liquidation of the Issuer should not be a taxable event to holders of the
Capital Securities. If, however, a Tax Event were to occur which would cause
the Issuer to be subject to U.S. federal income tax with respect to income
received or accrued on the Convertible Subordinated Debentures, a distribution
of the Convertible Subordinated Debentures by the Issuer could be a taxable
event to the Issuer and the holders of the Capital Securities. See "Certain
Federal Income Tax Consequences--Receipt of Convertible Subordinated
Debentures or Cash Upon Liquidation of Issuer."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or,
if a termination of the Issuer were to occur, for the Convertible Subordinated
Debentures distributed to the holders of the Capital Securities in exchange
for the Capital Securities. Accordingly, the Capital Securities that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Convertible Subordinated Debentures that a holder of
Capital Securities may receive on liquidation of the Issuer, may trade at a
discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Convertible Subordinated Debentures in liquidation of the Issuer and because
Distributions are otherwise limited to payments on the Convertible
Subordinated Debentures, and because the Capital Securities are convertible
into Common Stock as described herein, prospective purchasers of Capital
Securities are also making an investment decision with regard to the
Convertible Subordinated Debentures and the Common Stock and should carefully
review all the information regarding the Convertible Subordinated Debentures
and the Common Stock contained herein. See "Description of Convertible
Subordinated Debentures" and "Description of Capital Stock--Common Stock." As
a result of the existence of the Company's right to defer interest payments,
the market price of the Capital Securities (which represent beneficial
ownership interests in the Issuer) may be more volatile than the market prices
of other securities that are not subject to such optional deferrals. See
"Description of Convertible Subordinated Debentures" and "Description of
Capital Stock--Common Stock."
15
<PAGE>
If the Convertible Subordinated Debentures are distributed to the holders of
Capital Securities upon the liquidation of the Issuer, the Company will use
its best efforts to list the Convertible Subordinated Debentures for trading
on the NYSE or such stock exchanges or other organizations, if any, on which
the Capital Securities are then listed or quoted. The Common Stock is listed
on the NYSE under the symbol "BNK."
TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE CAPITAL SECURITIES
The Capital Securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying
Convertible Subordinated Debentures. A holder of Capital Securities using the
accrual method of tax accounting (and a cash method holder, during and after
an Extension Period or if the Convertible Subordinated Debentures are deemed
to have been issued with original issue discount) that disposes of its Capital
Securities between record dates for payments of Distributions (and
consequently does not receive a Distribution from the Issuer for the period
prior to such disposition) will nevertheless be required to include accrued
but unpaid interest on the Convertible Subordinated Debentures through the
date of disposition in income as ordinary income and to add such amount to its
adjusted tax basis in its pro rata share of the underlying Convertible
Subordinated Debentures deemed disposed of. Such holder will recognize a
capital loss to the extent that the selling price (which may not fully reflect
the value of accrued but unpaid interest) is less than its adjusted tax basis
(which will include all accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for U.S. federal income tax purposes. See "Certain Federal Income Tax
Consequences--Disposition of Capital Securities."
There is no current public market for the Capital Securities. Although the
Capital Securities have been approved for listing on the NYSE, subject to
official notice of issuance, no assurance can be given as to the liquidity of
the trading market for the Capital Securities. The public offering price,
Distribution rate and Conversion Ratio for the Capital Securities have been
determined through negotiations between the Company and the Underwriters.
Prices for the Capital Securities will be determined in the marketplace and
may be influenced by many factors, including prevailing interest rates, the
liquidity of the market for the Capital Securities, the market price of the
Common Stock, investor perceptions of the Company and general industry and
economic conditions.
YEAR 2000 ISSUES
Most computer programs were originally designed to recognize calendar years
by only their last two digits. Consequently, these programs cannot
differentiate the year 2000 and beyond from the year 1900. This programming
issue will affect many data processing systems including those used by the
Company and its commercial customers. Management has formed a committee which
meets weekly to analyze the business and operational issues associated with
the year 2000 and to plan for and monitor the status of corrective measures.
The Company has outsourced most data processing activities and those vendors
are responsible for modifying their programs to be compliant with year 2000
processing. The committee has found that where outside vendors are not
responsible, most programs and equipment are fully depreciated and no write-
off costs will be necessary. Certifications from remaining vendors as to their
year 2000 compliance are expected by mid-1998 and all systems are expected to
be upgraded by December 31, 1998. Based on the foregoing, the Company does not
expect to spend any significant amounts with outside contractors related to
the year 2000. Commercial customers have been contacted and efforts made to
ensure their readiness for year 2000 also. At this time, management does not
anticipate any material impact to the Company's operations, cash flows or
financial condition as a result of these year 2000 issues.
16
<PAGE>
USE OF PROCEEDS
The Issuer will use the gross proceeds received from the sale of the Capital
Securities to purchase Convertible Subordinated Debentures from the Company.
The Company intends to use the net proceeds from the sale of the Convertible
Subordinated Debentures for general corporate purposes including, without
limitation the repayment of debt (as described below), the funding of
investments in or extensions of credit to its subsidiaries, the financing of
acquisitions and the repurchase of its Common Stock. The Company intends to
use approximately $45 million of the net proceeds to reduce to zero the amount
outstanding under the revolving loan portion of its Revolving Credit and Term
Loan Agreement (the "Loan Agreement"), dated March 31, 1995, as amended, with
SunTrust Bank, Nashville, N.A. The Company's obligations under the Loan
Agreement are unsecured and the interest rate under the revolving loan portion
of the Loan Agreement is the London Inter-Bank Offered Rate (LIBOR) plus .50%
(6.16% as of June 18, 1998). At June 18, 1998, $45 million was outstanding
under the revolving loan portion of the Loan Agreement and $3 million was
outstanding under the term loan portion of the Loan Agreement. Amounts
outstanding under the term loan portion of the Loan Agreement are not
currently expected to be repaid with any of the net proceeds. The revolving
loan portion of the Loan Agreement permits borrowings up to $50 million and
the Company may borrow additional amounts thereunder in the future. The
revolving portion of the Loan Agreement matures on June 30, 1999. Pending
their application for any or all of such purposes, the net proceeds will be
invested primarily in investment grade financial instruments. See
"Capitalization."
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth for the respective periods indicated the
ratios of the Company's consolidated earnings to fixed charges (as restated to
give effect to the Pinnacle Acquisition). For purposes of computing the ratio,
earnings represent net income from continuing operations plus total taxes
based on income and fixed charges. Fixed charges, excluding interest on
deposits, include interest expense (other than on deposits), and the
proportion deemed representative of the interest factor of rent expense, net
of income from subleases, and capitalized interest. Fixed charges, including
interest on deposits, include all interest expense and the proportion deemed
representative of the interest factor of rent expense, net of income from
subleases, and capitalized interest.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------- ------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding Interest on Deposits........ 2.54 2.59 2.18 2.51 2.87 3.76 4.36
Including Interest on Deposits........ 1.43 1.42 1.34 1.34 1.41 1.48 1.48
</TABLE>
17
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed for trading on the NYSE under the symbol "BNK."
The following table sets forth the high and low sales prices and cash
dividends declared per share of Common Stock for the periods indicated. Prior
to April, 1996, the Common Stock was quoted on The Nasdaq Stock Market's
National Market under the symbol "CNBE."
<TABLE>
<CAPTION>
PRICE RANGE
------------- DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
First quarter................................... $26.76 $25.17 $.19
Second quarter.................................. 26.30 25.40 .19
Third quarter................................... 28.09 24.72 .19
Fourth quarter.................................. 39.77 27.98 .21
YEAR ENDED DECEMBER 31, 1997
First quarter................................... $38.21 $34.76 $.21
Second quarter.................................. 42.74 37.62 .21
Third quarter................................... 43.19 38.33 .21
Fourth quarter.................................. 48.63 39.69 .23
YEAR ENDING DECEMBER 31, 1998
First quarter................................... $49.38 $41.38 $.23
Second quarter (through June 18)................ 53.75 43.25 .23
</TABLE>
As of June 18, 1998, there were approximately 12,000 holders of record of
the Common Stock. The last reported sales price of the Common Stock on the
NYSE Composite Tape on June 18, 1998 was $44.50.
The holders of the Common Stock will be entitled to receive any cash
dividends as may be declared by the Company's Board of Directors. The
declaration and payment of future dividends to holders of the Common Stock
will be at the discretion of the Company's Board of Directors and will depend
upon the Company's earnings and financial condition, capital requirements of
its subsidiaries, regulatory condition and considerations and such other
factors as the Company's Board of Directors may deem relevant. See
"Description of Capital Stock--Common Stock."
As a holding company, the Company is ultimately dependent upon its
subsidiaries to provide funding for its operating expenses, debt service and
dividends. Various banking laws applicable to the Company's subsidiaries limit
the payment of dividends, management fees and other distributions by such
subsidiaries to the Company and may therefore limit the ability of the Company
to make dividend payments.
18
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at March 31, 1998, on a pro forma basis giving effect to the one-
time merger-related charges related to the Pinnacle Acquisition to be recorded
in the second quarter of 1998, and on an as adjusted basis giving effect to
the issuance of the Trust Securities hereby offered by the Issuer and the
receipt by the Company of the proceeds from the corresponding sale of the
Convertible Subordinated Debentures to the Issuer (the "Offering"), as if the
Offering had been consummated on March 31, 1998.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
AS
ACTUAL PRO FORMA(1) ADJUSTED
---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LONG-TERM DEBT:
Parent company.................... $ 48,000 $ 48,000 $ 3,000(2)
Subsidiaries...................... 606,000 606,000 606,000
---------- ---------- ----------
TOTAL LONG-TERM DEBT............ 654,000 654,000 609,000
GUARANTEED PREFERRED BENEFICIAL
INTERESTS IN THE COMPANY'S
CONVERTIBLE SUBORDINATED
DEBENTURES......................... -- -- 150,000
SHAREHOLDERS' EQUITY:
Preferred stock, no par value per
share, 2,000,000 shares
authorized, no shares issued..... -- -- --
Common stock, stated value $1.00
per share; 100,000,000 shares
authorized, 33,540,415 shares
issued(3)........................ 33,540 33,540 33,540
Capital surplus................... 363,204 363,204 363,204
Retained earnings................. 122,244 92,244 92,244
Accumulated other comprehensive
income........................... 5,647 5,647 5,647
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY...... $ 524,635 $ 494,635 $ 494,635
========== ========== ==========
TOTAL CAPITALIZATION............ $1,178,635 $1,148,635 $1,253,635
========== ========== ==========
CAPITAL RATIOS:
Shareholders' equity to total
assets........................... 7.99% 7.55% 7.43%
Leverage ratio(4)................. 7.31 6.87 9.05
Risk-based:(4)
Tier 1 capital to risk-weighted
assets......................... 11.77 11.07 14.74
Total capital to risk-weighted
assets......................... 13.14 12.45 16.11
</TABLE>
- --------
(1) Gives effect to the one-time merger-related charges of $30.0 million, net
of taxes, that will be recorded during the second quarter of 1998. See
"Risk-Factors--Pinnacle Acquisition" and "The Company--Recent
Developments."
(2) Gives effect to the reduction of indebtedness under the revolving loan
portion of the Loan Agreement. See "Use of Proceeds" for a description of
the Loan Agreement.
(3) The Company's Restated Articles of Incorporation was amended at its Annual
Meeting of Shareholders on April 21, 1998, to increase the number of
authorized shares of Common Stock from 50,000,000 to 100,000,000.
(4) Federal Reserve guidelines for calculation of Tier 1 capital limit the
amount of cumulative preferred stock which can be included in Tier 1
capital to 25% of total Tier 1 capital. The aggregate amount of the
Capital Securities offered hereby will initially be included in Tier 1
capital for the Company. The as adjusted capital ratios are computed
including the estimated proceeds from the sale of the Capital Securities.
19
<PAGE>
THE COMPANY
GENERAL
The Company, headquartered in Evansville, Indiana, is the largest bank
holding company based in Indiana. Through its 139 banking offices, 29 consumer
finance offices, and 190 ATMs, the Company provides a wide range of commercial
banking, retail banking, trust, insurance and investment services to customers
in Indiana, Illinois, Michigan, Kentucky and Tennessee. At March 31, 1998
(giving effect to the Pinnacle Acquisition), the Company had assets of $6.6
billion, deposits of $4.7 billion, loans of $3.9 billion and shareholders'
equity of $525 million.
The Company has grown significantly through 32 acquisitions of banks and
non-banks since 1986. The Company consummated its largest acquisition to date
on April 17, 1998, when it acquired Pinnacle, a $2.1 billion bank holding
company headquartered in St. Joseph, Michigan. Pinnacle operated 14 offices in
southwestern Michigan and 30 offices in northwestern Indiana The Pinnacle
Acquisition represents the Company's first entry into these markets. For
additional information regarding the Pinnacle Acquisition, see "Risk Factors--
Pinnacle Acquisition." On February 13, 1998, the Company executed a definitive
agreement to acquire, for shares of Common Stock, National Bancorp, the
holding company for TCB Bank which operates five banking offices in two
counties just east of Evansville, Indiana. At March 31, 1998, National Bancorp
had assets of $189 million and shareholders' equity of $18 million. The
acquisition is subject to, among other things, approval by National Bancorp's
shareholders, and is expected to be completed in the third quarter of 1998.
The Company operates with a super community bank philosophy--decentralizing
day-to-day customer services such as pricing and lending decisions, while
centralizing data processing systems, product development and back office
support functions. The Company's operations in each market are managed by a
president under the guidance of a regional board of directors. By keeping the
decision-making process close to the customer, the Company believes it has a
competitive advantage over super regional companies, while providing the
necessary scale to manage expenses. Management believes that the Company's
size gives it a considerable advantage over community banks through a much
more diverse product offering and greater access to resources, especially
technology. The Company has operations in six of the ten largest Indiana
counties. Based upon the most recently available FDIC deposit data, 78% of its
deposits come from markets where the Company ranks first, second or third in
deposit market share.
The Company's principal goal is consistent growth of core earnings. To
achieve its goal, the Company focuses on revenue growth and expense
management.
Revenue growth is driven by (i) developing quality loans with small
businesses and consumers, (ii) selectively acquiring banks and non-bank
businesses, (iii) selling internally developed or third-party fee-based
products, and (iv) motivating associates with incentive compensation.
. The Company focuses on loan growth in the small business and consumer
markets. Management believes that its strong community-oriented
relationships provide a competitive advantage over super regional banks.
Without giving effect to the Pinnacle Acquisition, commercial, commercial
real estate and consumer loans have experienced double-digit growth on an
annualized basis each quarter since January 1, 1996.
. The Company has pursued a strategy of actively acquiring banks and
thrifts which are principally responsible for assets increasing from $1.9
billion at December 31, 1992, to $6.6 billion at March 31, 1998. To
complement its bank and thrift acquisitions, the Company has completed
non-banking acquisitions such as Wedgewood Partners, Inc. ("Wedgewood"),
a full service broker-dealer and asset management firm, Citizens
Insurance of Evansville, the largest independent insurance agency in
Evansville, and Small, Parker & Blossom, a third party employee benefit
plan administrator.
. In order to grow its fee based businesses, the Company focuses on
investment products sales, insurance sales and employee benefit plan
administration. Products are developed both in-house and selected from
third-party providers.
20
<PAGE>
. In 1997 all associates of the Company were granted stock options to
reward their contributions to the Company and align their interests with
the interests of the shareholders. Associates also are rewarded with
incentive bonuses for increasing earnings per share. In addition, an
extensive retail incentive program rewards associates for successful
referrals of new customers and cross-selling of the Company's products.
Expense management is driven by (i) back office operating efficiencies, (ii)
utilizing outsourcing where appropriate, and (iii) realizing cost savings from
acquisitions.
. The Company has three regional check processing and deposit operation
functions in Indiana and Illinois. Otherwise, essentially all other back
office support groups are located in Evansville. This approach to back
office operations facilitates efficiencies. At the same time, the
Company's banking units remain focused on customer service, selling and
credit quality.
. Outsourcing non-core activities has played a key role in expense control
by allowing experts to focus on operational issues of the Company. The
Company has entered into a facilities management arrangement with an
experienced third-party provider of data processing services and, in
1997, entered into a revenue sharing arrangement with a major credit card
servicer to which the Company sold its credit card portfolio.
. The Company has actively acquired banks, thrifts and non-bank businesses
to facilitate growth. Cost savings are generally realized from
acquisitions when they are converted to the Company's data processing,
back office, marketing, and product development systems. There can,
however, be no assurance that the Company will achieve cost savings in an
acquisition as they are subject to known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements to differ materially from those originally contemplated by
the Company.
RECENT DEVELOPMENTS
The following is an overview of the Company's results of operations for the
first quarter of 1998 and the year ended December 31, 1997, on a pro forma
basis after giving effect to the Pinnacle Acquisition which was consummated on
April 17, 1998, and accounted for as a pooling of interests.
Overview
First quarter 1998 diluted net income per share of $.58 was 12% higher than
the first quarter of 1997. Net income for the quarter was $19.6 million
compared to $18.6 million and $17.5 million for the fourth and first quarters
of 1997, respectively. Annualized returns on average assets and average
shareholders' equity for the quarter ended March 31, 1998, were 1.20% and
15.32%, respectively, compared with 1.13% and 14.41% for the same period of
1997.
Diluted net income per share for the year ended December 31, 1997, was
$1.78, an increase of 12% over the $1.59 earned in 1996. Net income for 1997
was negatively impacted by restructuring charges and conforming loan loss
methodologies from Pinnacle's August 1997 acquisitions of IFC and CB. The
restructuring charges and conforming loan loss methodologies reduced net
income by $8.4 million and $6.0 million, respectively, and diluted net income
per share by $.25 and $.18, respectively. Net income for 1996 included a one-
time assessment, required of all financial institutions with deposits insured
by the Savings Association Insurance Fund (SAIF), which reduced net income and
diluted net income per share by $6.6 million and $.20, respectively. Excluding
these nonrecurring items, diluted net income per share for 1997 of $2.21
increased 23% from $1.79 in 1996.
The Company's earnings in 1997 resulted in returns on average assets and
shareholders' equity of .93% and 12.02%, respectively, compared with a return
on average assets of .91% and return on average shareholders' equity of 11.16%
in 1996. Exclusive of the restructuring charges, conforming adjustments, and
SAIF assessment, returns on average assets and shareholders' equity were 1.15%
and 14.94%, respectively, in 1997 compared to 1.03% and 12.55% in 1996,
respectively.
21
<PAGE>
Loans and Net Interest Income
Average loans, excluding residential mortgages, of $2.7 billion grew 13.2%
in the first quarter of 1998 from the same period in 1997. Including
residential mortgages, average loans increased 5.2% from the first quarter of
1997 and declined slightly from the fourth quarter of 1997. The Company
intends to continue growing the commercial and consumer loan sectors of its
loan portfolio, while selling its residential mortgage production. This
strategy, combined with normal prepayments, resulted in residential mortgages
declining $87.3 million between December 31, 1997 and March 31, 1998.
