PROSPECTUS
CITY HOLDING CAPITAL TRUST
OFFER TO EXCHANGE ITS 9.15% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING 9.15% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
CITY HOLDING COMPANY
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON OCTOBER 30, 1998, UNLESS EXTENDED.
City Holding Capital Trust, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $30,000,000 aggregate Liquidation Amount of its 9.15%
Capital Securities (the "Exchange Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its outstanding
9.15% Capital Securities (the "Old Capital Securities"), of which $30,000,000
aggregate Liquidation Amount is outstanding. Pursuant to the Exchange Offer,
City Holding Company, a West Virginia corporation (the "Company"), is also
offering to exchange (i) its guarantee of payments of cash distributions and
payments on liquidation of the Trust or redemption of the Old Capital Securities
(the "Old Guarantee") for a like guarantee in respect of the Exchange Capital
Securities (the "Guarantee") and (ii) all of its outstanding 9.15% Junior
Subordinated Deferrable Interest Debentures due April 1, 2028 (the "Old Junior
Subordinated Debentures") for a like aggregate principal amount of its 9.15%
Junior Subordinated Deferrable Interest Debentures due April 1, 2028 (the
"Exchange Debentures"), which Guarantee and Exchange Debentures also have been
registered under the Securities Act. The Old Capital Securities, the Old
Guarantee and the Old Junior Subordinated Debentures are collectively referred
to herein as the "Old Securities" and the Exchange Capital Securities, the
Guarantee and the Exchange Debentures are collectively referred to herein as the
"Exchange Securities." In addition, as the context may require, unless expressly
stated otherwise, (i) "Capital Securities" includes the Old Capital Securities
and the Exchange Capital Securities (as defined herein), (ii) "Junior
Subordinated Debentures" includes the Old Junior Subordinated Debentures and the
Exchange Debentures (as defined herein) and (iii) "Guarantee" includes the Old
Guarantee and the Guarantee (as defined herein).
The terms of the Exchange Securities are identical in all material
respects to the respective terms of the Old Securities, except that (i) the
Exchange Securities have been registered under the Securities Act and therefore
generally will not be subject to certain restrictions on transfer applicable to
the Old Securities, (ii) the Exchange Capital Securities will not provide for
any increase in the Distribution rate thereon, and (iii) the Exchange Debentures
will not provide for any increase in the interest rate thereon. See "Description
of Exchange Capital Securities" and "Description of Old Securities." The
Exchange Capital Securities are being offered for exchange in order to satisfy
certain obligations of the Company and the Trust under a Registration Rights
Agreement dated as of March 31, 1998 (the "Registration Rights Agreement") among
the Company, the Trust and the Initial Purchasers (as defined herein). In the
event that the Exchange Offer is consummated, any Old Capital Securities which
remain outstanding after consummation of the Exchange Offer and the Exchange
Capital Securities issued in the Exchange Offer will vote together as a single
class for purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Trust Agreement.
This Prospectus and the Letter of Transmittal are first being mailed to
all holders of Capital Securities on October 1, 1998.
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SEE "RISK FACTORS" COMMENCING ON PAGE 26 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 1, 1998.
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The Capital Securities offered hereby represent preferred undivided
beneficial interests in the assets of City Holding Capital Trust, a statutory
business trust created under the laws of the State of Delaware (the "Trust").
City Holding Company, a West Virginia corporation (the "Company"), is the holder
of all the beneficial interests represented by common securities of the Trust
(the "Common Securities" and, collectively with the Capital Securities, the
"Trust Securities"). The Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in Junior Subordinated Debentures,
and engaging in only those other activities necessary, convenient or incidental
thereto. The Junior Subordinated Debentures will mature on April 1, 2028 (the
"Stated Maturity"). The Capital Securities will have a preference under certain
circumstances over the Common Securities with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise. See "Description of
Exchange Securities--Subordination of Common Securities."