Net interest income for the first quarter of 1998 was $780 thousand greater
than the first quarter of 1997 due to increased earning assets offset by a
lower net interest margin. The margin was 3.89% for the first quarter of 1998
compared to 3.95% for the first quarter of 1997. The flat yield curve,
combined with increased competition and pre-payments, resulted in yields on
loans and securities falling and reducing the yield on interest earning assets
and the net interest margin.
Average loans for 1997 grew $406 million from 1996, principally from
increased commercial and commercial real estate lending and mortgage loans
purchased under agreements to resell. The net interest margin was 3.94% for
1997 versus 4.03% for the previous year. The strong loan growth came at
marginally lower rates causing average loan yields to fall. The net interest
margin also declined in 1997 due to the sale of the Company's credit card
portfolio and additional investment in corporate-owned life insurance, the
income on which is recorded as non-interest.
Asset Quality and Provision for Loan Losses
The allowance for loan losses at March 31, 1998, was $55.2 million, or 1.40%
of loans, compared to $55.2 million and 1.38% at year-end 1997. Non-performing
loans consist of loans classified as troubled debt restructurings and loans on
non-accrual status. The Company's non-performing loans as of March 31, 1998
totaled $29.9 million, an increase of $1.9 million from December 31, 1997. The
allowance for loan losses represented 1.84 times non-performing loans on March
31, 1998. Risk assets, which include non-performing loans, foreclosed
properties and loans past due 90 days or more and accruing, were $44.3 million
at March 31, 1998 or 1.12% of loan-related assets. The provision for loan
losses was $3.3 million for the first quarter of 1998, representing .34% of
average loans on an annualized basis. Net charge-offs were .34% of average
loans for the quarter, slightly better than the .37% for the first quarter of
1997.
The allowance for loan losses at December 31, 1997, was $55.2 million or
1.38% of loans compared to $46.2 million and 1.25% the prior year-end. Non-
performing loans at December 31, 1997, totaled $28.0 million, a decrease of
$5.6 million from December 31, 1996. The allowance for loan losses was 1.97
times non-performing loans at December 31, 1997, compared to 1.37 times at
year-end 1996. Risk assets declined $6.3 million to $44.1 million at year-end.
The provision for loan losses totaled $24.9 million in 1997, an increase of
$11.6 million over the prior year, principally as a result of additional
provisions to conform the loan loss methodologies of IFC and CB to that of
Pinnacle. Net charge-offs for 1997 increased to .42% of average loans from
.36% in 1996, also as a result of conforming loan loss methodologies.
Non-Interest Income
Non-interest income in the first quarter of 1998 was $22.2 million,
increasing $5.0 million or 29% from the same period in 1997, of which $459
thousand related to the January 1, 1998 acquisition of Wedgewood, a full
service broker/dealer and asset manager. Service charges on deposits increased
22% compared to the first quarter of 1997 as a result of an increased number
of deposit accounts and chargeable services, higher activity fees and new fee
sources, combined with improved efforts to collect a greater percentage of
assessable fees. Mortgage banking revenue increased due to strong demand for
new and refinanced residential mortgages and increased loan sales. Other
income increased $1.2 million as compared to the first quarter of 1997,
principally due to the Company's increased investment in a corporate-owned
life insurance program.
22
<PAGE>
Non-interest income represented 24.8% of net fully tax equivalent revenues
in 1997 as compared to 23.6% in 1996. Service charges on deposit accounts
increased 16% in 1997 compared to 1996 as a result of an increased number of
deposit accounts and chargeable services, higher activity fees and new fee
sources combined with improved efforts to collect a greater percentage of
assessable fees.
Trust and plan administration fees increased $2.1 million to $9.8 million in
1997. The May 31, 1996, acquisition of Small Parker & Blossom, a third party
administrator of employee benefit plans, accounted for $1.3 million of this
increase. Trust fee income, which is based primarily on the market value of
assets under management or custody, also increased over 1996.
Mortgage banking revenue decreased $1.3 million in 1997 due primarily to
gains recorded in 1996 from the securitization of large pools of residential
mortgage loans offset by increased mortgage origination activities. Other
income increased $6.5 million in 1997 compared to 1996. The Company recorded a
gain of $646 thousand from the sale of its credit card portfolio. The
remaining increase was principally due to increased revenues of $1.8 million
from a corporate-owned life insurance program, $481 thousand from the
expiration of interest rate option contracts, $412 thousand from net
securities trading account gains and $472 thousand from non-customer ATM
access fees.
Non-Interest Expense
Non-interest expense increased 9%, or $3.9 million, in the first quarter
1998 compared to the first quarter 1997, generally due to increased business
activity and the Wedgewood acquisition. The Wedgewood acquisition accounted
for $545 thousand of the expense increase. Salaries and employee benefits
increased $1.1 million to $24.1 million in the first quarter from the same
period in 1997.
Non-interest expense increased $6.3 million, or 3.3%, in 1997 compared with
1996. This increase was principally due to increased compensation of $10.2
million, data processing of $2.1 million, professional fees of $2.8 million,
and other expenses of $3.0 million, which were offset by a reduction in the
FDIC premiums of $2.4 million and the one-time SAIF assessment in 1996 of
$11.0 million. Included with 1997 expenses were $11.5 million of restructuring
charges recorded by Pinnacle in connection with its mergers with IFC and CB,
which increased compensation by $4.6 million, data processing by $2.2 million,
professional fees by $2.0 million and other expenses by $2.7 million.
Exclusive of the restructuring charges in 1997 and the SAIF assessment in
1996, non-interest expense increased 3.2% in 1997 compared with 1996.
Incentive compensation accounted for a significant portion of the remaining
increase in compensation expense as the Company continues to emphasize
performance-based awards tied to net income per share and product sales.
Occupancy expense and equipment related expenses increased $1.6 million due to
expanded business activities and equipment upgrades required to facilitate the
growth from acquisitions.
Merger Related Charges
In connection with the Pinnacle Acquisition, the Company will record during
the second quarter of 1998, one-time merger related charges of $41.3 million.
The charges include $8.3 million in technology-related costs (including
contract terminations and software and equipment write-offs), $9.7 million in
severance pay and other personnel related expenses, $6.7 million for
professional fees, $11.2 million in conforming accounting policies of Pinnacle
to those of the Company, and $5.4 million in other costs. The after-tax effect
of these charges is $30.0 million or $.89 per share. These charges are greater
than the Company originally anticipated, principally due to greater
adjustments to conform the accounting policies followed by Pinnacle to the
Company's more conservative policies for revenue and expense recognition under
generally accepted accounting principles, greater severance pay under
employment contracts and a higher level of attrition, and other costs,
including write-downs of equity investments.
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THE ISSUER
The Issuer is a statutory business trust created under Delaware law pursuant
to (i) the trust agreement, executed by the Company, as Depositor, The Bank of
New York, as Property Trustee, The Bank of New York (Delaware) as Delaware
Trustee, and the Administrative Trustees named therein, and (ii) the filing of
a certificate of trust with the Delaware Secretary of State on June 1, 1998.
The initial trust agreement will be amended and restated in its entirety (as
so amended and restated, the "Trust Agreement") substantially in the form
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act. The Issuer exists for the exclusive purposes of (i)
issuing and selling the Capital Securities and the Common Securities, (ii)
using the proceeds from the sale of the Capital Securities and the Common
Securities to acquire the Convertible Subordinated Debentures issued by the
Company, and (iii) engaging in only those other activities necessary or
incidental thereto (such as registering the transfer of the Trust Securities).
Accordingly, the Convertible Subordinated Debentures will be the sole assets
of the Issuer, and payments under the Convertible Subordinated Debentures will
be the sole revenue of the Issuer. Upon issuance of the Trust Securities, the
purchasers thereof will own all of the Trust Securities. All of the Common
Securities will be owned by the Company. The Common Securities will rank pari
passu, and payments will be made thereon pro rata, with the Capital
Securities, except that upon the occurrence and continuance of an event of
default under the Trust Agreement resulting from a Debenture Event of Default,
the rights of the Company as holder of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Capital
Securities. See "Description of Capital Securities--Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
Liquidation Amount at least equal to 3% of the total capital of the Issuer.
The Issuer has a term of 55 years, but may terminate earlier as provided in
the Trust Agreement.
It is anticipated that the Issuer will not be subject to the reporting
requirements under the Exchange Act. The principal executive office of the
Issuer is c/o CNB Bancshares, Inc., 20 N.W. Third Street, Evansville, Indiana
47739, and its telephone number is 812-456-3400. The Company will pay all fees
and expenses related to the Issuer and the offering of the Capital Securities.
The number of trustees of the Issuer (the "Trustees") will, pursuant to the
Trust Agreement, initially be four. Two of the Trustees (the "Administrative
Trustees") will be persons who are employees or officers of, or who are
affiliated with, the Company. The third trustee will be a financial
institution that is unaffiliated with the Company, which trustee will serve as
institutional trustee under the Trust Agreement and as indenture trustee for
the purposes of compliance with the provisions of the Trust Indenture Act (the
"Property Trustee"). The Bank of New York, a New York banking corporation,
will be the Property Trustee until removed or replaced by the holder of the
Common Securities. For purposes of compliance with the provisions of the Trust
Indenture Act, The Bank of New York also will act as trustee (the "Guarantee
Trustee") under the Guarantee and as trustee (the "Debenture Trustee") under
the Indenture. The fourth trustee will be an entity that maintains its
principal place of business in the State of Delaware (the "Delaware Trustee").
The Bank of New York (Delaware), a Delaware banking corporation, will act as
Delaware Trustee. The Property Trustee will hold title to the Convertible
Subordinated Debentures for the benefit of the holders of the Trust Securities
and in such capacity will have the power to exercise all rights, powers and
privileges under the Indenture. The Property Trustee will also maintain
exclusive control of a segregated non-interest-bearing bank account (the
"Property Account") to hold all payments made in respect of the Convertible
Subordinated Debentures for the benefit of the holders of the Trust
Securities. The Property Trustee will make payments of Distributions and
payments on liquidation, redemption and otherwise to the holders of the Trust
Securities out of funds from the Property Account. The Guarantee Trustee will
hold the Guarantee for the benefit of the holders of the Capital Securities.
The Company, as the holder of all the Common Securities, will have the right
to appoint, remove or replace any Trustee and to increase or decrease the
number of Trustees. The rights of the holders of the Capital Securities,
including economic rights, rights to information and voting rights, are set
forth in the Trust Agreement, the Delaware Business Trust Act (the "Trust
Act") and the Trust Indenture Act. See "Description of Capital Securities."
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ACCOUNTING TREATMENT
The Issuer will be treated, for financial reporting purposes, as a
subsidiary of the Company and, accordingly, the accounts of the Issuer will be
included in the Company's consolidated financial statements. The Capital
Securities will be presented as part of a separate line item in the Company's
consolidated balance sheet under the caption "Guaranteed Preferred Beneficial
Interests in the Company's Convertible Subordinated Debentures," and
appropriate disclosures about the Capital Securities, the Guarantee and the
Convertible Subordinated Debentures will be included in the notes to the
Company's consolidated financial statements. The Company will record
Distributions payable on the Capital Securities as a minority interest
distribution in its consolidated statements of operations for financial
reporting purposes.
All future reports of the Company filed under the Exchange Act while the
Capital Securities are outstanding will (a) present the Trust Securities
issued by the Issuer on the balance sheets as part of a separate line item
entitled "Guaranteed Preferred Beneficial Interests in the Company's
Convertible Subordinated Debentures," (b) include in a footnote to the
Company's consolidated financial statements disclosure that the sole assets of
the Issuer are the Convertible Subordinated Debentures (including the
outstanding principal amount, interest rate, maturity date and conversion
ratio of such Convertible Subordinated Debentures), and (c) include in a
footnote to the consolidated financial statements disclosure that the Company
owns all of the Common Securities of the Issuer, the sole assets of the Issuer
are the Convertible Subordinated Debentures, and the back-up obligations, in
the aggregate, constitute a full and unconditional guarantee by the Company of
the obligations of the Issuer under the Capital Securities.
DESCRIPTION OF CAPITAL SECURITIES
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees on behalf of the
Issuer will issue the Capital Securities and the Common Securities. The
Capital Securities will represent preferred undivided beneficial ownership
interests in the Issuer 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 herein and in the Trust Agreement. All of the
Common Securities will be owned by the Company. This summary of certain
provisions of the Capital Securities and Trust Agreement, which summarizes the
material terms thereof, does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all of the provisions of the
Trust Agreement, including the definitions therein of certain terms, and the
Trust Indenture Act, to each of which reference is hereby made. Wherever
particular defined terms of the Trust Agreement (as amended or supplemented
from time to time) are referred to herein, such defined terms are incorporated
herein by reference. The form of the Trust Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The Issuer is a legally separate entity and its assets are not available to
satisfy the obligations of any other statutory business trust whose Common
Securities may hereafter be owned by the Company. The Trust Agreement does not
permit the issuance by the Issuer of any securities other than the Trust
Securities or the incurrence of any indebtedness by the Issuer.
The Capital Securities will be limited to $150,000,000 ($172,500,000 if the
underwriters' over-allotment option is exercised) aggregate Liquidation Amount
at any time outstanding. The Capital Securities will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities except as
described under "--Subordination of Common Securities." Legal title to the
Convertible Subordinated Debentures will be held by the Property Trustee in
trust for the benefit of the holders of the Capital Securities and Common
Securities. The Guarantee executed by the Company for the benefit of the
holders of the Trust Securities will be a guarantee on a subordinated basis
with respect to the Trust Securities but will not guarantee payment of
Distributions or amounts payable on redemption or liquidation of the Trust
Securities when the Issuer does not have funds on hand available to make such
payments. See "Description of Guarantee."
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DISTRIBUTIONS
Payment of Distributions. The Capital Securities represent preferred
undivided beneficial ownership interests in the Issuer, and Distributions on
the Capital Securities will be payable at the annual rate of 6.0% on 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 Capital Securities on the relevant record dates.
The record dates for the Capital Securities will be, for so long as the
Capital Securities remain in book-entry form, one Business Day (as hereafter
defined) prior to the relevant Distribution Date and, in the event the Capital
Securities are not in book-entry form, the 15th day of the month in which the
relevant Distribution Date occurs. Distributions on the Capital Securities
will be cumulative and will accumulate from the date of original issuance. The
first Distribution Date for the Capital Securities will be September 30, 1998.
The period beginning on and including the date of original issuance and ending
on but excluding the first Distribution Date and each successive period
beginning on and including a Distribution Date and ending on but excluding the
next succeeding Distribution Date is herein called a "Distribution Period."
The first Distribution payable on September 30, 1998, will be in the amount of
$0.404167 per Capital Security and thereafter quarterly Distributions will be
in the amount of $0.3750 per Capital Security.
In the event that any Distribution Date would otherwise fall on a day that
is not a Business Day, such Distribution Date will be postponed to the next
day that is a Business Day (without any additional Distributions or other
payment in respect of such delay) unless it would thereby fall in the next
calendar year, in which event the Distribution Date will be brought forward to
the immediately preceding Business Day. A "Business Day" means any day other
than a Saturday or a Sunday, or a day on which banking institutions in The
City of New York are authorized or required by law or executive order to
remain closed or a day on which the corporate trust office of the Property
Trustee or the Debenture Trustee is closed for business.
Distributions on the Capital Securities will be payable to the holders
thereof as they appear on the register of the Issuer on the relevant record
date. Subject to any applicable laws and regulations and the provisions of the
Trust Agreement, each such payment will be made as described under "Book-Entry
Issuance."
Extension Period. So long as no Debenture Event of Default has occurred and
is continuing, the Company has the right under the Indenture to defer the
payment of interest on the Convertible 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 Convertible Subordinated Debentures.
As a consequence of any such deferral of interest payments by the Company,
quarterly Distributions on the Capital Securities by the Issuer also will be
deferred during any such Extension Period. Distributions to which holders of
the Capital Securities are entitled will accumulate additional Distributions
thereon at the rate of 6.0% per annum, compounded quarterly from the relevant
payment date for such Distributions. The term "Distributions" as used herein
includes any such additional Distributions. During any such Extension Period,
the Company may not, and may not permit any subsidiary of the Company to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu with or junior in interest to the Convertible Subordinated Debentures,
or (iii) make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu with or junior in interest to the Convertible
Subordinated Debentures (other than (a) dividends or distributions in capital
stock of the Company, (b) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan or the redemption or repurchase
of any such rights pursuant thereto, (c) purchases of Common Stock related to
the issuance of Common Stock or rights under any of the Company's benefit
plans for its directors, officers or employees, related to the issuance of
Common Stock or rights under a dividend reinvestment and stock purchase plan,
or related to the issuance of Common Stock (or securities convertible into or
exchangeable
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for Common Stock) as consideration in an acquisition transaction that was
entered into prior to the commencement of such Extension Period, or (d)
payments under the Guarantee). Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest on the
Convertible Subordinated Debentures, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity
of the Convertible Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the rate of 6.0% per annum, compounded
quarterly, to the extent permitted by applicable law), the Company may elect
to begin a new Extension Period. There is no limitation on the number of times
that the Company may elect to begin an Extension Period. See "Description of
Convertible Subordinated Debentures--Right to Defer Interest Payments" and
"Certain Federal Income Tax Consequences--Potential Extension of Interest
Payment Period and Original Issue Discount."
The Company believes that, as a result of its inability to pay any dividends
or distributions on, or redeem, purchase, acquire or make a liquidation
payment with respect to, its Common Stock during an Extension Period and the
additional restrictions imposed upon it as described in the preceding
paragraph, the likelihood of its exercising its right to defer payments of
interest is remote and it has no such current intention. The Company, however,
reserves the right in the future to exercise its option to defer payments of
interest on the Convertible Subordinated Debentures. See "Risk Factors--Right
to Defer Interest Payments; Tax Consequences; Market Price Consequences."
Source of Distributions. The revenue of the Issuer available for
distribution to holders of its Capital Securities will be limited to payments
under the Convertible Subordinated Debentures in which the Issuer will invest
the proceeds from the issuance and sale of its Trust Securities. See
"Description of Convertible Subordinated Debentures." If the Company does not
make interest payments on the Convertible Subordinated Debentures, the
Property Trustee will not have funds available to pay Distributions on the
Capital Securities. The payment of Distributions (if and to the extent the
Issuer has funds legally available for the payment of such Distributions and
cash sufficient to make such payments) is guaranteed by the Company on the
basis set forth herein under "Description of Guarantee."
CONVERSION RIGHTS
General. Capital Securities will be convertible at any time on or after
August 22, 1998, and prior to the close of business on the Business Day
immediately preceding the date of repayment of such Capital Securities,
whether at Stated Maturity or upon redemption (either at the option of the
Company or pursuant to a Tax Event or a Capital Treatment Event), at the
option of the holder thereof and in the manner described below, into shares of
Common Stock at an initial Conversion Ratio of 0.4605 shares of Common Stock
for each Capital Security (equivalent to an initial conversion price of $54.29
per share of Common Stock), subject to adjustment as described below under "--
Conversion Ratio Adjustments." The Issuer will covenant in the Trust Agreement
not to convert Convertible Subordinated Debentures held by it except pursuant
to a notice of conversion delivered to the Property Trustee, as conversion
agent (the "Conversion Agent"), by a holder of Capital Securities. A holder of
a Capital Security wishing to exercise its conversion right must deliver an
irrevocable notice of conversion, together, if the Capital Security is in
certificated form, with the certificate representing such Capital Security, to
the Conversion Agent, which will, on behalf of such holder, exchange such
Capital Security for a portion of the Convertible Subordinated Debentures and
immediately convert such Convertible Subordinated Debentures into Common
Stock. Holders may obtain copies of the required form of the conversion notice
from the Conversion Agent. In the event Cede & Co. (DTC's nominee) receives a
conversion request from the Conversion Agent, DTC will redeem the amount of
interest credited to the applicable Direct Participant(s) (as defined under
"Book-Entry Issuance") in the Capital Securities in accordance with its
procedures.
Holders of Capital Securities at the close of business on a Distribution
record date will be entitled to receive the Distribution payable on such
Capital Securities on the corresponding Distribution Date notwithstanding the
conversion of such Capital Securities following such Distribution record date
but prior to such Distribution Date;
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provided, however, that if any Capital Securities are surrendered for
conversion during the period from the close of business on any record date
through and including the next succeeding Distribution Date (except any such
Capital Securities surrendered for conversion after such Capital Securities
have been called for redemption by the Company during an Extension Period),
such Capital Securities when surrendered for conversion must be accompanied by
payment in next day funds of an amount equal to the Distribution which the
registered holder on such record date is to receive. Except as described
above, no Distribution will be payable by the Company on converted Capital
Securities with respect to any Distribution Date subsequent to the date of
conversion and neither the Issuer nor the Company will make, or be required to
make, any payment, allowance or adjustment for accumulated and unpaid
Distributions, whether or not in arrears, on Capital Securities surrendered
for conversion. Each conversion will be deemed to have been effected
immediately prior to the close of business on the day on which the related
conversion notice was received by the Conversion Agent. See "Description of
Convertible Subordinated Debentures--Conversion of Convertible Subordinated
Debentures."
Shares of Common Stock issued upon conversion of Capital Securities will be
validly issued, fully paid and nonassessable. No fractional shares of Common
Stock will be issued as a result of conversion, but in lieu thereof such
fractional interest will be paid by the Company in cash based on the last
reported sale price of Common Stock on the date such Capital Securities are
surrendered for conversion.
Conversion Ratio Adjustments--General. The Conversion Ratio is subject to
adjustment in certain events, including (a) the issuance after the date of
issuance of the Capital Securities offered hereby (the "Issue Date") of shares
of Common Stock as a dividend or a distribution with respect to Common Stock,
(b) subdivisions, combinations and reclassification of Common Stock effected
after the Issue Date, (c) the issuance to all holders of Common Stock after
the Issue Date of rights or warrants entitling them (for a period not
exceeding 45 days) to subscribe for or purchase shares of Common Stock at less
than the then Current Market Price (as herein defined) of the Common Stock,
(d) the distribution to all holders of Common Stock after the Issue Date of
evidences of indebtedness, capital stock, cash or assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above and dividends and distributions paid exclusively in cash),
(e) the payment of dividends (and other distributions) on Common Stock after
the Issue Date paid exclusively in cash, excluding cash dividends paid out of
retained earnings of the Company, and (f) the payment to holders of Common
Stock after the Issue Date in respect of a tender or exchange offer (other
than an odd-lot offer) by the Company for Common Stock at a price in excess of
110% of the then Current Market Price of Common Stock as of the trading day
next succeeding the last date tenders or exchanges may be made pursuant to
such tender or exchange offer.
"Current Market Price" means, in general, the average of the daily Closing
Prices (as defined herein) for the five consecutive trading days selected by
the Company commencing not more than 20 trading days before, and ending not
later than, the earlier of the day in question or, if applicable, the day
before the "ex" date with respect to the issuance or distribution in question.
"Closing Price" of any security on any day means the last reported sale
price, regular way, on such day or, if no sale takes place on such day, the
average of the reported closing bid and asked price on such day, regular way,
in either case as reported on the NYSE Composite Tape, or, if such security is
not listed or admitted to trading on the NYSE, on the principal national
securities exchange on which such security is listed or admitted to trading,
or if such security is not listed or admitted to trading on a national
securities exchange, on the National Market System of the National Association
of Securities Dealers, Inc., or, if such security is not quoted or admitted to
trading on such quotation system, on the principal quotation system on which
such security is listed or admitted to trading or quoted, or, if not listed or
admitted to trading or quoted on any national securities exchange or quotation
system, the average of the closing bid and asked prices of such security in
the over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or, if not so available in such manner, as furnished by any NYSE
member firm selected from time to time by the Board of Directors of the
Company for that purpose or, if not so available in such manner, as otherwise
determined in good faith by the Board of Directors of the Company.
The Company from time to time may increase the conversion ratio of the
Convertible Subordinated Debentures (and thus increase the Conversion Ratio of
the Capital Securities) by any amount selected by the
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Company for any period of at least 20 days, in which case the Company shall
give at least fifteen days' notice of such increase. The Company may, at its
option, make such increases in the Conversion Ratio, in addition to those set
forth above, as the Company deems advisable to avoid or diminish any income
tax to holders of Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for
income tax purposes. See "Certain Federal Income Tax Considerations--
Adjustment of Conversion Ratio."
No adjustment of the Conversion Ratio will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for
the reinvestment of dividends or interest payable on securities of the Company
and the investment of additional optional amounts in shares of Common Stock
under any such plan, or upon the issuance of any shares of Common Stock or
options or rights pursuant to any employee benefit plan or program, or
pursuant to any option, warrant, right or any exercisable, exchangeable or
convertible security outstanding as of the date on which the Convertible
Subordinated Debentures are first issued. No adjustment of the Conversion
Ratio will be made upon the issuance of rights under any shareholder rights
plan. The Conversion Ratio will be rounded to four decimal places. No
adjustment in the Conversion Ratio will be required unless adjustment would
require a change of at least one percent (1%) in the Conversion Ratio then in
effect; provided, however, that any adjustment that would not be required to
be made shall be carried forward and taken into account in any subsequent
adjustment. If any action would require adjustment of the Conversion Ratio
pursuant to more than one of the provisions described above, only one
adjustment will be made with respect to that action and such adjustment will
be the amount of adjustment that has the highest absolute value to the holder
of the Capital Securities.
Conversion Ratio Adjustments--Merger, Consolidation or Sale of Assets of
Company. In the event that the Company becomes a party to any transaction,
including, without limitation, and with certain exceptions, (a) a
recapitalization or reclassification of the Common Stock, (b) consolidation of
the Company with, or merger of the Company into, any other person, or any
merger of another person into the Company, (c) any sale, transfer or lease of
all or substantially all of the assets of the Company, or (d) any compulsory
share exchange pursuant to which the Common Stock is converted into the right
to receive other securities, cash or other property (each of the foregoing
being referred to as a "Transaction"), then the holders of Capital Securities
then outstanding will have the right to convert the Capital Securities into
the kind and amount of securities, cash or other property receivable upon the
consummation of such Transaction by a holder of the number of shares of Common
Stock issuable upon conversion of such Capital Securities immediately prior to
such Transaction.
In the case of a Transaction, each Capital Security would become convertible
into the securities, cash or property receivable by a holder of the number of
shares of the Common Stock into which such Capital Security was convertible
immediately prior to such Transaction. This change could substantially lessen
or eliminate the value of the conversion privilege associated with the Capital
Securities in the future. For example, if the Company were acquired in a cash
merger, each Capital Security would become convertible solely into cash and
would no longer be convertible into securities which value would vary
depending on the future prospects of the Company and other factors.
Conversion Ratio adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be
taxable as dividends to holders of Capital Securities or to the holders of
Common Stock. See "Certain Federal Income Tax Considerations--Adjustment of
Conversion Ratio."
Whenever the Conversion Ratio is adjusted as herein provided, the Company
will place on file with the Property Trustee and with the Conversion Agent a
statement signed by the Chairman of the Board, President or a Vice President
of the Company and by its Treasurer or an Assistant Treasurer showing in
detail the facts requiring such adjustment and the Conversion Ratio after such
adjustment and the Trustee or the Conversion Agent will exhibit the same from
time to time to any holder desiring an inspection thereof.
REDEMPTION
General. The Convertible Subordinated Debentures will mature on June 30,
2028. The Company has the right to redeem the Convertible Subordinated
Debentures (i) on or after June 23, 2001, in whole at any time or
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in part from time to time, or (ii) at any time, in certain circumstances as
described under "Description of Convertible Subordinated Debentures--
Conditional Right to Redeem Upon a Tax Event or Capital Treatment Event," in
whole (but not in part) within 90 days following the occurrence of a Tax Event
or a Capital Treatment Event. A redemption of the Convertible Subordinated
Debentures would cause a mandatory redemption of the Capital Securities and
the Common Securities.
Mandatory Redemption. Upon the repayment or redemption, in whole or in part,
of the Convertible Subordinated Debentures, whether at Stated Maturity or upon
earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption will be applied by the Property Trustee to redeem a
Like Amount (as defined herein) of the Trust Securities, upon not less than 30
nor more than 60 days' notice, at a redemption price (the "Redemption Price")
equal to the aggregate Liquidation Amount of such Trust Securities, plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date"). The Redemption Price will be computed on the basis of a
360-day year of twelve 30-day months. See "Description of Convertible
Subordinated Debentures--Redemption." If less than all of the Convertible
Subordinated Debentures are to be repaid or redeemed on a Redemption Date,
then the proceeds from such repayment or redemption will be allocated to the
redemption pro rata of the Capital Securities and the Common Securities.
Liquidation of Issuer and Distribution of Convertible Subordinated
Debentures. Subject to the Company's having received prior approval of the
Federal Reserve to do so if then required under applicable capital guidelines
or policies, the Company has the right at any time to terminate the Issuer
and, after satisfaction of the liabilities of creditors of the Issuer as
provided by applicable law, cause the Convertible Subordinated Debentures in
respect of the Capital Securities and the Common Securities issued by the
Issuer to be distributed to the holders of the Capital Securities and the
Common Securities in exchange therefor upon liquidation of the Issuer.
Under current U.S. federal income tax law and interpretations and assuming,
as expected, that the Issuer is treated as a grantor trust, a distribution of
Convertible Subordinated Debentures in exchange for the Capital Securities
should not be a taxable event to holders of the Capital Securities. Should
there be a change in law, a change in legal interpretation, a Tax Event or
other circumstances, however, the distribution could be a taxable event to
holders of the Capital Securities. See "Certain Federal Income Tax
Consequences--Receipt of Convertible Subordinated Debentures or Cash Upon
Liquidation of Issuer." If the Company elects neither to redeem the
Convertible Subordinated Debentures prior to maturity nor to liquidate the
Issuer and distribute the Convertible Subordinated Debentures to holders of
the Capital Securities in exchange therefor, the Capital Securities will
remain outstanding until the Stated Maturity of the Convertible Subordinated
Debentures.
If the Company elects to liquidate the Issuer and thereby causes the
Convertible Subordinated Debentures to be distributed to holders of the
Capital Securities in exchange therefor upon liquidation of the Issuer, the
Company will continue to have the right to redeem the Convertible Subordinated
Debentures on or after June 23, 2001, and at any time in certain circumstances
upon the occurrence of a Tax Event or Capital Treatment Event, as described
under "Description of Convertible Subordinated Debentures--Conditional Right
to Redeem Upon a Tax Event or Capital Treatment Event," and the Convertible
Subordinated Debentures will continue to be convertible into Common Stock, as
described under "Description of Convertible Subordinated Debentures--
Conversion of Convertible Subordinated Debentures."
After the liquidation date fixed for any distribution of Convertible
Subordinated Debentures for the Capital Securities (i) the Capital Securities
will no longer be deemed to be outstanding, (ii) DTC or its nominee, as the
record holder of the Capital Securities, will receive a registered global
certificate or certificates representing the Convertible Subordinated
Debentures to be delivered upon such distribution, and (iii) any certificates
representing the Capital Securities not held by DTC or its nominee will be
deemed to represent the Convertible Subordinated Debentures having a principal
amount equal to the stated Liquidation Amount of the Capital Securities, and
bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid Distributions on the Capital Securities until such certificates are
presented to the Administrative Trustees or their agent for transfer or
reissuance.
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There can be no assurance as to the market prices for the Capital Securities
or the Convertible Subordinated Debentures that may be distributed in exchange
for Capital Securities if a dissolution and liquidation of the Issuer were to
occur. Accordingly, the Capital Securities that an investor may purchase, or
the Convertible Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer, may trade at a discount to the
price that the investor paid to purchase the Capital Securities offered
hereby.
Tax Event or Capital Treatment Event Redemption. If a Tax Event or Capital
Treatment Event in respect of the Capital Securities and Common Securities
occurs and is continuing, the Company has the right to redeem the Convertible
Subordinated Debentures in whole (but not in part) and thereby cause a
mandatory redemption of the Capital Securities and Common Securities in whole
(but not in part) at the Redemption Price within 90 days following the
occurrence of such Tax Event or Capital Treatment Event. In the event that a
Tax Event or a Capital Treatment Event in respect of the Capital Securities
and Common Securities has occurred and is continuing and the Company does not
elect to redeem the Convertible Subordinated Debentures and thereby cause a
mandatory redemption of the Capital Securities and the Common Securities or to
terminate the Issuer and cause the Convertible Subordinated Debentures to be
distributed to holders of the Capital Securities and Common Securities in
exchange therefor upon liquidation of the Issuer as described above, the
Capital Securities will remain outstanding.
Certain Definitions.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to that portion
of the principal amount of Convertible Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, the proceeds of
which will be used to pay the Redemption Price of the Trust Securities, and
(ii) with respect to a distribution of Convertible Subordinated Debentures to
holders of the Trust Securities in exchange therefor in connection with a
dissolution or liquidation of the Issuer, Convertible Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the holder to whom such Convertible Subordinated Debentures
would be distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Issuer of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced proposed change) in, the laws (or any
regulations thereunder) of the U.S. or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer is, or will be within 90 days of the
date of such opinion, subject to U.S. federal income tax with respect to
income received or accrued on the corresponding series of Convertible
Subordinated Debentures, (ii) interest payable by the Company on the
Convertible Subordinated Debentures is not, or within 90 days of the date of
such opinion, will not be, deductible by the Company, in whole or in part, for
U.S. federal income tax purposes, or (iii) the Issuer is, or will be within 90
days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges. With respect to Convertible
Subordinated Debentures which are no longer held by the Issuer or another
issuer, "Tax Event" means the receipt by the Company of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced proposed change) in, the laws (or any
regulations thereunder) of the U.S. or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Convertible Subordinated Debentures under the Indenture, there is more than an
insubstantial risk that interest payable by the Company on the Convertible
Subordinated Debentures is not, or within 90 days of the date of such opinion
will not be, deductible by the Company, in whole or in part, for U.S. federal
income tax purposes (each of the circumstances referred to in clauses (i),
(ii) and (iii) of the preceding sentence and the circumstances referred to in
this sentence being referred to herein as an "Adverse Tax Consequence").
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"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of any amendment to, or change (including any proposed
change) in, the laws (or any regulations thereunder) of the U.S. 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
which proposed change, pronouncement, action or decision is announced on or
after the date of issuance of the Capital Securities under the Trust
Agreement, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes
of the capital adequacy guidelines of the Federal Reserve, as then in effect
and applicable to the Company.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date will be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Convertible Subordinated Debentures. Redemptions of the
Capital Securities will be made and the Redemption Price will be payable on
each Redemption Date only to the extent that the Issuer has funds on hand
available for the payment of such Redemption Price. See, also, "--
Subordination of Common Securities."
If the Issuer gives a notice of redemption in respect of its Capital
Securities, then, by 12:00 noon, Eastern time, on the Redemption Date, to the
extent funds are available, 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 such Capital Securities. See "Book-Entry Issuance." If the Capital
Securities are no longer in book-entry form, the Property Trustee, to the
extent funds are available, will irrevocably deposit with the paying agent for
the Capital Securities funds sufficient to pay the applicable Redemption Price
and will give such paying agent irrevocable instructions and authority to pay
the Redemption Price to the holders thereof upon surrender of their
certificates evidencing the Capital Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Capital
Securities called for redemption will be payable to the holders of such
Capital Securities on the relevant record date for the related Distribution
Date. If notice of redemption has been given and funds deposited as required,
then upon the date of such deposit, all rights of the holders of such Capital
Securities so called for redemption will cease, except the right of the
holders of such Capital Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Capital Securities will
cease to be outstanding. In the event that any date fixed for redemption of
Capital Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Issuer or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Capital Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Issuer for such Capital Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, U.S. federal
securities laws), the Company or its subsidiaries may at any time and from
time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
Payment of the Redemption Price on the Capital Securities and any
distribution of Convertible Subordinated Debentures to holders of Capital
Securities will be made to the applicable recordholders thereof as they appear
on the register for such Capital Securities on the relevant record date, which
will be one Business Day prior to the relevant Redemption Date or liquidation
date, as applicable; provided, however, that in the event that any Capital
Securities are not in book-entry form, the relevant record date for such
Capital Securities will be a date 15 days prior to the Redemption Date or
liquidation date, as applicable.
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If less than all of the Capital Securities and Common Securities issued by
the Issuer are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Capital Securities and Common Securities to be
redeemed will be allocated pro rata to the Capital Securities and the Common
Securities based upon the relative Liquidation Amounts of such classes. The
particular Capital Securities to be redeemed will be selected on a pro rata
basis not more than 60 days prior to the Redemption Date by the Property
Trustee from the outstanding Capital Securities not previously called for
redemption, by such method as the Property Trustee deems fair and appropriate
and which may provide for the selection for redemption of portions (equal to
$25 or an integral multiple of $25 in excess thereof) of the Liquidation
Amount of Capital Securities. The Property Trustee will promptly notify the
trust registrar in writing of the Capital Securities selected for redemption
and, in the case of any Capital Securities selected for partial redemption,
the Liquidation Amount thereof to be redeemed. For all purposes of the Trust
Agreement, unless the context otherwise requires, all provisions relating to
the redemption of Capital Securities will relate, in the case of any Capital
Securities redeemed or to be redeemed only in part, to the portion of the
aggregate Liquidation Amount of Capital Securities which has been or is to be
redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address.
REGISTRATION OF CAPITAL SECURITIES
The Capital Securities will be represented by global certificates registered
in the name of DTC or its nominee. Beneficial interest in the Capital
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by Participants (as defined under "Book-Entry
Issuance") in DTC. Except as described below, Capital Securities in
certificated form will not be issued in exchange for the global certificates.
See "Book-Entry Issuance."