Holders of Exchange Capital Securities will be entitled to receive
preferential cumulative cash distributions, accumulating from the date of
original issuance and payable semi-annually in arrears on the first day of April
and October of each year, commencing October 1, 1998, at an annual rate of 9.15%
on the Liquidation Amount of $1,000 per Capital Security ("Distributions"). The
distribution rate and the distribution payment dates and other payment dates for
the Exchange Capital Securities will correspond to the interest rate and the
interest payment dates and other payment dates on the Junior Subordinated
Debentures, which will be the sole assets of the Trust. The Company has the
right to defer payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. No interest shall be due and payable during any
Extension Period, except at the end thereof. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period subject to the requirements set forth herein. If
interest payments on the Junior Subordinated Debentures are so deferred,
Distributions on the Capital Securities will also be deferred and the Company
will not be permitted, subject to certain exceptions described herein, to
declare or pay any cash distributions with respect to the Company's capital
stock or to make any payment with respect to debt securities of the Company that
rank PARI PASSU with or junior to the Junior Subordinated Debentures. During an
Extension Period, interest on the Junior Subordinated Debentures will continue
to accrue (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate) at the rate of 9.15% per annum,
compounded semi-annually, and holders of Capital Securities will be required to
accrue interest income for United States federal income tax purposes. See
"Description of Exchange Debentures--Option to Extend Interest Payment Period"
and "Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The Company has, through the Guarantee Agreement, the Trust Agreement, the
Junior Subordinated Debentures and the Junior Subordinated Indenture (each as
defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Trust's obligations under the Capital Securities, as
described below. See "Relationship Among the Exchange Capital Securities, the
Exchange Debentures and the Guarantee--Full and Unconditional Guarantee." The
Old Guarantee of the Company guarantees, and the Guarantee will guarantee, the
payment of Distributions and payments on liquidation or redemption of the
Capital Securities, but only in each case to the extent of funds held by the
Trust, as described herein. See "Description of Guarantee." If the Company does
not make payments on the Junior Subordinated Debentures held by the Trust, the
Trust may have insufficient funds to pay Distributions on the Capital
Securities. The Old Guarantee and the Guarantee do not cover payment of
Distributions when the Trust does not have sufficient funds to pay such
Distributions. In such event, a holder of Capital Securities may institute a
legal proceeding directly against the Company to enforce payment of such
Distributions to such holder. See "Description of Exchange
Debentures--Enforcement of Certain Rights By Holders of Capital Securities." The
obligations of the Company under the Old Guarantee and the Guarantee and the
Capital Securities are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in "Description of Exchange Debentures--Subordination")
of the Company.
The Capital Securities are subject to mandatory redemption (i) in whole,
but not in part, upon repayment of the Junior Subordinated Debentures at the
Stated Maturity or their earlier redemption in whole upon the occurrence of a
Tax Event, an Investment Company Event or a Capital Treatment Event (each as
defined herein) and (ii) in whole or in part at any time on or after April 1,
2008 contemporaneously with the optional redemption by the Company of the Junior
Subordinated Debentures in whole or in part. The Junior Subordinated Debentures
are redeemable prior to maturity at the option of the Company (i) on or after
April 1, 2008, in whole at any time or in
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part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and continuation of a Tax Event, Investment
Company Event or Capital Treatment Event (each as defined herein), in each case
at a redemption price set forth herein, which includes the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed for
redemption. The ability of the Company to exercise its rights to redeem the
Junior Subordinated Debentures or to cause the redemption of the Capital
Securities prior to the Stated Maturity may be subject to prior regulatory
approval by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), if then required under applicable Federal Reserve capital guidelines
or policies. See "Description of Exchange Debentures--Redemption" and
"Description of Exchange Capital Securities--Liquidation Distribution Upon
Dissolution."
The holders of the outstanding Common Securities have the right at any
time to dissolve the Trust and, after satisfaction of liabilities to creditors
of the Trust as provided by applicable law, to cause the Junior Subordinated
Debentures to be distributed to the holders of the Capital Securities and Common
Securities in liquidation of the Trust. The ability of the Company to dissolve
the Trust may be subject to prior regulatory approval of the Federal Reserve, if
then required under applicable Federal Reserve capital guidelines or policies.
See "Description of Exchange Capital Securities--Liquidation Distribution Upon
Dissolution."
In the event of the dissolution of the Trust, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, the holders
of the Capital Securities will be entitled to receive a Liquidation Amount of
$1,000 per Capital Security plus accumulated and unpaid Distributions thereon to
the date of payment, subject to certain exceptions, which may be in the form of
a distribution of such amount in Junior Subordinated Debentures. See
"Description of Exchange Capital Securities--Liquidation Distribution Upon
Dissolution."
The Old Junior Subordinated Debentures were, and the Exchange Debentures
will be, unsecured and subordinated to all Senior Indebtedness of the Company.
See "Description of Exchange Debentures--Subordination."
Prospective purchasers must carefully consider the restrictions on
purchase set forth in "Certain ERISA Considerations."