A global security will be exchangeable for Capital Securities registered in
the names of persons other than DTC or its nominee only if (i) DTC notifies
the Issuer that it is unwilling or unable to continue as a depositary for such
global security and no successor depositary has been appointed, or if at any
time DTC ceases to be a clearing agency registered under the Exchange Act at a
time when DTC is required to be so registered to act as such depositary, (ii)
the Issuer in its sole discretion determines that such global security will be
so exchangeable, or (iii) there occurs and is continuing a Debenture Event of
Default. Any global security that is exchangeable pursuant to the preceding
sentence will be exchangeable for definitive certificates registered in such
names as DTC directs. It is expected that such instructions will be based upon
directions received by DTC from its Participants with respect to ownership of
beneficial interests in such global security. In the event that Capital
Securities are issued in definitive form, such Capital Securities will be in
denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Payment on and any distributions of Convertible Subordinated Debentures in
exchange for Capital Securities represented by a global security will be made
to DTC, as the depositary for the Capital Securities. In the event Capital
Securities are issued in certificated form, the Liquidation Amount and
Distributions will be payable, the transfer of the Capital Securities will be
registrable, Convertible Subordinated Debentures will be distributed in
exchange for Capital Securities following a termination of the Issuer and
Capital Securities will be exchangeable for Capital Securities of other
denominations of a like aggregate Liquidation Amount, at the corporate office
of the Property Trustee in New York City, or at the offices of any paying
agent or transfer agent appointed by the Administrative Trustees, provided
that payment of any Distribution may be made at the option of the
Administrative Trustees by check mailed to the address of the persons entitled
thereto or by wire transfer. For a description of DTC and the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
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SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and the Common Securities, as applicable, will be made pro rata
based on the Liquidation Amount of the Capital Securities and the Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date a Debenture Event of Default has occurred and is continuing, no payment
of any Distribution on, or Redemption Price of, any Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition
of the Common Securities, will be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Capital
Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all of the outstanding Capital Securities then called for redemption,
has been made or provided for, and all funds available to the Property Trustee
will first be applied to the payment in full in cash of all Distributions on,
or the Redemption Price of, the Capital Securities then due and payable.
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, the Company as holder of the Common Securities
will be deemed to have waived any right to act with respect to any such event
of default under the Trust Agreement until the effect of all such events of
default with respect to the Capital Securities have been cured, waived or
otherwise eliminated. Until all Events of Default under the Trust Agreement
with respect to the Capital Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will act solely on behalf of the holders of
such Capital Securities and not on behalf of the Company as holder of the
Common Securities, and only the holders of such Capital Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, the Issuer will automatically terminate
upon expiration of its term and will terminate on the first to occur of (i)
certain events of bankruptcy, dissolution or liquidation of the Company, (ii)
the distribution of a Like Amount of the Convertible Subordinated Debentures
to the holders of the Trust Securities, if the Company, as Depositor, has
given written direction to the Property Trustee to terminate the Issuer
(subject to the Company having received prior approval of the Federal Reserve
if so required under applicable capital guidelines or policies), (iii)
redemption of all of the Capital Securities as described under "--
Redemption," and (iv) the entry of an order for the dissolution of the Issuer
by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer will be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Issuer as provided by applicable law, to the
holders of the Trust Securities in exchange therefor a Like Amount of the
Convertible Subordinated Debentures, unless such distribution is determined by
the Property Trustee not to be practical, in which event such holders will be
entitled to receive out of the assets of the Issuer available for distribution
to holders, after satisfaction of liabilities to creditors of the Issuer as
provided by applicable law, an amount equal to, in the case of holders of
Capital Securities, the aggregate Liquidation Amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Issuer has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by
the Issuer on the Capital Securities will be paid on a pro rata basis. The
holder(s) of the Common Securities will be entitled to receive distributions
upon any such liquidation pro rata with the holders of the Capital Securities,
except that if a Debenture Event of Default has occurred and is continuing,
the Capital Securities will have a priority over the Common Securities. See
"--Subordination of Common Securities."
Under current U.S. federal income tax law and interpretations and assuming,
as expected, that the Issuer is treated as a grantor trust, a distribution of
the Convertible Subordinated Debentures should not be a taxable event to
holders of the Capital Securities. Should there be a change in law, a change
in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Capital Securities.
See "Certain Federal Income Tax Consequences--Receipt of Convertible
Subordinated Debentures
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or Cash Upon Liquidation of Issuer." If the Company elects neither to redeem
the Convertible Subordinated Debentures prior to maturity nor to liquidate the
Issuer and distribute the Convertible Subordinated Debentures to holders of
the Capital Securities, the Capital Securities will remain outstanding until
the repayment of the Convertible Subordinated Debentures.
LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Capital Securities
in the event of any liquidation of the Issuer is $25 per Capital Security plus
accumulated and unpaid Distributions thereon to the date of payment, which may
be in the form of a distribution of a Like Amount of Convertible Subordinated
Debentures, subject to certain exceptions. See "--Liquidation Distribution
Upon Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (whatever the reason for such Event of Default and whether it
is voluntary or involuntary or is effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Convertible Subordinated Debentures--Debenture Events
of Default"); or
(ii) default by the Property Trustee 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 Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (ii) or (iii) above), and continuation of
such default or breach for a period of 90 days after there has been given,
by registered or certified mail, to the defaulting Trustee or Trustees by
the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Capital Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 90 days thereof.
Within ten Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Company, as Depositor, unless such Event of
Default has been cured or waived. The Company, as Depositor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities will have a preference over the Common Securities as described
above. See "--Subordination of Common Securities" and "--Liquidation
Distribution Upon Termination." The existence of an Event of Default does not
entitle the holders of Capital Securities to accelerate the maturity thereof.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the Company, as holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a
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majority in Liquidation Amount of the outstanding Capital Securities. In no
event will the holders of the Capital Securities have the right to vote to
appoint, remove or replace the Administrative Trustees, which voting rights
are vested exclusively in the Company, as the holder of the Common Securities.
No resignation or removal of a Trustee and no appointment of a successor
trustee will be effective until the acceptance of appointment by the successor
trustee in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default has occurred and is continuing, at any time or
from time to time, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Company, as the holder of the Common
Securities, and the Administrative Trustees will have power to appoint one or
more Persons either to act as a co-trustee, jointly with the Property Trustee,
of all or any part of such Trust Property, or to act as separate trustee of
any such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the Trust Agreement. In case a Debenture Event of
Default has occurred and is continuing, the Property Trustee alone will have
power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee is a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF ISSUER
The Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below or as otherwise described in the Trust Agreement. The Issuer
may, at the request of the Company, with the consent of the Administrative
Trustees and without the consent of the holders of the Capital Securities,
merge with or into, consolidate, amalgamate, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to, a
trust organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Issuer with respect to the Capital Securities, or (b) substitutes for the
Capital Securities other securities having substantially the same terms as the
Capital Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Capital Securities in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii)
the Company expressly appoints a trustee of such successor entity possessing
the same powers and duties as the Property Trustee as the holder of the
Convertible Subordinated Debentures, (iii) the Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which
the Capital Securities are then listed, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not cause the Capital Securities to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Capital Securities
(including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose substantially identical to that of the Issuer,
(vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Company has received an opinion from
independent counsel to the Issuer experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither
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the Issuer nor such successor entity will be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and (viii) the Company or any permitted successor
or assignee owns all of the Common Securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding
the foregoing, the Issuer will not, except with the consent of holders of 100%
in Liquidation Amount of the Capital Securities, consolidate, amalgamate,
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause or the successor entity to be
classified as other than a grantor trust for U.S. federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Capital Securities (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters
or questions arising under the Trust Agreement, which may not be inconsistent
with the other provisions of the Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as may be
necessary to ensure that the Issuer will be classified for U.S. federal income
tax purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that the Issuer will not be required to register as
an "investment company" under the Investment Company Act; provided, however,
that in the case of either clause (i) or clause (ii), such action will not
adversely affect in any material respect the interests of any holder of
Capital Securities, and any such amendments of the Trust Agreement will become
effective when notice thereof is given to the holders of Trust Securities. The
Trust Agreement may be amended by the Trustees and the Company with (i) the
consent of holders representing not less than a majority (based upon
Liquidation Amounts) of the outstanding Trust Securities, and (ii) receipt by
the Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with such
amendment will not affect the Issuer's status as a grantor trust for U.S.
federal income tax purposes or the Issuer's exemption from status as an
"investment company" under the Investment Company Act, provided that without
the consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (i) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date,
or (ii) restrict the right of a holder of Trust Securities to institute suit
for the enforcement of any such payment on or after such date.
So long as any Convertible Subordinated Debentures are held by the Property
Trustee, the Trustees will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee,
or executing any trust or power conferred on the Property Trustee with respect
to the Convertible Subordinated Debentures, (ii) waive any past default that
is waivable under the Indenture, (iii) exercise any right to rescind or annul
a declaration that the principal of all the Convertible Subordinated
Debentures are due and payable, or (iv) consent to any amendment, modification
or termination of the Indenture or Convertible Subordinated Debentures, where
such consent will be required, without, in each case, obtaining the prior
approval of the holders of a majority in aggregate Liquidation Amount of all
outstanding Capital Securities; provided, however, that where a consent under
the Indenture would require the consent of each holder of the Convertible
Subordinated Debentures affected thereby, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Capital
Securities. The Trustees will not revoke any action previously authorized or
approved by a vote of the holders of the Capital Securities except by
subsequent vote of the holders of the Capital Securities. The Property Trustee
will notify each holder of Capital Securities of any
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notice of default with respect to the Convertible Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Capital
Securities, prior to taking any of the foregoing actions, the Trustees will
obtain an opinion of counsel experienced in such matters to the effect that
such action would not cause the Issuer to be classified as other than a
grantor trust for U.S. federal income tax purposes.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
given to each holder of record of Capital Securities in the manner set forth
in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required for
the Issuer to redeem and cancel the Capital Securities in accordance with the
Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Trustees or any affiliate of the
Company or any Trustees, will, for purposes of such vote or consent, be
treated as if they were not outstanding.
GLOBAL CAPITAL SECURITIES
The Capital Securities will be issued in the form of one or more Global
Capital Securities that will be deposited with, or on behalf of, DTC. Global
Capital Securities will be issued only in fully registered form and in either
temporary or permanent form. Unless and until it is exchanged in whole or in
part for the individual Capital Securities represented thereby, a Global
Capital Security may not be transferred except as a whole by DTC to a nominee
of DTC or by a nominee of DTC or another nominee of DTC or by DTC or any
nominee to a successor depository or any nominee of such successor.
Upon the issuance of the Global Capital Security, and the deposit of such
Global Capital Security with or on behalf of DTC, DTC or its nominee will
credit, on its book-entry registration and transfer system, the aggregate
Liquidation Amounts of the individual Capital Securities represented by such
Global Capital Securities to the accounts of Participants, which may include
the accounts of Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear"), and Cedel Bank, societe
anonyme ("Cedel"). Such accounts will be designated by the dealers,
underwriters or agents with respect to the Capital Securities. Ownership of
beneficial interests in the Global Capital Security will be limited to
Participants or persons that may hold interests through Participants,
including Euroclear and Cedel. Ownership of beneficial interests in the Global
Capital Security will be shown on, and the transfer of that ownership will be
effected only through records maintained by DTC or its nominee (with respect
to interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in the Global Capital Security.
So long as DTC, or its nominee, is the registered owner of the Global
Capital Security, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Capital Securities represented by the Global
Capital Security for all purposes under the Indenture. Except as provided
herein, owners of beneficial interests in the Global Capital Security will not
be entitled to have any of the individual Capital Securities represented by
the Global Capital Security registered in their names, will not receive or be
entitled to receive physical delivery of any Capital Securities in definitive
form and will not be considered the owners or holders thereof under the Trust
Agreement or the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Capital Securities represented by the Global Capital Security 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 Capital Security representing
the Capital Securities.
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None of the Company, the Property Trustee, any Paying Agent, or the Securities
Registrar for such Capital Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Global Capital Security or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
Liquidation Amount, Redemption Price or Distributions in respect of a
permanent Global Capital Security representing any of the Capital Securities,
immediately will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
Liquidation Amount of the Global Capital Security for the Capital Securities
as shown on the records of DTC or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in the Global
Capital Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such Participants.
If DTC is at any time unwilling, unable or ineligible to continue as
depositary and a successor depositary is not appointed by the Issuer within 90
days, the Issuer will issue individual Capital Securities in exchange for the
Global Capital Security representing the Capital Securities. In addition, the
Issuer may at any time and in its sole discretion, determine not to have any
Capital Securities represented by one or more Global Capital Securities and,
in such event, will issue individual Capital Securities in exchange for the
Global Capital Security or Securities representing the Capital Securities.
Further, if the Issuer so specifies with respect to the Capital Securities, an
owner of a beneficial interest in the Global Capital Security representing
Capital Securities may, on terms acceptable to the Issuer, the Property
Trustee and DTC, receive individual Capital Securities in exchange for such
beneficial interests. In any such instance, an owner of a beneficial interest
in the Global Capital Security will be entitled to physical delivery of
individual Capital Securities equal in principal amount to such beneficial
interest and to have the Capital Securities registered in its name.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are not held by DTC or its nominee, such
payments will be made by check mailed to the address of the holder entitled
thereto as such address appears on the Register. The Paying Agent will
initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees and the
Company. The Paying Agent will be permitted to resign as Paying Agent upon 30
days' written notice to the Property Trustee and the Company. In the event
that the Property Trustee is no longer the Paying Agent, the Administrative
Trustees will appoint a successor (which must be a bank or trust company
acceptable to the Administrative Trustees and the Company) to act as Paying
Agent.
REGISTRAR, TRANSFER AGENT AND CONVERSION AGENT
The Property Trustee will act as registrar, transfer agent and Conversion
Agent for the Capital Securities. Registration of transfers of Capital
Securities will be effected without charge by or on behalf of the Issuer, but
upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The Issuer will not be required to
register or cause to be registered the transfer of the Capital Securities
after such Capital Securities have been called for redemption.
INFORMATION CONCERNING PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the
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powers vested in it by the Trust Agreement at the request of any holder of
Capital Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of the Capital
Securities are entitled to vote, then the Property Trustee will take such
action as is directed by the Company and if not so directed, will take such
action as it deems advisable and in the best interests of the holders of the
Trust Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as other than a grantor trust for U.S.
federal income tax purposes and so that the Convertible Subordinated
Debentures will be treated as indebtedness of the Company for U.S. federal
income tax purposes. In this connection, the Company and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Issuer or the Trust Agreement, that the
Company and the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Capital
Securities. Holders of the Capital Securities have no preemptive or similar
rights. The Issuer may not borrow money or issue debt or mortgage or pledge
any of its assets.
DESCRIPTION OF CONVERTIBLE SUBORDINATED DEBENTURES
GENERAL
The Convertible Subordinated Debentures are to be issued under an Indenture
between the Company and The Bank of New York, as Debenture Trustee. The
Indenture is qualified under the Trust Indenture Act. This summary of certain
terms and provisions of the Convertible Subordinated Debentures and the
Indenture, which summarizes the material provisions thereof, does not purport
to be complete and is subject to, and is qualified in its entirety by
reference to, the Indenture, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and to the Trust
Indenture Act, to each of which reference is hereby made. Whenever particular
defined terms of the Indenture (as supplemented or amended from time to time)
are referred to herein, such defined terms are incorporated herein or therein
by reference.
Concurrently with the issuance of the Capital Securities, the Issuer will
invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Convertible Subordinated Debentures
issued by the Company. The Convertible Subordinated Debentures will bear
interest at the annual rate of 6.0% 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 September 30, 1998,
and at maturity to the person in whose name each Convertible Subordinated
Debenture is registered at the close of business on the record date next
preceding such Interest Payment Date. The period beginning on and including
the date of original issuance of the Convertible Subordinated Debentures and
ending on but excluding the first Interest Payment Date and each successive
period beginning on and including an Interest Payment Date and ending on but
excluding the next succeeding Interest Payment Date is herein called an
"Interest Period." It is anticipated that, until the liquidation, if any, of
the Issuer, each Convertible Subordinated Debenture will be held by the
Property Trustee in trust for the benefit of the holders of the Capital
Securities. The amount of interest payable for any Interest Period will be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any Interest Payment Date would otherwise fall on a day that is not a
Business Day, such Interest Payment Date will be postponed to the next day
that is a Business Day (without any interest or other payment in respect of
any such delay) unless it would thereby fall in the next calendar year, in
which event the Interest Payment Date will be brought forward to the
immediately preceding Business Day. Accrued interest that is not
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paid on the applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at the rate of 6.0% per
annum, compounded quarterly from the relevant Interest Payment Date. The term
"interest" as used herein includes quarterly interest payments and interest on
quarterly interest payments not paid on the applicable Interest Payment Date,
as applicable. Notwithstanding anything to the contrary set forth above, if
the maturity date falls on a day that is not a Business Day, the payment of
principal and interest will be paid on the next succeeding Business Day, with
the same force and effect as if made on such maturity date and no interest on
such payments will accrue from and after the maturity date.
The Convertible Subordinated Debentures will mature on June 30, 2028 (the
"Stated Maturity").
The Convertible Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Debt of the
Company. See "--Subordination." Substantially all of the Company's existing
indebtedness constitutes Senior Debt. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of any subsidiary, including the Subsidiary Banks (as defined below), upon
such subsidiary's liquidation or reorganization or otherwise, is subject to
the prior claims of creditors of that subsidiary, except to the extent that
the Company may itself be recognized as a creditor of that subsidiary. At
March 31, 1998, the subsidiaries of the Company had total liabilities
(excluding liabilities owed to the Company) of approximately $6.0 billion
(including deposits in the case of subsidiaries which are financial
institutions) (the "Subsidiary Banks")). Accordingly, the Convertible
Subordinated Debentures and the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and holders
of Convertible Subordinated Debentures and beneficiaries of the Guarantee
should look only to the assets of the Company for payments on the Convertible
Subordinated Debentures or under the Guarantee. The Indenture does not limit
the incurrence or issuance of other secured or unsecured debt of the Company
or its subsidiaries, including Senior Debt, whether under the Indenture, any
other existing indenture or any other indenture that the Company may enter
into in the future or otherwise. See "Description of Convertible Subordinated
Debentures--Subordination."
In addition, as the Company is a non-operating holding company, almost all
of the operating assets of the Company are owned by its subsidiaries. The
Company relies primarily on dividends and management fees from such
subsidiaries to meet its obligations for payment of principal and interest on
its outstanding debt obligations, corporate expenses and dividend payments on
its Common Stock. The Subsidiary Banks are subject to certain restrictions
imposed by federal law on any extensions of credit and payment of management
fees to, and certain other transactions with, the Company and certain other
affiliates, and on investment in stock or other securities thereof. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Subsidiary Banks unless the loans are secured by various types of
collateral. Further, such secured loans, other transactions and investment by
the Subsidiary Banks are generally limited in amount as to the Company and as
to each of such other affiliates to 10% of each such Subsidiary Bank's capital
and surplus and as to the Company and all of such other affiliates to an
aggregate of 20% of each such Subsidiary Bank's capital and surplus. In
addition, payment of dividends and management fees to the Company by the
Subsidiary Banks is subject to ongoing review by banking regulators and is
subject to various statutory limitations and in certain circumstances requires
prior approval by banking regulatory authorities. Under current banking
regulations referred to above, at December 31, 1997, the Subsidiary Banks
could have declared dividends to the Company of $76.6 million, of which $15.8
million has been subsequently declared and paid to the Company. Federal and
state regulatory agencies also have the authority to limit further the
Subsidiary Banks' payment of dividends based on other factors, such as the
maintenance of adequate capital for the Subsidiary Banks, which could reduce
the amount of dividends otherwise payable.