The Exchange Capital Securities are eligible for trading in the Private
Offering, Resales and Trading through Automated Linkages Market ("PORTAL"). The
Company does not intend to apply for listing of the Exchange Capital Securities
on any securities exchange or for inclusion of the Exchange Capital Securities
on any automated quotation system.
As used herein, (i) the "Junior Subordinated Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time, between
the Company and The Chase Manhattan Bank, as trustee (the "Debenture Trustee"),
pursuant to which the Junior Subordinated Debentures are issued, (ii) the "Trust
Agreement" means the Amended and Restated Trust Agreement relating to the Trust,
as amended and supplemented from time to time, among the Company, as Depositor,
The Chase Manhattan Bank, as Property Trustee (the "Property Trustee"), Chase
Manhattan Bank Delaware, as Delaware Trustee (the "Delaware Trustee")
(collectively, the "Issuer Trustees"), the Administrators (as defined herein)
named therein, and the holders, from time to time, of undivided beneficial
interests in the assets of the Trust, and (iii) the "Guarantee" means the
Guarantee Agreement relating to the Capital Securities, as amended and
supplemented from time to time, between the Company and The Chase Manhattan
Bank, as Guarantee Trustee.
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THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
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NO EMPLOYEE BENEFIT OR OTHER PLAN OR INDIVIDUAL RETIREMENT ACCOUNT SUBJECT
TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN
ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A "PLAN ASSET
ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD
THE CAPITAL SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASE OR HOLDING
IS COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY U.S. DEPARTMENT OF LABOR
PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1 OR
84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR HOLDING.
ANY PURCHASER OR HOLDER OF THE CAPITAL SECURITIES OR ANY INTEREST THEREIN THAT
IS A PLAN OR A PLAN ASSET ENTITY OR IS PURCHASING SUCH SECURITIES ON BEHALF OF
OR WITH "PLAN ASSETS" OF ANY PLAN WILL BE DEEMED TO HAVE REPRESENTED BY ITS
PURCHASE AND HOLDING THEREOF THAT (A) THE PURCHASE AND HOLDING OF THE CAPITAL
SECURITIES IS COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY PTCE 96-23, 95-60,
91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION, (B) THE COMPANY AND THE
ADMINISTRATORS (AS DEFINED HEREIN) ARE NOT "FIDUCIARIES" WITHIN THE MEANING OF
SECTION 3(21) OF ERISA AND THE REGULATIONS THEREUNDER, WITH RESPECT TO SUCH
PERSON'S INTEREST IN THE CAPITAL SECURITIES OR THE JUNIOR SUBORDINATED
DEBENTURES, AND (C) IN PURCHASING THE CAPITAL SECURITIES SUCH PERSON APPROVES
THE PURCHASE OF THE JUNIOR SUBORDINATED DEBENTURES AND THE APPOINTMENT OF THE
ISSUER TRUSTEES (AS DEFINED HEREIN). SEE "NOTICE TO INVESTORS" AND "CERTAIN
ERISA CONSIDERATIONS."
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The Trust is making the Exchange Offer of the Exchange Capital Securities
in reliance on the position of the staff of the Division of Corporation Finance
of the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, neither the Company nor the Trust has sought its own interpretive
letter and there can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Company and the Trust believe that Exchange Capital
Securities issued pursuant to this Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and otherwise transferred in
$100,000 minimum principal amount by a holder thereof (other than a holder who
is a broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Capital Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities. However, any
holder of Old Capital Securities who is an "affiliate" of the Company or the
Trust or who intends to participate in the Exchange Offer for the purpose of
distributing Exchange Capital Securities, or any broker-dealer who purchased Old
Capital Securities from the Trust for resale pursuant to Rule 144A under the
Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of
interpretive letters, (b) will not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Capital Securities (other
than pursuant to the Exchange Offer) unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Capital Securities acquired for its own account as a
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result of market-making or other trading activities and exchanges such Old
Capital Securities for Exchange Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for Exchange Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company or the
Trust, (ii) any Exchange Capital Securities to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Capital Securities. In addition, the Company and the Trust may
require such holder, as a condition to such holder's eligibility to participate
in the Exchange Offer, to furnish to the Company and the Trust (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) on behalf of whom such holder holds the Old Capital
Securities to be exchanged in the Exchange Offer. Each broker-dealer that
receives Exchange Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Capital Securities for
its own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Capital Securities. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, the Company and
the Trust believe that broker-dealers who acquired Old Capital Securities for
their own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their prospectus
delivery requirements with respect to the Exchange Capital Securities received
upon exchange of such Old Capital Securities (other than Old Capital Securities
which represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such Exchange Capital Securities. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
Exchange Capital Securities received in exchange for Old Capital Securities
where such Old Capital Securities were acquired by such Participating
Broker-Dealer for its own account as a result of market-making or other trading
activities. Subject to certain provisions set forth in the Registration Rights
Agreement, the Company and the Trust have agreed that this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Capital Securities for
a period ending 90-days after the Expiration Date (as defined herein) (subject
to extension under certain limited circumstances described below) or, if
earlier, when all such Exchange Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of the Exchange Capital Securities received in exchange for Old
Capital Securities pursuant to the Exchange Offer must notify the Company or the
Trust, or cause the Company or the Trust to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or may
be delivered to the Exchange Agent at one of the addresses set forth herein
under "The Exchange Offer--Exchange Agent." Any Participating Broker-Dealer who
is an "affiliate" of the Company or the Trust may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities act in connection with any resale transaction.
See "The Exchange Offer--Resales of Exchange Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old
Capital Securities pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal or by transmission of an Agent's
Message (as defined below) in lieu thereof, that, upon receipt of notice from
the Company or the Trust of the occurrence of any event or the discovery of any
fact which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of the Exchange Capital
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Securities (or the Exchange Debentures, as applicable) pursuant to this
Prospectus until the Company or the Trust has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company or the Trust has given notice that the sale of the Exchange Capital
Securities (or the Guarantee or the Exchange Debentures, as applicable) may be
resumed, as the case may be. If the Company or the Trust gives such notice to
suspend the sale of the Exchange Capital Securities (or the Guarantee or the
Exchange Debentures, as applicable), it shall extend the 90-day period referred
to above during which Participating Broker-Dealers are entitled to use this
Prospectus in connection with the resale of Exchange Capital Securities by the
number of days during the period from and including the date of the giving of
such notice and including the date when Participating Broker-Dealers shall have
received copies of the amended or supplemental Prospectus necessary to permit
resales of the Exchange Capital Securities or to and including the date on which
the Company or the Trust has given notice that the sale of Exchange Capital
Securities (or the Guarantee or the Exchange Debentures, as applicable) may be
resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Old Capital Securities. The Exchange Capital
Securities will be a new issue of securities for which there currently is no
market. Although the Initial Purchasers have informed the Company and the Trust
that they each currently intend to make a market in the Exchange Capital
Securities, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Exchange Capital
Securities. The Company and the Trust currently do not intend to apply for
listing of the Exchange Capital Securities on any securities exchange or for
inclusion in the Nasdaq Stock Market, the electronic securities market operated
by the National Association of Securities Dealers, Inc. ("Nasdaq").
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Trust Agreement
(except for those rights which terminated upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of Old Capital
Securities will continue to be subject to all of the existing restrictions upon
transfer thereof and neither the Company nor the Trust will have any further
obligation to such holders (other than under certain limited circumstances) to
provide for registration under the Securities Act of the Old Capital Securities
held by them. To the extent that Old Capital Securities are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old
Capital Securities could be adversely affected. See "Risk Factors--Consequences
of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on October 30, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Company or the Trust (in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended). Tenders of
Old Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Company or the Trust and to the terms and provisions of the
Registration Rights Agreement. Old Capital Securities may be tendered in whole
or in part having an aggregate Liquidation Amount of not less than $100,000 (100
Capital Securities) or any integral multiple of $1,000 Liquidation Amount (one
Capital Security) in excess thereof. The Company has agreed to pay all expenses
of the Exchange Offer. See "The Exchange Offer--Fees and Expenses." Holders of
the Old Capital Securities whose Old Capital Securities are accepted for
exchange will not receive Distributions on such Old Capital Securities and will
be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after March 31, 1998. Accordingly,
holders of Exchange Capital Securities as of the record date for the payment of
Distributions on October 1, 1998 will be entitled to receive Distributions
accumulated from and including March 31, 1998.