RIGHT TO DEFER INTEREST PAYMENTS
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture at any time or from time to time
during the term of the Convertible Subordinated Debentures to defer payment of
interest on the Convertible Subordinated Debentures for a period not exceeding
20 consecutive quarterly periods with respect to each Extension Period,
provided that no Extension Period may extend beyond
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the Stated Maturity of the Convertible Subordinated Debentures. At the end of
such Extension Period, the Company must pay all interest then accrued and
unpaid on the Convertible Subordinated Debentures (together with interest on
such unpaid interest at the rate of 6.0% per annum, compounded quarterly from
the relevant Interest Payment Date, to the extent permitted by applicable
law). During an Extension Period, interest will accrue and holders of
Convertible Subordinated Debentures (or holders of Capital Securities while
such series is outstanding) will be required to accrue interest income for
U.S. federal income tax purposes. See "Certain Federal Income Tax
Consequences--Potential Extension of Interest Payment Period and Original
Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distribution on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock, (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the Convertible Subordinated Debentures, or (iii) make any guarantee
payments with respect to any guarantee by the Company of the debt securities
of any subsidiary of the Company if such guarantee ranks pari passu with or
junior in interest to the Convertible Subordinated Debentures (other than (a)
dividends or distributions in capital stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the redemption or repurchase of any such rights
pursuant thereto, (c) purchases of Common Stock related to the issuance of
Common Stock or rights under any of the Company's benefit plans for its
directors, officers or employees, related to the issuance of Common Stock or
rights under a dividend reinvestment and stock purchase plan, or related to
the issuance of Common Stock (or securities convertible into or exchangeable
for Common Stock) as consideration in an acquisition transaction that was
entered into prior to the commencement of such Extension Period, or (d)
payments under the Guarantee). Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest on the
Convertible Subordinated Debentures, provided that no Extension Period may
exceed 20 consecutive quarterly period or extend beyond the Stated Maturity of
the Convertible Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the rate of 6.0% per annum, compounded
quarterly, to the extent permitted by applicable law), the Company may elect
to begin a new Extension Period subject to the above requirements. No interest
will be due and payable during an Extension Period, except at the end thereof.
The Company must give the Property Trustee, the Administrative Trustees and
the Debenture Trustee notice of its election to begin such Extension Period at
least one Business Day prior to the earlier of (i) the date Distributions on
the Trust Securities would have been payable except for the election to begin
such Extension Period, (ii) the date the Administrative Trustees are required
to give notice to the NYSE, the Nasdaq National Market or other applicable
stock exchange or automated quotation system on which the Capital Securities
are then listed or quoted, or (iii) the date such Distributions are payable,
but in any event not less than one Business Day prior to such record date. The
Debenture Trustee will give notice of the Company's election to begin a new
Extension Period to the holders of the Convertible Subordinated Debentures.
There is no limitation on the number of times that the Company may elect to
begin an Extension Period.
REDEMPTION
Subject to the Company's having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies, the
Convertible Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after June 23, 2001, in whole at any time or
in part from time to time, or (ii) at any time, in certain circumstances as
described under "--Conditional Right to Redeem upon a Tax Event or Capital
Treatment Event," in whole (but not in part) within 90 days following the
occurrence of a Tax Event or Capital Treatment Event. The proceeds of any such
redemption will be used by the Issuer to redeem the Trust Securities. The
redemption price with respect to the Convertible Subordinated Debentures will
be equal to 100% of the principal amount of the Convertible Subordinated
Debentures so redeemed plus accrued and unpaid interest thereon to the date of
redemption. The Convertible Subordinated Debentures will not be subject to any
sinking fund.
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Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Convertible Subordinated
Debentures to be redeemed at its registered address. Unless the Company
defaults in payment of the redemption price, on and after the redemption date,
interest will cease to accrue on the Convertible Subordinated Debentures or
portions thereof called for redemption.
DISTRIBUTION OF CONVERTIBLE SUBORDINATED DEBENTURES
As described under "Description of Capital Securities--Redemption--
Liquidation of Issuer and Distribution of Convertible Subordinated
Debentures," under certain circumstances involving the termination of the
Issuer, Convertible Subordinated Debentures may be distributed to the holders
of the Capital Securities in exchange therefor upon liquidation of the Issuer
after satisfaction of liabilities to creditors of the Issuer as provided by
applicable law. If distributed to holders of Capital Securities, the
Convertible Subordinated Debentures will initially be issued in the form of
one or more global securities and DTC, or any successor depositary for the
Capital Securities, will act as depositary for the Convertible Subordinated
Debentures. It is anticipated that the depositary arrangements for the
Convertible Subordinated Debentures would be substantially identical to those
in effect for the Capital Securities. See "Description of Capital Securities--
Registration of Capital Securities" and "Book-Entry Issuance." If Convertible
Subordinated Debentures are distributed to the holders of Capital Securities
in exchange therefor upon the liquidation of the Issuer, the Company will use
its best efforts to list the Convertible Subordinated Debentures on the NYSE
or such other stock exchanges or automated quotation systems, if any, on which
the Capital Securities are then listed or quoted. There can be no assurance as
to the market price of any Convertible Subordinated Debentures that may be
distributed to the holders of Capital Securities.
CONDITIONAL RIGHT TO REDEEM UPON A TAX EVENT OR CAPITAL TREATMENT EVENT
If a Tax Event or a Capital Treatment Event occurs and either (i) in the
opinion of counsel to the Company experienced in such matters, there would in
all cases, after effecting the termination of the Issuer and the distribution
of the Convertible Subordinated Debentures to the holders of the Capital
Securities in exchange therefor upon liquidation of the Issuer, be more than
an insubstantial risk that an Adverse Tax Consequence (as defined in "Risk
Factors--Redemption Upon Tax Event or Capital Treatment Event") would continue
to exist, (ii) in the reasonable determination of the Company, there would in
all cases, after effecting the termination of the Issuer and the distribution
of the Convertible Subordinated Debentures to the holders of the Capital
Securities in exchange therefor upon liquidation of the Issuer, be more than
an insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation Amount of the Capital Securities as "Tier 1 Capital"
(or the then equivalent thereof) for purposes of the capital adequacy
guidelines of the Federal Reserve, as then in effect and applicable to the
Company, or (iii) the Convertible Subordinated Debentures are not held by the
Issuer, then the Company will have the right to redeem the Convertible
Subordinated Debentures, in whole but not in part, at any time within 90 days
following the occurrence of a Tax Event or Capital Treatment Event at a
redemption price equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon to the date of redemption. See "Description of
Capital Securities--Redemption."
REGISTRATION OF CONVERTIBLE SUBORDINATED DEBENTURES
The Convertible Subordinated Debentures will be registered in the name of
the Issuer. In the event that the Convertible Subordinated Debentures are
distributed to holders of the Capital Securities, it is anticipated that the
depositary and other arrangements for the Convertible Subordinated Debentures
will be substantially identical to those in effect for the Capital Securities,
as applicable. See "Description of Capital Securities--Registration of Capital
Securities" and "Book-Entry Issuance."
PAYMENT AND PAYING AGENTS
Payment of principal of (and premium, if any) and any interest on
Convertible Subordinated Debentures (other than any Convertible Subordinated
Debentures represented by Global Convertible Subordinated Debentures) will be
made at the office of the Debenture Trustee in New York City or at the office
of such paying
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agent or paying agents as the Company may designate from time to time, except
that at the option of the Company payment of any interest may be made (i)
except in the case of Global Convertible Subordinated Debentures, by check
mailed to the address of the person entitled thereto as such address appears
in the securities register, or (ii) by transfer to an account maintained by
the Person entitled thereto as specified in the securities register, provided
that proper transfer instructions have been received by the applicable record
date. Payment of any interest on Convertible Subordinated Debentures will be
made to the Person in whose name such Convertible Subordinated Debentures are
registered at the close of business on the applicable record date for such
interest, except in the case of defaulted interest. The Company may at any
time designate additional paying agents or rescind the designation of any
paying agent; however, the Company will at all times be required to maintain a
paying agent in each place of payment for the Convertible Subordinated
Debentures.
Any moneys 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 Convertible Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable will, at the request of the Company, be repaid to
the Company and the holder of such Convertible Debenture must thereafter look,
as a general unsecured creditor, only to the Company for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant, as to the Convertible Subordinated
Debentures, that it will not, and will not permit any subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities of
the Company that rank pari passu with or junior in interest to the Convertible
Subordinated Debentures, or (iii) make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Convertible Subordinated Debentures (other than (a) dividends or distributions
in capital stock of the Company, (b) any declaration of a dividend in
connection with the implementation of a shareholders' rights plan, or the
redemption or repurchase of any such rights pursuant thereto, (c) purchases of
Common Stock related to the issuance of Common Stock or rights under any of
the Company's benefit plans for its directors, officers or employees, related
to the issuance of Common Stock or rights under a dividend reinvestment and
stock purchase plan, or related to the issuance of Common Stock (or securities
convertible into or exchangeable for Common Stock) as consideration in an
acquisition transaction that was entered into prior to the commencement of
such Extension Period, and (d) payments under the Guarantee) if at such time
(i) there has occurred any event of which the Company has actual knowledge (a)
that with the giving of notice or the lapse of time, or both, would constitute
a Debenture Event of Default under the Indenture with respect to the
Convertible Subordinated Debentures, and (b) in respect of which the Company
has not taken reasonable steps to cure, or (ii) the Company has given notice
of its election of an Extension Period as provided in the Indenture with
respect to the Convertible Subordinated Debentures and has not rescinded such
notice, or such Extension Period, or any extension thereof, is continuing.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Convertible Subordinated Debentures, amend,
waive or supplement the Indenture for specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies (provided that
any such action does not materially adversely affect the interests of the
holders of the Convertible Subordinated Debentures or the holders of the
Capital Securities so long as they remain outstanding) and qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act.
The Indenture contains provisions permitting the Company and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Convertible Subordinated Debentures affected, to
modify the Indenture; provided, that no such modification may, without the
consent of the holder of each outstanding Convertible Debenture so affected,
(i) change the Stated Maturity of the Convertible Subordinated Debentures, or
reduce the principal amount thereof,
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or reduce the rate or extend the time of payment of interest thereon or (ii)
reduce the percentage of principal amount of the Convertible Subordinated
Debentures, the holders of which are required to consent to any such
modification of the Indenture, provided further that, so long as any Capital
Securities remain outstanding, (a) no such modification may be made that
adversely affects the holders of such Capital Securities in any material
respect, and no termination of the Indenture may occur, and no waiver of any
event of default or compliance with any covenant under the Indenture may be
effective, without the prior consent of the holders of at least a majority of
the aggregate Liquidation Amount of all outstanding Capital Securities
affected unless and until the principal of the Convertible Subordinated
Debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions have been satisfied, and (b) where a consent
under the Indenture would require the consent of each holder of Convertible
Subordinated Debentures, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the Capital Securities. In
addition, the Company and the Debenture Trustee may execute, without the
consent of any holder of Convertible Subordinated Debentures, any supplemental
indenture for the purpose of creating any new series of junior subordinated
debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events that have occurred and are continuing constitutes a "Debenture Event of
Default" with respect to the Convertible Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Convertible
Subordinated Debentures when due (subject to the deferral of any interest
payment in the case of an Extension Period), or
(ii) failure to pay any principal or premium, if any, on the Convertible
Subordinated Debentures when due whether at maturity or upon redemption, or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the outstanding Convertible
Subordinated Debentures, or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of
Convertible Subordinated Debentures have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25%
in aggregate outstanding principal amount of Convertible 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 the Convertible Subordinated Debentures fail to make such declaration, the
holders of at least 25% in aggregate Liquidation Amount of the Capital
Securities will have such right. The holders of a majority in aggregate
outstanding principal amount of Convertible Subordinated Debentures may annul
such declaration. Should the holders of the Convertible Subordinated
Debentures fail to annul such declaration and waive such default, the holders
of a majority in aggregate Liquidation Amount of the Capital Securities
affected will have such right.
The holders of a majority in aggregate outstanding principal amount of the
Convertible Subordinated Debentures affected thereby may, on behalf of the
holders of all of the Convertible Subordinated Debentures, waive any default,
except a default in the payment of principal or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration has been deposited
with the Debenture Trustee) or a default in respect of a covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the holder of each outstanding Convertible Debenture. Should the holders of
the Convertible Subordinated Debentures fail to waive such default, the
holders of a majority in aggregate Liquidation Amount of the Capital
Securities affected will have such right. The Company is required to file
annually with the Debenture Trustee a certificate as to whether or not the
Company is in compliance with all the conditions and covenants applicable to
it under the Indenture.
In case 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 Convertible Subordinated Debentures, and any other amounts
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payable under the Indenture, to be forthwith due and payable and to enforce
its other rights as a creditor with respect to the Convertible Subordinated
Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Convertible Subordinated Debentures on the date such interest
or principal is due and payable, a holder of Capital Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on the Convertible Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Capital Securities of such holder (a "Direct Action"). The Company may
not amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Capital
Securities outstanding. If the right to bring a Direct Action is removed, the
Issuer may become subject to the reporting obligations under the Exchange Act.
The Company has the right under the Indenture to set-off any payment made to
such holder of Capital Securities by the Company in connection with a Direct
Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies other than those set forth in the preceding paragraph available
to the holders of the Convertible Subordinated Debentures unless there has
been an Event of Default under the Trust Agreement. See "Description of
Capital Securities--Events of Default; Notice."
CONVERSION OF CONVERTIBLE SUBORDINATED DEBENTURES
The Convertible Subordinated Debentures will be convertible into Common
Stock at the option of the holders of the Convertible Subordinated Debentures
at any time on or after August 22, 1998, and prior to 5:00 p.m. (Eastern time)
on the Business Day immediately preceding the date of repayment of such
Convertible Subordinated Debentures, whether at Stated Maturity or upon
redemption (either at the option of the Company or pursuant to a Tax Event or
a Capital Treatment Event), at the Conversion Ratio as adjusted, as
applicable, as described under "Description of Capital Securities--Conversion
Rights." The Issuer will covenant not to convert Convertible Subordinated
Debentures held by it except pursuant to a notice of conversion delivered to
the Conversion Agent by a holder of Capital Securities. Upon surrender of a
Capital Security to the Conversion Agent for conversion, the Issuer will
distribute $25 principal amount of the Convertible Subordinated Debentures per
Capital Security to the Conversion Agent on behalf of the holder of the
Capital Securities so converted whereupon the Conversion Agent will convert
such Convertible Subordinated Debentures to Common Stock on behalf of such
holder. The Company's delivery to the holders of the Convertible Subordinated
Debentures (through the Conversion Agent) of the fixed number of shares of
Common Stock into which the Convertible Subordinated Debentures are
convertible (together with the cash payment, if any, in lieu of fractional
shares) will be deemed to satisfy the Company's obligation to pay the
principal amount of the Convertible Subordinated Debentures so converted, and
the accrued and unpaid interest thereupon attributable to the period from the
last date to which interest has been paid or duly provided for; provided,
however, that if any Convertible Subordinated Debentures are converted after a
record date for payment of interest and on or before the related Interest
Payment Date, the interest payable on the related Interest Payment Date with
respect to such Convertible Subordinated Debentures will be paid to the Issuer
(which will distribute an equivalent amount to the holder of such Capital
Security on the related record date) or other holder of Convertible
Subordinated Debentures, as the case may be, despite such conversion, and the
holder of the Convertible Subordinated Debentures must deliver an amount equal
to the interest payable on the related Interest Payment Date prior to
receiving the shares of Common Stock; provided, further that if any
Convertible Subordinated Debentures are delivered for conversion during an
Extension Period by a holder after receiving a notice of redemption from the
Property Trustee, the Company will be required to pay to the Issuer or other
holder of the converted Convertible Subordinated Debentures all accrued and
unpaid interest, if any, on such Convertible Subordinated Debentures through
the date of conversion which amount will be simultaneously distributed to the
holders of the Capital Securities, if any, in respect of which such
Convertible Subordinated Debentures were delivered. Except as provided above,
neither the Issuer nor the Company will make, or be required to make, any
payment, allowance or adjustment for accumulated and unpaid interest, whether
or not in arrears, on the Convertible Subordinated Debentures surrendered for
conversion. See "Description of Capital Securities--Conversion Rights."
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CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company may not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person may consolidate with
or merge into the Company or convey, transfer or lease its properties and
assets substantially as an entirety to the Company, unless (i) in case 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 U.S. or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations on the Convertible Subordinated Debentures issued
under the Indenture, (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time
or both, would become a Debenture Event of Default, has occurred and is
continuing, (iii) such transaction is permitted under the Trust Agreement and
the Guarantee and does not give rise to any breach or violation of the Trust
Agreement or the Guarantee, and (iv) certain other conditions as prescribed by
the Indenture are met.
The general provisions of the Indenture do not afford holders of the
Convertible Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Convertible Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Convertible
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable, or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the
Convertible Subordinated Debentures are payable sufficient to pay and
discharge the entire indebtedness on the Convertible Subordinated Debentures
not previously delivered to the Debenture Trustee for cancellation, for the
principal (and premium, if any) and interest to the date of the deposit or to
the Stated Maturity, as the case may be, then the Indenture will cease to be
of further effect (except as to the Company's obligations to pay all other
sums due pursuant to the Indenture and to provide the officers' certificates
and opinions of counsel described therein), and the Company will be deemed to
have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Convertible
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets of the Company upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the holders of Convertible
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of (and premium, if any) or interest, if any, on the
Convertible Subordinated Debentures; provided, however, that holders of Senior
Debt will not be entitled to receive payment of any such amounts to the extent
that such holders would be required by the subordination provisions of such
Senior Debt to pay such amounts over to the obligees on trade accounts payable
or other liabilities arising in the ordinary course of the Company's business.
In the event of the acceleration of the maturity of the Convertible
Subordinated Debentures, the holders of all Senior Debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration thereof)
before the holders of Convertible Subordinated Debentures will be entitled to
receive or retain any payment in respect of the principal of (or premium, if
any) or interest, if any, on the Convertible Subordinated Debentures;
provided, however, that holders
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of Senior Debt will not be entitled to receive payment of any such amounts to
the extent that such holders would be required by the subordination provisions
of such Senior Debt to pay such amounts over to the obligees on trade accounts
payable or other liabilities arising in the ordinary course of the Company's
business.