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Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
AVAILABLE INFORMATION.......................................................12
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................12
SUMMARY.....................................................................14
City Holding Company..................................................14
City Holding Capital Trust............................................15
The Exchange Offer....................................................15
The Exchange Capital Securities.......................................20
Risk Factors..........................................................25
RISK FACTORS................................................................26
Consequences Of A Failure To Exchange Old Capital Securities..........26
Absence Of Public Market..............................................26
Exchange Offer Procedures.............................................27
Ranking of Subordinated Obligations Under the Guarantee and the
Junior Subordinated Debentures....................................27
Status of the Company as a Bank Holding Company.......................27
Option to Extend Interest Payment Period; Tax Consequences............28
Tax Event, Investment Company Event or Capital Treatment Event
Redemption........................................................29
Possible Tax Law Changes..............................................30
Exchange of Capital Securities for Junior Subordinated Debentures.....30
Rights Under the Guarantee............................................31
Limited Voting Rights.................................................32
Market Prices.........................................................32
Growth................................................................32
Competition...........................................................32
Risks Associated with New Business Lines and LTV Lending..............33
Prepayment Risk Associated with Securitizations.......................33
Developments in Technology............................................33
USE OF PROCEEDS.............................................................34
CITY HOLDING COMPANY........................................................34
General...............................................................34
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES............................36
CITY HOLDING CAPITAL TRUST..................................................37
CAPITALIZATION..............................................................38
ACCOUNTING TREATMENT........................................................38
THE EXCHANGE OFFER..........................................................38
Purpose of the Exchange Offer.........................................38
Terms of the Exchange Offer...........................................40
Acceptance for Exchange and Issuance of Exchange Capital
Securities........................................................41
Procedures for Tendering Old Capital Securities.......................42
Resales of Exchange Capital Securities................................44
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Withdrawal Rights.....................................................46
Distributions on Exchange Capital Securities..........................46
Conditions to the Exchange Offer......................................46
Exchange Agent........................................................47
Fees and Expenses.....................................................48
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES..................................48
General...............................................................48
Distributions.........................................................48
Redemption............................................................50
Redemption Procedures.................................................52
Subordination of Common Securities....................................53
Liquidation Distribution Upon Dissolution.............................54
Events of Default; Notice.............................................55
Removal of Issuer Trustees; Appointment of Successors.................56
Merger or Consolidation of Issuer Trustees............................56
Mergers, Consolidations, Amalgamations or Replacements of the
Trust.............................................................56
Voting Rights; Amendment of the Trust Agreement.......................57
Book Entry, Delivery and Form.........................................58
Expenses and Taxes....................................................59
Restrictions on Transfer..............................................60
Payment and Paying Agency.............................................60
Registrar and Transfer Agent..........................................60
Information Concerning the Property Trustee...........................60
Miscellaneous.........................................................60
Governing Law.........................................................61
DESCRIPTION OF EXCHANGE DEBENTURES..........................................61
General...............................................................61
Option to Extend Interest Payment Period..............................62
Redemption............................................................63
Additional Sums.......................................................63
Registration, Denomination and Transfer...............................64
Restrictions on Certain Payments; Certain Covenants of the Company....65
Modification of Junior Subordinated Indenture.........................65
Debenture Events of Default...........................................66
Enforcement of Certain Rights by Holders of Capital Securities........67
Consolidation, Merger, Sale of Assets and Other Transactions..........67
Satisfaction and Discharge............................................68
Subordination.........................................................68
Information Concerning the Debenture Trustee..........................69
Restrictions on Transfer..............................................69
Governing Law.........................................................70
DESCRIPTION OF GUARANTEE....................................................71
General...............................................................71
Status of the Guarantee...............................................71
Amendments and Assignment.............................................72
Events of Default.....................................................72
Information Concerning the Guarantee Trustee..........................72
Termination of the Guarantee..........................................72
Governing Law.........................................................73
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RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES, THE EXCHANGE
DEBENTURES AND THE GUARANTEE............................................74
Full and Unconditional Guarantee......................................74
Sufficiency of Payments...............................................74
Enforcement Rights of Holders of Exchange Capital Securities..........74
Limited Purpose of Trust..............................................75
Rights Upon Dissolution...............................................75
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................75
General...............................................................75
Classification of the Junior Subordinated Debentures..................76
Exchange of Capital Securities........................................76
Classification of the Trust...........................................76
Interest Income and Original Issue Discount...........................76
Market Discount and Amortizable Premium...............................77
Distribution of Junior Subordinated Debentures to Holders of
Capital Securities................................................77
Sales or Redemption of Capital Securities.............................77
Backup Withholding Tax and Information Reporting......................78
United States Alien Securityholders...................................78
Possible Tax Law Changes..............................................79
CERTAIN ERISA CONSIDERATIONS................................................79
SUPERVISION, REGULATION AND OTHER MATTERS...................................81
PLAN OF DISTRIBUTION........................................................82
VALIDITY OF NEW SECURITIES..................................................83
EXPERTS.....................................................................83
INDEX TO FINANCIAL INFORMATION.............................................F-1
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center,
14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Such information may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov.). City Holding
common stock is quoted on Nasdaq, and reports, proxy statements, and other
information concerning City Holding may be inspected and copied at the offices
of Nasdaq, 1735 K Street, N.W., Washington, D.C. 20006.
No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would
be material to holders of the Exchange Capital Securities because the Trust is a
newly formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures and
issuing the Trust Securities. See "City Holding Capital Trust" and "Description
of Exchange Capital Securities." In addition, the Company does not expect that
the Trust will file reports under the Exchange Act with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, the Trust
and the Exchange Securities. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
(1) Annual Report on Form 10-K for the year ended December 31, 1997;
(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
(3) Quarterly Report on Form 10-Q for the quarter ended June 30, 1998; and
(4) Current Report on Form 8-K filed on September 14, 1998.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering of the New Securities offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document. Any statement contained
herein or in a document 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 statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
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As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document. The Company will provide
without charge to any person to whom this Prospectus is delivered, on the
written or oral request of such person, a copy of any or all of the foregoing
documents incorporated by reference herein (other than exhibits not specifically
incorporated by reference into the texts of such documents). Requests for such
documents should be directed to: City Holding Company, 25 Gatewater Road,
Charleston, West Virginia 25313, Attention: Investor Relations Department,
Telephone 304/769-1102.
This Prospectus may contain or incorporate by reference statements which
may constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Prospective investors
are cautioned that any such forward-looking statements are not guarantees for
future performance and involve risks and uncertainties, and that actual results
may differ materially from those contemplated by such forward-looking
statements. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment and tax laws, significant under performance in the Company's
portfolio of outstanding loans, and competition in the Company's markets.
Neither the Company nor the Trust undertakes any obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.
On August 7, 1998, the Company announced that it had entered into a
definitive agreement and plan of reorganization to merge with Horizon Bancorp,
Inc. ("Horizon"). For additional information about this transaction, see "City
Holding Company" and "Index to Financial Information." The following information
regarding Horizon, filed by the Company with the Commission in a current report
on Form 8-K dated September 14, 1998, is incorporated herein by reference and
shall be deemed to be a part hereof:
(1) Consolidated Balance Sheets of Horizon for the years ended December
31, 1997 and 1996 and Consolidated Statements of Income and Cash Flows of
Horizon for the years ended December 31, 1997, 1996 and 1995, and the
Management's Discussion & Analysis of Financial Condition and Results of
Operations as incorporated by reference in Horizon's Annual Report on Form
10-K for the year ended December 31, 1997; and
(2) Consolidated Financial Statements of Horizon for the six months ended
June 30, 1998, and the Management's Discussion & Analysis of Financial
Condition and Results of Operations as included in Horizon's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
CITY HOLDING COMPANY
The Company is a registered bank holding company, chartered under the laws
of the State of West Virginia, and headquartered in Charleston, West Virginia.
At June 30, 1998, the Company had total consolidated assets of approximately
$1.5 billion, total consolidated deposits of approximately $1.1 billion, and
total consolidated shareholders' equity of approximately $126 million.
Through its lead bank subsidiary, City National Bank of West Virginia
("City National" or the "Bank"), the Company provides a wide variety of retail
and commercial banking products and services to individuals and small--and
medium-sized businesses through 43 banking offices in the State of West
Virginia. Effective April 1, 1998, the Company consummated its acquisition of
Del Amo Savings Bank, FSB ("Del Amo"). Headquartered in Torrance, California,
Del Amo is a federally-chartered savings bank with total assets and total
deposits of approximately $116 million and $102 million, respectively at March
31, 1998. Del Amo operates three locations in Southern California and
complements the Company's mortgage loan origination businesses located in Irvine
and Costa Mesa, California.
The Company has experienced significant growth through acquisitions,
having acquired 11 depository and five non-depository institutions since 1985,
adding approximately $700 million in assets and 29 branch offices to the
Company's franchise. In addition, the Company has started six DE NOVO
operations, including one depository institution. While the strategy of the
Company is to permit its various banking operations to be responsive to the
markets in which they operate, the Company has consolidated all back-office
functions, including portions of the credit underwriting, investment portfolio
management, and loan review functions. To promote responsiveness to customer
requests and operational efficiency, the Company has emphasized the use of
technology, including check imaging.