The Convertible Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Debt of the
Company. At June 18, 1998, the aggregate outstanding Senior Debt of the
Company was $48 million. Because the Company is a holding company, the right
of the Company to participate in any distribution of assets of any subsidiary
of the Company, including any Subsidiary Bank, upon any such subsidiary's
liquidation or reorganization or otherwise (and thus the ability of holders of
the Convertible Subordinated Debentures to benefit indirectly from such
distribution), is subject to the prior claim of creditors of such
subsidiaries, except to the extent that the Company may itself be recognized
as a creditor of such subsidiary. The Convertible Subordinated Debentures
will, therefore, be effectively subordinated to all existing and future
liabilities of the subsidiaries of the Company, and holders of Convertible
Subordinated Debentures should look only to the assets of the Company for
payments on the Convertible Subordinated Debentures. The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company, including Senior Debt, or its subsidiaries whether under the
Indenture or any existing indenture or other indenture that the Company may
enter into in the future or otherwise. The Company expects from time to time
to incur additional indebtedness and other obligations constituting Senior
Debt.
No payments on account of principal (or premium, if any) or interest in
respect of the Convertible Subordinated Debentures may be made if there has
occurred and is continuing a default in any payment with respect to Senior
Debt or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding is pending
with respect to any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) every obligation of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) every capital lease obligation of such
Person, (vi) every obligation of such Person for claims in respect of
derivative products such as interest and foreign exchange rate contracts,
commodity contracts and similar arrangements, and (vii) every obligation of
the type referred to in clauses (i) through (vi) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Convertible
Subordinated Debentures or to other Debt which is pari passu with, or
subordinated to, the Convertible Subordinated Debentures; provided, however,
that Senior Debt will not be deemed to include (i) any Debt of the Company
which when incurred and without respect to any election under Section 1111(b)
of the U.S. Bankruptcy Code of 1978, as amended, was without recourse to the
Company, (ii) any Debt of the Company to any of its subsidiaries, (iii) any
Debt to any employee of the Company, (iv) Debt which by its terms is
subordinated to trade accounts payable or accrued liabilities arising in the
ordinary course of business to the extent that payments made to the holders of
such Debt by the holders of the Convertible Subordinated Debentures as a
result of the subordination provisions of the Indenture would be greater than
such payments otherwise would have been as a result of any obligation of such
holders of such Debt to pay amounts over to the obligees on such trade
accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is
subject, and (v) any other debt securities issued pursuant to the Indenture.
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TRUST EXPENSES
Pursuant to the Indenture, the Company, as borrower, has agreed to pay all
debts and other obligations (other than with respect to the Capital
Securities) and all costs and expenses of the Issuer (including costs and
expenses relating to the organization of the Issuer, the fees and expenses of
the Trustees and the cost and expenses relating to the operation of the
Issuer) and to pay any and all taxes and all costs and expenses with respect
thereto (other than U.S. withholding taxes) to which the Issuer might become
subject.
GOVERNING LAW
The Indenture and the Convertible Subordinated Debentures will be governed
by and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING DEBENTURE TRUSTEE
The Debenture Trustee will have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
BOOK-ENTRY ISSUANCE
DTC will act as the initial securities depositary for all of the Capital
Securities. The Capital Securities will be issued only as fully-registered
securities registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global certificates will be issued for the Capital
Securities, representing in the aggregate the total number of the Capital
Securities and will be deposited with the Property Trustee as custodian for
DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. "Direct
Participants" include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a
number of its Direct Participants and by the NYSE, the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system also is available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain custodial
relationships with Direct Participants, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of Capital Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Capital
Securities on DTC's records. The ownership interest of each actual purchaser
of each Capital Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records, including Euroclear and Cedel.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the
Beneficial Owners purchased Capital Securities. Transfers of ownership
interests in the Capital Securities are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial
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Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Capital Securities, except in the event that use of the
book-entry system for the Capital Securities is discontinued.
Transfers between Participants will be effected in accordance with DTC's
procedures and will be settled in same-day funds. Transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between Participants, on the one hand, and Euroclear
participants or Cedel participants, on the other hand, will be effected in DTC
in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may
be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such
system. Euroclear or Cedel, as the case may be, will, if the transaction meets
its settlement requirements, deliver instructions to its respective depositary
to take action to effect final settlement on its behalf by delivering or
receiving interests in the Capital Securities in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Cedel participants may not
deliver instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Capital Security from a
Participant in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear participant or Cedel participant, during the
securities settlement processing day (which must be a business day for
Euroclear and Cedel, as the case may be) immediately following the DTC
settlement date. Cash received in Euroclear or Cedel as a result of sales of
interests in a Capital Security by or through a Euroclear or Cedel participant
to a Participant in DTC will be received with value on the DTC settlement date
but will be available in the relevant Euroclear or Cedel cash account only as
of the business day for Euroclear or Cedel following the DTC settlement date.
DTC has no knowledge of the actual Beneficial Owners of the Capital
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Capital Securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Capital Securities. If less than all of the Capital Securities are being
redeemed, DTC's current practice is to determine by lot the amount of the
interest of each Direct Participant to be redeemed.
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Although voting with respect to the Capital Securities is limited to the
holders of record of the Capital Securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Capital Securities. Under its usual procedures, DTC would mail an
omnibus proxy (the "Omnibus Proxy") to the Property Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts
such Capital Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Distribution payments on the Capital Securities will be made by the Property
Trustee to DTC. DTC's practice is to credit Direct Participants' accounts on
the relevant payment date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payments on such payment date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices and will be
the responsibility of such Participant and not of DTC, the Property Trustee,
the Issuer or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of Distributions to DTC is the
responsibility of the Property Trustee, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursements of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depositary with
respect to the Capital Securities at any time by giving reasonable notice to
the Property Trustee and the Company. In the event that a successor securities
depositary is not obtained, definitive Capital Security certificates
representing the Capital Securities are required to be printed and delivered.
The Company, at its option, may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary). After a
Debenture Event of Default, the holders of a majority in Liquidation Amount of
Capital Securities may determine to discontinue the system of book-entry
transfers through DTC. In any such event, definitive certificates for such
Capital Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer and the Company believe to be
accurate, but the Issuer and the Company assume no responsibility for the
accuracy thereof. Neither the Issuer nor the Company has any responsibility
for the performance by DTC or its Participants of their respective obligations
as described herein or under the rules and procedures governing their
respective operations.
DESCRIPTION OF GUARANTEE
GENERAL
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Issuer of its Capital Securities for the benefit of
the holders from time to time of such Capital Securities and Common
Securities. The Bank of New York will act as Guarantee Trustee under the
Guarantee for the purposes of compliance with the Trust Indenture Act and the
Guarantee will be qualified as an indenture under the Trust Indenture Act.
This summary of certain provisions of the Guarantee, which summarizes the
material terms thereof, does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Guarantee, including the definitions therein of certain terms, and the Trust
Indenture Act, to each of which reference is hereby made. The form of the
Guarantee has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. The Guarantee Trustee will hold the Guarantee
for the benefit of the holders of the Capital Securities and Common
Securities.
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth therein, the Guarantee Payments (as defined herein) to
the holders of the Trust Securities, as and when due, regardless of
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any defense, right of set-off or counterclaim that the Issuer may have or
assert other than the defense of payment. The following payments with respect
to the Capital Securities, to the extent not paid by or on behalf of the
Issuer (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Issuer has funds on hand available therefor
at such time, (ii) the Redemption Price with respect to any Capital Securities
called for redemption, to the extent that the Issuer has funds on hand
available therefor at such time, or (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of the Issuer (unless the Convertible
Subordinated Debentures are distributed to holders of the Capital Securities
in exchange therefor), the lesser of (a) the Liquidation Distribution, and (b)
the amount of assets of the Issuer remaining available for distribution to
holders of Trust Securities after satisfaction of liabilities to creditors of
the Issuer as required by law. 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 Trust Securities or by causing the Issuer to pay
such amounts to such holders.
If the Company does not make interest payments on the Convertible
Subordinated Debentures held by the Issuer, the Issuer will not be able to pay
Distributions on the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Debt of the Company. See "-- Status of Guarantee."
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary, including the
Subsidiary Banks, upon such subsidiary's liquidation or reorganization or
otherwise, is subject to the prior claims of creditors of that subsidiary,
except to the extent the Company may itself be recognized as a creditor of
that subsidiary. Accordingly, the Company's obligations under the Guarantee
will be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and claimants should look only to the assets of the
Company for payments thereunder. The Guarantee will not limit the incurrence
or issuance of other secured or unsecured debt of the Company, including
Senior Debt, or its subsidiaries whether under the Indenture, any other
existing indenture or any other indenture that the Company may enter into in
the future or otherwise. The Company expects from time to time to incur
additional indebtedness constituting Senior Debt.
The Company will, through the Guarantee, the Trust Agreement, the
Convertible Subordinated Debentures and the Indenture, taken together, fully,
irrevocably and unconditionally guaranteed all of the Issuer's obligations
under the Capital Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
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's obligations under the Capital Securities. See "Relationship Among
Capital Securities, Convertible Subordinated Debentures and Guarantee."
As part of the Guarantee, the Company will agree that it will honor all
obligations described therein relating to the conversion of the Capital
Securities into Common Stock as described in "Description of Capital
Securities--Conversion Rights."
STATUS OF GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt of the
Company in the same manner as the Convertible 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 for the benefit of the holders of the Trust Securities. The Guarantee
will not be discharged except by payment of the Guarantee Payments in full to
the extent not paid by the Issuer or upon distribution to the holders of the
Trust Securities of the Convertible Subordinated Debentures.
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AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust 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 Trust Securities. The manner of obtaining any such approval will
be as set forth under "Description of Capital Securities--Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee will bind the successors, assigns, receivers, trustees and
representatives of the Company and will inure to the benefit of the holders of
the related Trust Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Trust Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Trust 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, the Guarantee Trustee or any other person or
entity. The Company, as Guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
INFORMATION CONCERNING GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, will undertake to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee will be
under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of any Trust Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
TERMINATION OF GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Trust Securities, upon full payment of
the amounts payable upon liquidation of the Issuer or upon distribution of
Convertible Subordinated Debentures to the holders of the Trust Securities in
exchange therefor. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Trust
Securities must restore payment of any sums paid under the Trust 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.
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RELATIONSHIP AMONG CAPITAL SECURITIES,
CONVERTIBLE SUBORDINATED DEBENTURES AND GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer has funds available for the payment of such
Distributions and other amounts) will be irrevocably guaranteed by the Company
as and to the extent set forth under "Description of Guarantee." Taken
together, the Company's obligations under the Convertible Subordinated
Debentures, the Indenture, the Trust Agreement and the Guarantee will provide,
in the aggregate, a full, irrevocable and unconditional guarantee of payments
of Distributions and other amounts due on the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the Capital
Securities. If and to the extent that the Company does not make payments on
the Convertible Subordinated Debentures, the Issuer will not pay Distributions
or other amounts due on the Capital Securities. The Guarantee does not cover
payment of Distributions when the Issuer does not have sufficient funds to pay
such Distributions. In such event, the remedy of a holder the Capital
Securities is to institute a legal proceeding directly against the Company
pursuant to the terms of the Indenture for enforcement of payment of amounts
equal to such Distributions to such holder. The obligations of the Company
under the Guarantee will be subordinate and junior in right of payment to all
Senior Debt of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Convertible Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of the Convertible Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Capital Securities and Common Securities, (ii) the interest rate and
interest and other payment dates on the Convertible Subordinated Debentures
will match the Distribution rate and Distribution and other payment dates for
the Capital Securities, (iii) the Company will pay for all and any costs,
expenses and liabilities of the Issuer except the Issuer's obligations to
holders of the Capital Securities under the Capital Securities, and (iv) the
Trust Agreement further provides that the Issuer will not engage in any
activity that is not consistent with the limited purposes of the Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Company or
any other Person or entity.
A default or event of default under any Senior Debt of the Company would not
constitute a default or Event of Default under the Indenture. In the event,
however, of payment defaults under, or acceleration of, Senior Debt of the
Company, the subordination provisions of the Indenture provide that no
payments may be made in respect of the Convertible Subordinated Debentures
until such Senior Debt has been paid in full or any payment default thereunder
has been cured or waived. Failure to make required payments on the Convertible
Subordinated Debentures would constitute an Event of Default under the
Indenture.
LIMITED PURPOSE OF ISSUER
The Capital Securities evidence a beneficial interest in the Issuer, and the
Issuer exists for the sole purpose of issuing its Capital Securities and
Common Securities and investing the proceeds thereof in the Convertible
Subordinated Debentures. A principal difference between the rights of a holder
of a Capital Security and a holder of a Convertible Subordinated Debenture is
that a holder of a Convertible Subordinated Debenture will be entitled to
receive from the Company the principal amount of and interest accrued on
Convertible Subordinated
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Debentures held, while a holder of Capital Securities will be entitled to
receive Distributions from the Issuer (or from the Company under the
Guarantee) if and to the extent the Issuer has funds available for the payment
of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding up or liquidation of
the Issuer involving the liquidation of the Convertible Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer as
required by applicable law, the holders of the Capital Securities will be
entitled to receive, out of the assets held by the Issuer, the Liquidation
Distribution in cash. See "Description of Capital Securities--Liquidation
Distribution Upon Termination." Upon any voluntary or involuntary liquidation
or bankruptcy of the Company, the Property Trustee, as holder of the
Convertible Subordinated Debentures, would be a subordinated creditor of the
Company, subordinated in right of payment to all Senior Debt as set forth in
the Indenture, but entitled to receive payment in full of principal and
interest, before any shareholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of the Issuer (other
than the Issuer's obligations to the holders of its Capital Securities), the
positions of a holder of the Capital Securities and a holder of the
Convertible Subordinated Debentures relative to other creditors and to
shareholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock and 2,000,000 shares of preferred stock, no par value per share
(the "Preferred Stock"). As of March 31, 1998 (on a pro forma basis giving
effect to the Pinnacle Acquisition), there were 33,540,415 shares of Common
Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
Dividend Rights
Holders of Common Stock are entitled to receive dividends when as and if
declared by the Company's Board of Directors out of funds legally available
therefor, subject to any preferential dividend rights which may attach to
preferred stock which may be issued by the Company in the future. The timing
and amount of future dividends will depend, among other things, upon the
earnings and financial condition of the Company and its subsidiaries. In
addition, the ability of the subsidiary banks of the Company to pay cash
dividends, which are expected to continue to be the Company's principal source
of income, is restricted by applicable banking laws.
Voting Rights
Holders of Common Stock are entitled to one vote per share in the election
of directors and in all other matters to be voted upon by the shareholders
generally. Shareholders do not have cumulative voting rights in the election
of directors. Therefore, holders of a majority of the shares of Common Stock
outstanding can elect the entire Board of Directors of the Company.
Liquidation Rights
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Common Stock would be
entitled to share ratably in any of its assets or funds that are available for
distribution to its shareholders after the satisfaction of its liabilities (or
after adequate provision is made therefor) and after preferences on any
outstanding preferred stock.
No Preemptive Rights
Holders of Common Stock do not have the preemptive right to subscribe on a
pro-rata basis for any presently or subsequently authorized shares of Common
Stock.
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Assessment and Redemption
The Common Stock is not subject to redemption or any sinking fund and the
outstanding shares are fully paid and non-assessable. The Citizens National
Bank of Evansville is the transfer agent for the Common Stock.
PREFERRED STOCK
The Board of Directors of the Company is authorized to cause the Preferred
Stock to be issued from time to time, in series, by resolution adopted prior
to the issue of shares of a particular series, and to fix and determine in the
resolution the designation, relative rights, preferences and limitations of
the shares of each series, including voting, dividend and liquidation rights
and all other matters with respect to such shares as are permitted to be fixed
and determined by the Board of Directors under the Indiana corporate law.
CERTAIN ANTI-TAKEOVER PROVISIONS
Shareholder Vote Required for Certain Transactions
Business Combinations. The Company's Restated Articles of Incorporation
include a so-called "fair price" provision. This provision generally provides
that mergers, other business combinations and similar transactions and the
sale, lease, mortgage or other disposition of more than 10% of total assets
involving the Company or any of its subsidiaries and any person or entity
beneficially owning directly or indirectly more than 10% of the outstanding
voting stock of the Company, or affiliates or associates of such an entity (a
"Company 10% shareholder"), may not be consummated without the approval of
holders of at least 80% of the voting stock of the Company, unless either: (i)
the transaction is approved by a majority of the members of the Board of
Directors who are not affiliated with the Company 10% shareholder, or (ii) the
transaction meets certain minimum ("fair price") price requirements (in either
of which cases, the shareholder and director approval requirements of the
"fair price" provision would no longer apply and only the normal shareholder
and director approval requirements of the Indiana corporate law would govern
the transaction).
The primary purpose of the Company's "fair price" provision is to provide
additional safeguards for the remaining shareholders in the event that an
individual or entity becomes a major shareholder of the Company. If the
Company comes under the control of a single person or entity, substantial
inequities could befall the minority shareholders. A bid for control of a
target company is often followed, in time, by a complete business combination
that eliminates minority interests in the target company on terms often
unfavorable to the minority--a so-called "two-tier" structured takeover.
Minority shareholders in these circumstances may be forced out by the
controlling shareholder in a business combination transaction at a time and
for a price (cash or other types of consideration, often including debt
instruments) not to their liking. The price per share in such transactions
often is lower than the price per share previously paid by the controlling
shareholder for its controlling block of stock in the first tier of the
takeover. The minority shareholders, in such event, may have no alternative to
accepting such price unless they choose to follow the statutory procedures for
appraisal rights as a dissenting shareholder or to bringing legal action
against the controlling shareholder for breach of fiduciary duty, either of
which procedures may be costly and time-consuming.
The Company's higher shareholder vote requirements make it more difficult
for a single shareholder to obtain ultimate "control" over the Company in the
sense of being able unilaterally to effect a completed business combination on
the controlling shareholder's own terms. A disadvantage of these higher
shareholder vote requirements, however, is that outside parties contemplating
an attempt to acquire control over the Company by acquiring less than all of
its outstanding stock may be discouraged from making such an attempt, because
ultimate "control" will require obtaining a higher percentage of the
outstanding shares of Common Stock than if normal shareholder vote
requirements were in effect. As a result, premium offers for the Common Stock
from outside parties interested in acquiring control may be somewhat less
likely from such parties than premium offers for other similar companies
without such high voting requirements. In addition, because outside parties
may be somewhat less likely to attempt to acquire control over the Company due
to its higher shareholder vote
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requirements, the management of the Company may be somewhat less vulnerable to
removal in the future than would be the case if such provisions were not in
effect.
Removal of Directors. The Indiana corporate law provides that directors may
be removed in any manner provided in the articles of incorporation. In
addition, the shareholders or directors may remove one or more directors with
or without cause unless the articles of incorporation provide otherwise. If a
director is elected by a voting group of shareholders, only the shareholders
of that voting group may participate in the vote to remove that director. A
director may be removed by the shareholders, if they are otherwise authorized
to do so, only at a meeting called for the purpose of removing the director
and the meeting notice must state that the purpose, or one of the purposes, of
the meeting is removal of the director.
The Company's Restated Articles of Incorporation provide that at a meeting
called expressly for that purpose, a director or the entire Board of Directors
may be removed without cause only upon the affirmative vote of the holders of
not less than 80% of the shares entitled to vote generally in an election of
directors. At a meeting called expressly for that purpose, a director may be
removed by the shareholders for cause by the affirmative vote of the holders
of a majority of the shares entitled to vote upon his election. The Restated
Articles of Incorporation provide that, except as may be otherwise provided by
law, cause for removal will be construed to exist only if the director whose
removal is proposed: (i) has been convicted of a felony by a court of
competent jurisdiction and such conviction is no longer subject to direct
appeal, or (ii) has been adjudged by a court of competent jurisdiction to be
liable for negligence or misconduct in the performance of his duty to the
Company in a manner of substantial importance to the Company, and such
adjudication is no longer subject to direct appeal.
The Company's 80% shareholder vote requirement for removal of directors
without cause precludes a majority shareholder from circumventing the
classified Board by decreasing the size of the Board of Directors until its
nominees have a numerical majority or by removing directors not up for
election, filling the resulting vacancy with its nominees, and thereby gaining
control of the Board of Directors. The removal provisions would make it more
difficult for shareholders of the Company to change the composition of the
Board of Directors even if the shareholders believe that such a change would
be desirable.
Amendments to Articles of Incorporation. The Indiana corporate law provides
that, unless a greater vote is required under a specific provision of the
Indiana corporate law or by a corporation's articles of incorporation or its
board of directors, a corporation may amend its articles of incorporation upon
the affirmative vote of the holders of a greater number of shares cast in
favor of the amendment than the holders of shares cast against the amendment,
unless the amendment creates dissenters' rights in which case a favorable vote
of the holders of a majority of the outstanding shares is required. Under the
Indiana corporate law, a corporation's board of directors may condition its
submission of a proposed amendment to the shareholders of the corporation on
any basis, including the requirement of the affirmative vote of holders of a
greater percentage of the voting shares of the corporation than otherwise
would be required under the Indiana corporate law.
The Company's Restated Articles of Incorporation provide that,
notwithstanding any other provision of the Restated Articles of Incorporation
or any provision of law or any preferred stock designation, the provisions of
Article VII (relating to the classification, number, terms, removal of
directors and newly created directorships and vacancies), Article IX (relating
to special meetings of shareholders) and Article X (relating to the "fair
price" provisions discussed under "--Business Combinations"), may be altered,
amended or repealed only with the affirmative vote of the holders of at least
80% of the Common Stock then entitled to vote in an election of directors.
Voting Rights. Holders of shares of Common Stock are entitled to one vote
per share in the election of directors and in all other matters to be voted
upon by the shareholders generally. Directors of the Company are elected by
the majority vote of the shareholders and shareholders of the Company are not
entitled to cumulative voting in the election of directors. Therefore, holders
of a majority of the shares of Common Stock can elect the entire the Board of
Directors.
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The number of directors to constitute the Company Board may not be more than
twenty nor less than six. The Company Board currently consists of twelve
members, and the directors are divided into three classes with the term of
office of one of such classes expiring in each year. At each annual meeting of
shareholders, the successors to the directors of the class whose term is
expiring at that time are elected to hold office for a term of three years.
Special Meeting of Shareholders; Shareholder Action by Written Consent
The Company's Restated Articles of Incorporation require that shareholders
must hold at least 80% of the outstanding voting shares of the Company in
order to call a special meeting of shareholders. This provision is intended to
discourage attempts by the holders of less than 80% of the outstanding voting
stock of the Company from disrupting the business of the corporation between
annual shareholders meetings by calling special meetings. Possible
disadvantages of this provision is that it makes it more difficult for a
shareholder or shareholder group to take action where such action is opposed
by a majority of the Board of Directors and management of the Company and it
may delay the removal of directors, even if cause exists for such removal. The
Indiana corporate law provides that any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting if a
consent, in writing, setting forth the action taken is signed by the holders
of all of the shares entitled to vote on the subject matter.
Takeover Statutes
The Indiana corporate law prohibits, in general, any business combination,
such as a merger or consolidation, between an Indiana corporation with shares
of its stock registered under the federal securities laws or that makes an
election under the Indiana corporate law, and an "interested shareholder"
(defined as any owner of 10% or more of the corporation's stock) for five
years after the date on which such shareholder became an interested
shareholder, unless the stock acquisition which caused the person to become an
interested shareholder was approved in advance by the corporation's board of
directors. This so-called "five-year freeze" provision of the Indiana
corporate law is effective even if all parties should subsequently decide that
they wish to engage in the business combination.
The Indiana corporate law also contains a "control share acquisition"
provision which effectively denies voting rights to shares of an "issuing
public corporation" acquired in control share acquisitions unless the grant of
such voting right is approved by a majority vote of disinterested
shareholders. An issuing public corporation is a corporation that (i) has 100
or more shareholders, (ii) has its principal place of business, its principal
office or substantial assets within Indiana, and (iii) either (a) more than
10% of its shareholders are Indiana residents, (b) more than 10% of its shares
are owned by Indiana residents, or (c) 10,000 or more of its shareholders are
residents of Indiana. The Company is an "issuing public corporation." A
control share acquisition is one by which a purchasing shareholder acquires
more than one-fifth, one-third, or one-half of the voting power of the stock
of an "issuing public corporation." In addition, if any person proposing to
make or who has made "control share acquisitions" does not file an "acquiring
person statement" with the issuing corporation or if the control shares are
not accorded full voting rights by other shareholders, and if the articles of
incorporation or by-laws of the corporation whose shares are acquired
authorize such redemption (The Company's By-laws do), the acquired shares are
subject to redemption by the corporation. Finally, if a control share
acquisition should be made of a majority of the corporation's voting stock,
and those shares are granted full voting rights, shareholders are granted
dissenters' rights.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material U.S. federal income tax
considerations that may be relevant to the purchasers of the Capital
Securities which has been passed upon by Lewis, Rice & Fingersh, L.C., counsel
to the Company ("Tax Counsel"), insofar as it relates to matters of law and
legal conclusions. This summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
issued thereunder and current administrative rulings and court decisions, all
of which are subject to change at any time, with possible retroactive effect.
Subsequent changes may cause the tax consequences to vary substantially from
the consequences described below. Furthermore, the authorities on which the
following summary is based are subject to various interpretations, and it is
therefore possible that the U.S. federal income tax treatment of the purchase,
ownership, and disposition of the Capital Securities may differ from the
treatment described below.
No attempt has been made in the following discussion to comment on all U.S.
federal income tax matters affecting purchasers of the Capital Securities.
Moreover, unless otherwise stated, this summary generally focuses on
beneficial owners (each a "holder") of the Capital Securities who are
individual citizens or residents of the U.S. and who acquire the Capital
Securities upon their original issue at their initial issue price and hold the
Capital Securities as capital assets. This summary has only limited
application to dealers in securities, corporations, estates, trusts or
nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, brokers or dealers in securities or
currencies, other financial institutions, tax-exempt investors, or persons
that will hold the Capital Securities as a position in a "straddle," as part
of a "synthetic security" or "hedge," as part of a "conversion transaction" or
other integrated investment, or as other than a capital asset. This summary
also does not address the tax consequences to persons that have a functional
currency other than the U.S. dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of the Capital Securities. Further, it
does not include any description of any alternative minimum tax consequences
or the tax laws of any state or local government or of any foreign government
that may be applicable to the Capital Securities. Accordingly, each
prospective investor should consult, and should rely exclusively on, such
investor's own tax advisors in analyzing the federal, state, local and foreign
tax consequences of the purchase, ownership or disposition of the Capital
Securities.
CLASSIFICATION OF CONVERTIBLE SUBORDINATED DEBENTURES
The Company, the Issuer and the holders of the Capital Securities (by
acceptance of a beneficial interest in a Capital Security) will agree to treat
the Convertible Subordinated Debentures as indebtedness for all U.S. tax
purposes. In connection with the issuance of the Convertible Subordinated
Debentures, Tax Counsel will deliver its opinion that, under current law, and
based on certain representations, facts and assumptions referenced in such
opinion, the Convertible Subordinated Debentures should be classified as
indebtedness for U.S. federal income tax purposes. No assurance can be given,
however, that such treatment will not be challenged by the IRS or, if
challenged, that such a challenge will not be successful. Investors should be
aware that legal opinions are not binding on the IRS or the courts.
CLASSIFICATION OF ISSUER
Tax Counsel also will deliver its opinion that, under current law and
assuming full compliance with the terms of the Trust Agreement and based upon
certain representations, facts and assumptions referenced in such opinion, the
Issuer will be classified for U.S. federal income tax purposes as a grantor
trust and not as an association taxable as a corporation. Accordingly, for
U.S. federal income tax purposes, each holder of the Capital Securities
generally will be treated as owning an undivided beneficial interest in the
Convertible Subordinated Debentures, and each holder will be required to
include in its gross income interest (and original issue discount, if any)
accrued with respect to its allocable share of the Convertible Subordinated
Debentures.
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POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Under the applicable Treasury regulations, the Convertible Subordinated
Debentures will not be treated as issued with original issue discount ("OID")
within the meaning of Section 1273(a) of the Code. Accordingly, except as set
forth below, stated interest on the Convertible Subordinated Debentures
generally will be included in income by a holder as ordinary income at the
time it is paid or accrued in accordance with such holder's regular method of
tax accounting.
If, however, the Company exercises its right to defer payments of interest
on the Convertible Subordinated Debentures, the Convertible Subordinated
Debentures will become OID instruments at such time and all holders will be
required to accrue the stated interest on the Convertible Subordinated
Debentures on a daily economic accrual basis (using the constant-yield-to-
maturity method of accrual described in Section 1272 of the Code) during the
Extension Period even though the Company will not pay such interest until the
end of the Extension Period, and even though some holders may use the cash
method of tax accounting. Moreover, thereafter the Convertible Subordinated
Debentures will be taxed as OID instruments for as long as they remain
outstanding. Thus, even after the end of an Extension Period, all holders
would be required to continue to include their pro rata share of the stated
interest (and de minimis OID, if any) on the Convertible Subordinated
Debentures in income on a daily economic accrual basis, regardless of their
method of tax accounting and in advance of receipt of the cash attributable to
such interest income. Under the OID economic accrual rules, a holder would
accrue an amount of interest income each year that approximates the stated
interest payments called for under the terms of the Convertible Subordinated
Debentures, and actual cash payments of stated interest on the Convertible
Subordinated Debentures would not be reported separately as taxable income.
Any amount of OID included in a holder's gross income (whether or not during
an Extension Period) with respect to a Capital Security will increase such
holder's tax basis in such Capital Security, and the amount of Distributions
received by a holder in respect of such accrued OID will reduce the tax basis
of such Capital Security.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a contrary position. If the IRS were to assert successfully that
the stated interest on the Convertible Subordinated Debentures was OID
regardless of whether the Company exercises its option to defer payments of
interest on such Convertible Subordinated Debentures, all holders of Capital
Securities would be required to include such stated interest in income on a
daily economic accrual basis as described above.
Because income on the Capital Securities will constitute interest income for
U.S. federal income tax purposes, corporate holders of the Capital Securities
will not be entitled to claim a dividends received deduction in respect of
such income.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of the Capital Securities other than a holder who purchased the
Capital Securities upon original issuance may be considered to have acquired
their undivided interests in the Convertible Subordinated Debentures with
"market discount" or "acquisition premium" as such phrases are defined for
U.S. federal income tax purposes. Such holders are advised to consult their
tax advisors as to the income tax consequences of the acquisition, ownership
and disposition of the Capital Securities.
RECEIPT OF CONVERTIBLE SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF
ISSUER
Under certain circumstances, as described under "Description of Capital
Securities--Redemption--Liquidation of Issuer and Distribution of Convertible
Subordinated Debentures," the Convertible Subordinated Debentures may be
distributed to holders of the Capital Securities upon a liquidation of the
Issuer. Under current U.S. federal income tax law, such a distribution would
be treated as a nontaxable event to each such holder and would result in such
holder having an adjusted tax basis in the Convertible Subordinated Debentures
received in the liquidation equal to such holder's adjusted tax basis in the
Capital Securities immediately before the
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distribution. A holder's holding period in the Convertible Subordinated
Debentures so received in liquidation of the Issuer would include the period
for which such holder held the Capital Securities.
If, however, a Tax Event were to occur which resulted in the Issuer being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to holders of the Capital Securities. Under
certain circumstances described herein, the Convertible Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. Under
current law, such a redemption would, for U.S. federal income tax purposes,
constitute a taxable disposition of the redeemed Capital Securities, and a
holder would recognize gain or loss as if the holder sold such Capital
Securities for cash. See "Description of Capital Securities--Redemption--
Liquidation of Issuer and Distribution of Convertible Subordinated
Debentures."
DISPOSITION OF CAPITAL SECURITIES
Upon the sale or other taxable disposition of the Capital Securities, a
holder will recognize a gain or loss in an amount equal to the difference
between the amount realized on such sale or disposition (except to the extent
of any amount received in respect of accrued but unpaid interest not
previously included in income) and the holder's adjusted tax basis in such
Capital Securities. A holder's adjusted tax basis in the Capital Securities
generally will be its initial purchase price increased by OID (if any)
previously includible in the holder's gross income to the date of disposition
and decreased by payments (if any) received on the Capital Securities in
respect of OID. Such gain or loss generally will be a capital gain or loss. In
the case of individual taxpayers, the gain or loss will be considered a long-
term capital gain or loss if the holder held such Capital Securities for more
than one year prior to such sale or disposition. The tax rates applicable to
long-term capital gains generally will vary depending upon whether, at the
time of disposition, the Capital Securities have been held for more than
eighteen months.
The Capital Securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying
Convertible Subordinated Debentures. A holder of Capital Securities using the
accrual method of tax accounting (and a cash method holder, during and after
an Extension Period or if the Convertible Subordinated Debentures are deemed
to have been issued with OID) that disposes of its Capital Securities between
record dates for payments of Distributions (and consequently does not receive
a Distribution from the Issuer for the period prior to such disposition) will
nevertheless be required to include accrued but unpaid interest on the
Convertible Subordinated Debentures through the date of disposition in income
as ordinary income and to add such amount to its adjusted tax basis in its pro
rata share of the underlying Convertible Subordinated Debentures deemed
disposed of. Such holder will recognize a capital loss to the extent that the
selling price (which may not fully reflect the value of accrued but unpaid
interest) is less than its adjusted tax basis (which will include all accrued
but unpaid interest). Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for U.S. federal income tax
purposes.
CONVERSION OF CAPITAL SECURITIES
A holder of Capital Securities generally will not recognize income, gain or
loss upon the conversion, through the Conversion Agent, of its Capital
Securities into Common Stock. A holder will, however, recognize gain upon the
receipt of cash in lieu of a fractional share of Common Stock equal to the
amount of cash received less the holder's tax basis in such fractional share.
A holder's tax basis in the Common Stock received upon exchange and conversion
should generally be equal to the holder's tax basis in the Capital Securities
delivered to the Conversion Agent for exchange less the basis allocated to any
fractional share for which cash is received, and a holder's holding period in
the Common Stock received upon exchange and conversion will generally begin on
the date that the holder acquired the Capital Securities delivered to the
Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION RATIO
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Capital Securities as having received a constructive distribution
from the Company in the event that the Conversion Ratio of the
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Convertible Subordinated Debentures were adjusted if (i) as a result of such
adjustment, the proportionate interest (measured by the quantum of Common
Stock into or for which the Convertible Subordinated Debentures are
convertible or exchangeable) of the holders of the Capital Securities in the
assets or earnings and profits of the Company were increased, and (ii) the
adjustment was not made pursuant to a bona fide, reasonable anti-dilution
formula. An adjustment of the Conversion Ratio would not be considered made
pursuant to such a formula if the adjustment was made to compensate for
certain taxable distributions with respect to the Common Stock. Thus, under
certain circumstances, an increase in the Conversion Ratio for the holders may
result in deemed dividend income to holders to the extent of the current or
accumulated earnings and profits of the Company. Holders of the Capital
Securities would be required to include their allocable share of such deemed
dividend income in gross income but would not receive any cash related
thereto.
OWNERSHIP OF COMMON STOCK
Distributions received by holders of Common Stock ("Shareholders") in
respect of such Common Stock (other than certain distributions of additional
shares of Common Stock or rights to acquire additional shares of Common Stock)
will be treated as ordinary dividend income ("Dividends") to such Shareholders
to the extent such distributions are considered to be paid by the Company out
of its current or accumulated earnings and profits ("E&P"), as determined
under U.S. federal income tax principles. Corporate Shareholders may be
entitled to a "dividends-received deduction" with respect to such Dividends.
To the extent that any such distribution exceeds the Company's E&P, such
distribution will be treated, first, as a tax-free return of capital to a
Shareholder to the extent of such Shareholder's adjusted tax basis in the
Common Stock and, thereafter, as capital gain.
Distributions of additional shares of Common Stock, or rights to acquire
additional shares of Common Stock, that are received as part of a pro rata
distribution of such shares, or rights to acquire such shares, to all
Shareholders of the Company generally should not be subject to U.S. federal
income tax. The tax basis of such new shares or rights generally will be
determined by allocating the Shareholder's adjusted tax basis in the "old"
shares of Common Stock between such "old" shares and the new shares or rights
received by such Shareholder, based upon their relative fair market values on
the date of the distribution.
A Shareholder generally will recognize gain or loss on a sale or other
taxable disposition of Common Stock equal to the difference between the amount
realized by the Shareholder on such sale or disposition and the Shareholder's
adjusted tax basis in such Common Stock. Such gain or loss generally will be
capital gain or loss and generally will be considered long-term capital gain
or loss if the Shareholder had held such Common Stock for more than one year
immediately prior to such sale or disposition.
EFFECT OF RECENT CHANGES IN TAX LAWS
The Company intends to deduct the interest accruing on the Convertible
Subordinated Debentures. Under the Taxpayer Relief Act of 1997, enacted on
August 5, 1997, issuers of certain convertible debt instruments are not
entitled to deduct interest thereon. For example, interest is not deductible
if the debt instrument is convertible into equity of the issuer (or a related
party) at the option of the holder and there is a substantial certainty that
the holder will exercise the conversion option. Similarly, interest is not
deductible if the debt instrument is part of an arrangement which is
reasonably expected to result in a conversion at the option of the issuer (or
a related party). The Company intends to take the position that this
legislation should not apply to the Convertible Subordinated Debentures. The
Internal Revenue Service, however, has not yet issued any guidance regarding
its interpretation of the new legislation. There can be no assurance that the
Internal Revenue Service will not take the position that interest on the
Convertible Subordinated Debentures is not deductible. Accordingly, there can
be no assurance that an audit or future interpretation by the Internal Revenue
Service of the new legislation will not result in a tax event and an early
redemption of the Capital Securities before, or after, June 23, 2001.
In addition, in recent years, there have been several proposals to adopt
legislation which, if enacted and made applicable to the Convertible
Subordinated Debentures, would preclude the Company from deducting
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interest thereon. The most recent proposal was made by the Clinton
Administration on March 19, 1997. Such proposals were not adopted by Congress,
but there can be no assurance that similar proposals will not be adopted in
the future and made applicable to the Convertible Subordinated Debentures.
Accordingly, there can be no assurance that any such legislation will not
result in a Tax Event which would permit the Company to cause a redemption of
the Capital Securities before, or after, June 23, 2001.