The Company maintains a diverse loan portfolio which consists of
commercial, real estate, and consumer loans to customers in its markets. At June
30, 1998, the Company had non-performing loans, consisting of non-accrual,
past-due, and restructured credits of $7.4 million, or 0.79% of gross loans. Net
charge-offs through June 30, 1998 were 0.12% of average loans. The allowance for
loan losses at June 30, 1998, was 0.93% of gross loans and 117.81% of
non-performing loans. Additionally, the Company's net charge-offs to average
loans ratio has averaged 0.19% over the five years ended December 31, 1997.
By implementing its core banking strategy, the Company has been able to
maintain solid financial performance despite operating in highly competitive
markets. Despite competition from community, regional, and super-regional
institutions, the Company has captured market share, increasing its share of
West Virginia's deposits from 4.15% in 1993 to 4.80% in 1997. For the six months
ended June 30, 1998, the Company's return on average assets and return on
average equity were 0.94% and 11.13%, respectively.
In addition to its core banking operation, the Company has developed a
significant mortgage banking franchise. City Mortgage Services ("CMS"), a
division of City National, is a specialty loan servicing company with operations
in Cross Lanes, West Virginia and Costa Mesa, California. CMS focuses on
servicing niche loan products through its servicing systems which are designed
to the specific requirements of sub-prime mortgage, non-conforming mortgage,
home improvement, home equity, and other similar loan products. At June 30,
1998, CMS had a total mortgage loan servicing portfolio of over 54,000 accounts
approximating $1.3 billion in principal balance.
Through City National, the Company also operates one wholesale and three
retail loan origination platforms. The wholesale division acquires high
loan-to-value and other junior lien mortgage loans through a network of
correspondent lenders. The retail divisions, two of which are located in
Southern California and one
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located in West Virginia, originate high loan-to-value and other junior lien
mortgage loans nationwide through solicitations of potential borrowers via mass
advertising and telemarketing campaigns.
Whether acquired through the correspondent network or originated on a
retail basis, these high loan-to-value loans are typically sold to independent
third parties or securitized within 90-180 days. Loans sold to independent third
parties are typically sold servicing released. However, the Company retains the
right to service loans included in its asset-backed securitization program.
Through June 30, 1998, the Company had completed three securitization
transactions involving the securitization of approximately $183 million of high
loan-to-value mortgage loans.
On June 29, 1998, the Company (through City National) completed its
strategic investment in Mego Mortgage Corporation ("Mego"), a specialty
financial services company that originates and purchases conventional home
improvement, high loan-to-value debt consolidation, and other similar loans. As
part of an overall recapitalization of Mego completed by several investors, the
Company invested $10 million to acquire 10,000 shares of Mego Series A Preferred
Stock, which is convertible into 6.7 million shares of Mego common stock. The
Company also acquired an option to purchase an additional 6.7 million shares of
Mego common stock at a price of $1.50 per share. Concurrent with this
investment, CMS acquired the right to service approximately $536 million of
consumer mortgage loans previously serviced by Mego and the exclusive right to
service up to an additional $1 billion of mortgage loans originated or acquired
by Mego in the future.
On August 7, 1998, the Company announced that it had entered into a
definitive agreement and plan of reorganization to merge with Horizon. The
combined company would have total assets in excess of $2.5 billion, rank third
in deposit market share in the State of West Virginia and rank among the Top 100
banks in the country in terms of market capitalization. The transaction will be
accounted for as a pooling of interests and is expected to close during the
first quarter of 1999.
The Company intends to take advantage of the consolidation of the
financial services industry by further developing its franchise through the
acquisition of financial institutions and other entities engaged in lines of
businesses permissible for banks and bank holding companies, including community
banking organizations, mortgage operations, and technology-related firms.
The Company's principal executive offices are located at 25 Gatewater
Road, Charleston, West Virginia, 25313, and the telephone number at such address
is (304) 769-1100.
For additional information regarding the Company and its financial
condition and results of operations, see "City Holding Company" and
"Capitalization."
CITY HOLDING CAPITAL TRUST
The Trust is a statutory business trust created under Delaware law on
March 26, 1998. The Trust will be governed by the Amended and Restated Trust
Agreement among the Company, as Depositor, Chase Manhattan Bank Delaware, as
Delaware Trustee, and The Chase Manhattan Bank, as Property Trustee. The Trust
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust, and payments under
the Junior Subordinated Debentures will be the sole source of revenue of the
Trust.