Recently, the IRS asserted that the interest payable on a security with
terms that are similar to the terms of the Convertible Subordinated Debentures
(but which are not convertible and which have a longer maturity than the
Convertible Subordinated Debentures) was not deductible for U.S. federal
income tax purposes. The taxpayer in that case has filed a petition in the
U.S. Tax Court challenging the IRS's position on this matter. If this matter
is in fact litigated and the Tax Court were to sustain the IRS's position on
this matter, such judicial decision could result in a Tax Event which would
permit the Company to cause a mandatory redemption of the Capital Securities
before, or after, June 23, 2001.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Subject to the qualifications discussed below, income on the Capital
Securities will be reported to holders on Forms 1099, which forms are expected
to be mailed to holders of Capital Securities by January 31 following each
calendar year.
The Issuer will be obligated to report annually to the holders of record of
the Capital Securities, the interest (or original issue discount) related to
the Convertible Subordinated Debentures for that year. The Issuer currently
intends to report such information on Form 1099 prior to January 31 following
each calendar year even though the Issuer is not legally required to report to
record holders until April 15 following each calendar year. Under current law,
holders of Capital Securities who hold as nominees for beneficial holders will
not have any obligation to report information regarding the beneficial holders
to the Issuer. The Issuer, moreover, will not have any obligation to report to
beneficial holders who are not also record holders.
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's federal income tax liability, provided the
required information is provided to the Internal Revenue Service.
NON-U.S. HOLDERS
For purposes of this discussion, a "Non-U.S. Holder" is any beneficial owner
of Capital Securities that is a corporation, individual, partnership, estate
or trust that is, as to the U.S., (i) a foreign corporation, (ii) a non-
resident alien individual, (iii) a foreign partnership, (iv) an estate the
income of which, from sources without the U.S. which is not effectively
connected with the conduct of a trade or business within the U.S., is not
includible in gross income for U.S. federal income tax purposes, or (v) a
trust for which either (a) no court within the U.S. is able to exercise
primary supervision over the administration of the trust, or (b) no U.S.
persons have authority to control all substantial decisions of the trust.
Under present U.S. federal income tax law, payments by the Issuer or any of
its paying agents to any holder of Capital Securities who or which is a Non-
U.S. Holder will not be subject to withholding of U.S. federal income tax
provided that (i) such Non-U.S. Holder does not actually or constructively
(including by virtue of its interest in the underlying Convertible
Subordinated Debentures) own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote, (ii) such Non-U.S.
Holder is not a controlled foreign corporation that is related to the Company
through stock ownership, and (iii) either (a) such Non-U.S. Holder certifies
to the Issuer or its paying agent, under penalties of perjury, that it is not
a U.S. holder and provides its name and address or (b) 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"), that holds
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the Capital Securities in such capacity, certifies to the Issuer or its paying
agent, under penalties of perjury, that such statement has been received from
such Non-U.S. Holder by it or by each Financial Institution between it and the
Non-U.S. Holder and furnishes the Issuer or its paying agent with a copy
thereof. The foregoing provisions regarding certification to be delivered to
the Issuer, or its paying agent, are applicable to payments made prior to
January 1, 2000. For payments made after December 31, 1999, recently adopted
U.S. Treasury Regulations provide additional rules governing the issuance and
ability to rely upon the certification described herein.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described above, payments of interest (including any OID)
made to such Non-U.S. Holder will be subject to a 30% U.S. federal withholding
tax unless the Non-U.S. Holder provides the Company or its paying agent, as
the case may be, with a properly executed (i) IRS Form 1001 (or successor
form) claiming an exemption from, or a reduction of, such withholding tax
under the benefit of a U.S. income tax treaty or (ii) IRS Form 4224 (or
successor form) stating that the interest paid with respect to such Non-U.S.
Holder's Capital Securities (or on such holder's Convertible Subordinated
Debentures) is not subject to such withholding tax because it is effectively
connected with the Non-U.S. Holder's conduct of a trade or business within the
U.S.
If a Non-U.S. Holder is engaged in a trade or business in the U.S. and the
interest paid with respect to such holder's Capital Securities (or on such
holder's Convertible Subordinated Debentures) is effectively connected with
the conduct of such trade or business, the Non-U.S. Holder, although exempt
from the withholding tax discussed above, will be subject to U.S. federal
income tax on such interest on a net income basis in the same manner as if it
were a U.S. person. In addition, if such Non-U.S. Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, subject to
adjustments.
Any gain realized by a Non-U.S. Holder on the sale or other taxable
disposition of Capital Securities, Convertible Subordinated Debentures or
Common Stock generally will not be subject to U.S. federal income or
withholding tax unless (i) such gain is effectively connected with the Non-
U.S. Holder's conduct of a trade or business carried on within the U.S., (ii)
in the case of a Non-U.S. Holder who is an individual, such individual is
present in the U.S. for 183 days or more during the taxable year in which such
sale or disposition occurs and certain other conditions are met, or (iii) in
the case of any gain representing accrued but unpaid interest (or OID) with
respect to the Capital Securities (or the Convertible Subordinated
Debentures), the portfolio interest exceptions described above are not
satisfied.
Neither the exchange of Capital Securities for a proportionate share of the
Convertible Subordinated Debentures held by the Issuer nor the conversion of
such Convertible Subordinated Debentures into Common Stock will be taxable
events for U.S. federal income tax purposes. Consequently, a Non-U.S. Holder
will not be subject to U.S. federal income or withholding tax on the
conversion of Convertible Subordinated Debentures into Common Stock.
If a Non-U.S. Holder receives a Dividend distribution with respect to his or
its Common Stock, or is treated as receiving a deemed dividend as a result of
an adjustment of the Conversion Ratio of the Convertible Subordinated
Debentures as described above under "--Adjustment of Conversion Ratio", the
gross amount of such Dividend or deemed dividend, will be subject to U.S.
federal withholding tax at a 30% (or lower treaty) rate unless the Dividend
(or deemed dividend) is effectively connected with the Non-U.S. Holder's
conduct of a trade or business within the U.S. In addition, Distributions paid
to Non-U.S. Holders in respect of their Capital Securities (or Convertible
Subordinated Debentures) also will be subject to U.S. federal withholding tax
at a 30% (or lower treaty) rate, if, contrary to the opinion of Tax Counsel,
the Convertible Subordinated Debentures are classified as equity interests in,
rather than indebtedness of, the Company for U.S. federal income tax purposes,
in which case the interest paid thereon will be treated as Dividends to the
extent it is deemed to be paid out of the Company's E & P.
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THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF THE CAPITAL SECURITIES. HOLDERS OF THE
CAPITAL SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER
TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to fiduciary and prohibited
transaction rules of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code or entities which may be deemed
to hold the assets of such plans ("Plans"), generally may purchase Capital
Securities, subject to the investing fiduciary's determination that the
investment in Capital Securities satisfies ERISA's fiduciary standards and
other requirements applicable to investments by the Plan. The following
discussion is general in nature and is not intended to be all-inclusive.
Accordingly, each fiduciary of a Plan should consider the application of these
rules in the context of the Plan's particular circumstances before authorizing
an investment in the Capital Securities.
GENERAL PROHIBITED TRANSACTIONS
Section 406 of ERISA and Section 4975 of the Code prohibit Plans from
engaging in certain transactions involving "plan assets" with plan sponsors,
fiduciaries, service providers and certain other persons who have specified
relationships to the Benefit Plan ("parties in interest"). Such transactions
are treated as "prohibited transactions" and, absent an exemption, may result
in the imposition of excise taxes or other penalties. For example, absent an
exemption, prohibited transactions under Section 406 of ERISA and Section 4975
of the Code could occur by reason of the purchase of Capital Securities by
Plans with respect to which the Company or an affiliate thereof may be
considered to be parties in interest. However, certain exemptions from the
prohibited transaction rules could be applicable to such purchase and holding.
As a result, Plans with respect to which the Company or any of its affiliates
is a party in interest or a disqualified person should not acquire Capital
Securities unless such Capital Securities are acquired pursuant to and in
accordance with an applicable exemption. Any other Plans or other entities
whose assets include Plan assets subject to ERISA or Section 4975 of the Code
proposing to acquire Capital Securities should consult with their own counsel.
PLAN ASSETS REGULATION
Pursuant to a Department of Labor ("DOL") regulation codified at 29 C.F.R.
Section 2510.3-101 (the "Plan Assets Regulation"), in general and as
applicable here, when a Plan acquires an equity interest in an entity such as
the Issuer and such interest does not represent a "publicly offered security",
the Plan's assets include both the equity interest and an undivided interest
in each of the underlying assets of the entity, unless it is established that
equity participation in the entity by "benefit plan investors" is not
"significant" (as such terms are defined in the Plan Assets Regulation).
Although the Company believes that the requirements of the publicly offered
security exception of the Plan Assets Regulation will be satisfied, there can
be no assurance that this or any other exception set forth in the Plan Assets
Regulation will apply to the purchase of Capital Securities offered hereby. If
no such exception were to apply, an investing Plan's assets could be
considered to include an undivided interest in the assets of the Issuer and,
as a result, the Company, the Trustee and other persons, in providing services
with respect to the Convertible Subordinated Debentures, may be considered
fiduciaries to such Plan and subject to the fiduciary and prohibited
transaction rules of ERISA and the Code.
IN CONSIDERING WHETHER TO PURCHASE THE CAPITAL SECURITIES, EACH BENEFIT PLAN
FIDUCIARY SHOULD CONSULT WITH ITS COUNSEL REGARDING THE POTENTIAL CONSEQUENCES
UNDER ERISA, THE CODE OR OTHER APPLICABLE LAW OF THE PURCHASE AND HOLDING OF
THE CAPITAL SECURITIES.
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UNDERWRITING
The Underwriters named below, represented by SBC Warburg Dillon Read Inc.
and CIBC Oppenheimer Corp. (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement,
the form of which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, to purchase from the Issuer the number of
Capital Securities set forth opposite their respective names below. The
several Underwriters have agreed in the Underwriting Agreement, subject to the
terms and conditions set forth therein, to purchase all the Capital Securities
offered hereby if any of the Capital Securities are purchased. In the event of
default by an Underwriter, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the nondefaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER CAPITAL SECURITIES
----------- ------------------
<S> <C>
SBC Warburg Dillon Read Inc............................ 2,160,000
CIBC Oppenheimer Corp.................................. 1,320,000
Stifel, Nicolaus & Company Incorporated................ 780,000
Howe Barnes Investments, Inc........................... 720,000
NatCity Investments, Inc............................... 600,000
Keefe, Bruyette & Woods, Inc........................... 420,000
---------
Total.............................................. 6,000,000
=========
</TABLE>
The Representatives have advised the Issuer that the Underwriters propose
initially to offer the Capital 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 $0.375 per Capital Security.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $0.10 per Capital Security to certain other dealers. After the
initial public offering, the public offering price, concession and discount
may be changed. Because the National Association of Securities Dealers, Inc.
("NASD") is expected to view the Capital Securities as interests in a direct
participation program, the offering of the Capital Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules. Therefore, no Underwriter will execute any transaction in a
discretionary account without prior approval of the customer.
In view of the fact that the proceeds of the sale of the Capital Securities
will be used to purchase the Convertible Subordinated Debentures of the
Company, the Underwriting Agreement provides that the Company will pay as
compensation to the Underwriters for arranging the investment therein of such
proceeds $0.625 per Capital Security (or $3,750,000 in the aggregate) for the
account of the several Underwriters.
The Issuer has granted the Underwriters an option to purchase up to an
additional 900,000 Capital Securities at the initial public offering price.
Such option, which expires 30 days from the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage
of the additional Capital Securities that the number of Capital Securities to
be purchased initially by the Underwriter is of the 6,000,000 Capital
Securities initially purchased by the Underwriter. To the extent that the
Underwriters exercise such option to purchase additional Capital Securities,
the Issuer will issue and sell to the Company additional Common Securities in
an aggregate Liquidation Amount equal to at least 3% of the total capital of
the Issuer and the Company will issue and sell to the Issuer Convertible
Subordinated Debentures in an aggregate principal amount equal to the
aggregate Liquidation Amount of the additional Capital Securities being
purchased pursuant to the option.
Although the Capital Securities have been approved for listing on the NYSE,
subject to notice of official issuance, no assurances can be made as to the
liquidity of such Capital Securities or that an active and liquid trading
market will develop or, if developed, that it will continue. The offering
price, Distribution rate and
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Conversion Ratio have been determined by negotiations among the Company and
the Representatives, and the offering price of the Capital Securities may not
be indicative of the market price following the offering.
The Issuer and the Company have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the
Securities Act.
In connection with the offering of the Capital Securities, the Underwriters
and any selling group members and their respective affiliates may engage in
transactions effected in accordance with Rule 104 of the Commission's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the Capital Securities and the Common Stock. Such transactions
may include over-allotment transactions in which an Underwriter creates a
short position for its own account by selling more Capital Securities than it
is committed to purchase from the Issuer. In such case, to cover all or part
of the short position, the Underwriters may exercise the over-allotment option
described above or may purchase Capital Securities in the open market
following completion of the initial offering of the Capital Securities. Each
Underwriter also may engage in stabilizing transactions in which it bids for,
and purchases, Capital Securities and Common Stock 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 Capital Securities and the
Common Stock. The Underwriters also may reclaim any selling concessions
allowed to a dealer if the Underwriters repurchase Capital Securities
distributed by that dealer. Any of the foregoing transactions may result in
the maintenance of a price for the Capital Securities and the Common Stock at
levels above that which might otherwise prevail in the open market. Neither
the Company nor the Underwriters make 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 Capital Securities or the Common Stock. The
Underwriters are not required to engage in any of the foregoing transactions
and, if commenced, such transactions may be discontinued at any time without
notice.
The Company, the Issuer and, with respect to Common Stock, certain executive
officers of the Company, have agreed, for a period of 90 days after the date
of this Prospectus, without the prior written consent of the Representatives,
to not sell, contract to sell, grant any option to sell or otherwise dispose
of, directly or indirectly, any Capital Securities or Common Stock, or any
securities of the Issuer or the Company substantially similar to the Capital
Securities or Common Stock, or any security convertible into or exchangeable
for or exercisable for Capital Securities or Common Stock other than: (i) the
sale of Capital Securities to the Underwriters pursuant to the Underwriting
Agreement; (ii) the issuance of Common Stock upon the exercise of options,
warrants and debentures that are outstanding on the date hereof; (iii) the
issuance of Common Stock and options on Common Stock pursuant to employee
benefit plans, stock option plans or other employee compensation plans
existing on the date hereof; (iv) the issuance of Common Stock pursuant to
dividend reinvestment plans existing on the date hereof; and (v) the issuance
of Common Stock pursuant to the acquisition of National Bancorp.
Wedgewood, an indirect subsidiary of the Company, is participating in the
Offering as a member of the selling group and is not a member of the
underwriting syndicate. Certain of the Underwriters and their affiliates have,
from time to time, performed investment, commercial banking and other services
for the Company and its affiliates in the ordinary course of business and have
received fees in connection therewith.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the formation of the
Issuer will be passed upon by Richards, Layton & Finger P.A., special Delaware
counsel to the Company and the Issuer. Certain legal matters for the Company
and the Issuer, including the validity of the Guarantee and the Convertible
Subordinated Debentures, will be passed upon for the Company and the Issuer by
Lewis, Rice & Fingersh, L.C., St. Louis, Missouri, counsel to the Company and
the Issuer. Certain legal matters will be passed upon for the Underwriters by
Simpson Thacher & Bartlett, New York, New York. Counsel for the Company, the
Issuer and the Underwriters will rely on the opinion of Richards, Layton &
Finger P.A., as to matters of Delaware law. Certain matters relating to U.S.
federal income tax considerations will be passed upon for the Company by
Lewis, Rice & Fingersh, L.C.
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EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December
31, 1997, included in the Company's Annual Report on Form 10-K, and the
supplemental consolidated financial statements of the Company as of December
31, 1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, included in the Company's Current Report on Form 8-K dated
June 3, 1998 (as amended by the Company's Current Report on Form 8-K/A filed
with the Commission on June 16, 1998), have been incorporated by reference
herein and in the Registration Statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent certified public accountants, whose reports are
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Pinnacle as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December
31, 1997, included in Pinnacle's Annual Report on Form 10-K, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, whose report is incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. KPMG Peat
Marwick LLP previously audited and reported on the consolidated balance sheet
of Pinnacle as of December 31, 1996, and the related consolidated statements
of income, changes in shareholders' equity, and cash flows for the years ended
December 31, 1996 and 1995, prior to their restatement for the 1997 pooling of
interests transactions with IFC and CB. The contribution of Pinnacle to total
assets and net income represented 50% and 57% of the respective restated
totals for the year ended December 31, 1996 and the contribution of Pinnacle
to net income represented 40% of the respective restated total for the year
ended December 31, 1995. Separate consolidated financial statements of the
other companies included in the December 31, 1996 restated consolidated
balance sheet and consolidated statements of income, changes in shareholders'
equity, and cash flows for the years ended December 31, 1996 and 1995 were
audited and reported on separately by other auditors. KPMG Peat Marwick LLP
audited the combination of the Pinnacle consolidated balance sheet as of
December 31, 1996 and consolidated statements of income, changes in
shareholders' equity, and cash flows for the years ended December 31, 1996 and
1995, after restatement for the 1997 pooling of interests transactions with
IFC and CB.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CNB
BANCSHARES, INC., CNB CAPITAL TRUST I OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CNB BANCSHARES, INC. SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Incorporation of Certain Documents by Reference............................ 1
Available Information...................................................... 1
Forward Looking Statements................................................. 2
Prospectus Summary......................................................... 4
Risk Factors............................................................... 10
Use of Proceeds............................................................ 17
Consolidated Ratio of Earnings to Fixed Charges............................ 17
Price Range of Common Stock and Dividends.................................. 18
Capitalization............................................................. 19
The Company................................................................ 20
The Issuer................................................................. 24
Accounting Treatment....................................................... 25
Description of Capital Securities.......................................... 25
Description of Convertible Subordinated Debentures......................... 40
Book-Entry Issuance........................................................ 49
Description of Guarantee................................................... 51
Relationship Among Capital Securities, Convertible Subordinated Debentures
and Guarantee............................................................. 54
Description of Capital Stock............................................... 55
Certain Federal Income Tax Consequences.................................... 59
ERISA Considerations....................................................... 65
Underwriting............................................................... 66
Legal Matters.............................................................. 67
Experts.................................................................... 68
</TABLE>
PROSPECTUS June 18, 1998
LOGO
6,000,000 Capital Securities of
CNB CAPITAL TRUST I
6.0% Shared Preference
Redeemable Securities ("SPuRS")
(Liquidation Amount $25 per Capital Security) guaranteed, as described herein
by, and convertible into Common Stock of,
CNB BANCSHARES, INC.
SBC WARBURG DILLON READ INC.
CIBC OPPENHEIMER
STIFEL, NICOLAUS & COMPANY
INCORPORATED
HOWE BARNES INVESTMENTS, INC.
NATCITY INVESTMENTS, INC.
KEEFE, BRUYETTE & WOODS, INC.
WEDGEWOOD PARTNERS, INC.