THE EXCHANGE OFFER
THE EXCHANGE OFFER................. Up to $30,000,000 aggregate Liquidation
Amount of Exchange Capital Securities are
being offered in exchange for a like
aggregate Liquidation Amount of Old Capital
Securities. Old Capital Securities may be
tendered for exchange in whole
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or in part in a Liquidation Amount of
$100,000 (100 Capital Securities) or any
integral multiple of $1,000 (1 Capital
Security) in excess thereof. The Company and
the Trust are making the Exchange Offer in
order to satisfy their obligations under a
Registration Rights Agreement relating to
the Old Capital Securities. For a
description of the procedures for tendering
Old Capital Securities, see "The Exchange
Offer--Procedures for Tendering Old Capital
Securities."
EXPIRATION DATE.................... 5:00 p.m., New York City time, on October
30, 1998, unless the Exchange Offer is
extended by the Company or the Trust (in
which case the Expiration Date will be the
latest date and time to which the Exchange
Offer is extended). See "The Exchange
Offer--Terms of the Exchange Offer."
CONDITIONS TO THE
EXCHANGE OFFER................... The Exchange Offer is subject to certain
conditions, which may be waived by the
Company and the Trust in their sole
discretion. The Exchange Offer is not
conditioned upon any minimum Liquidation
Amount of Old Capital Securities being
tendered. See "The Exchange
Offer--Conditions to the Exchange Offer."
OFFER.............................. The Company and the Trust reserve the right
in their sole and absolute discretion,
subject to applicable law, at any time and
from time to time, to (i) delay the
acceptance of the Old Capital Securities for
exchange, (ii) terminate the Exchange Offer
if certain specified conditions have not
been satisfied, (iii) extend the Expiration
Date of the Exchange Offer and retain all
Old Capital Securities tendered pursuant to
the Exchange Offer, subject, however, to the
right of holders of Old Capital Securities
to withdraw their tendered Old Capital
Securities, or (iv) to waive any condition
or otherwise amend the terms of the Exchange
Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer."
WITHDRAWAL RIGHTS.................. Tenders of Old Capital Securities may be
withdrawn at any time on or prior to the
Expiration Date by delivering a written
notice of such withdrawal to the Exchange
Agent in conformity with certain procedures
set forth below under "The Exchange
Offer--Withdrawal Rights."
PROCEDURES FOR TENDERING
OLD CAPITAL SECURITIES........... Tendering holders of Old Capital Securities
must complete and sign a Letter of
Transmittal in accordance with the
instructions contained therein and forward
the same by mail, facsimile or hand
delivery, together with any other required
documents and the Old Capital Securities to
be tendered, to the Exchange Agent, or must
comply with the specified procedures for
guaranteed delivery of Letters of
Transmittal and Old Capital Securities.
Certain brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-entry transfer,
including an Agent's Message in lieu of a
Letter of Transmittal. Holders of Old
Capital Securities
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<PAGE>
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee are urged to contact such person
promptly if they wish to tender Old Capital
Securities pursuant to the Exchange Offer.
See "The Exchange Offer--Procedures for
Tendering Old Capital Securities." Letters
of Transmittal and certificates representing
Old Capital Securities should not be sent to
the Company or the Trust. Such documents
should only be sent to the Exchange Agent.
RESALES OF NEW CAPITAL
SECURITIES....................... The Company and the Trust are making the
Exchange Offer in reliance on the position
of the staff of the Division of Corporation
Finance of the Commission as set forth in
certain interpretive letters addressed to
third parties in other transactions.
However, neither the Company nor the Trust
has sought its own interpretive letter and
there can be no assurance that the staff of
the Division of Corporation Finance of the
Commission would make a similar
determination with respect to the Exchange
Offer as it has in such interpretive letters
to third parties. Based on these
interpretations by the staff of the Division
of Corporation Finance of the Commission,
and subject to the two immediately following
sentences, the Company and the Trust believe
that Exchange Capital Securities issued
pursuant to this Exchange Offer in exchange
for Old Capital Securities may be offered
for resale, resold and otherwise transferred
by a holder thereof (other than a holder who
is a broker-dealer) without further
compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that such Exchange
Capital Securities are acquired in the
ordinary course of such holder's business
and that such holder is not participating,
and has no arrangement or understanding with
any person to participate, in a distribution
(within the meaning of the Securities Act)
of such Exchange Capital Securities.
However, any holder of Old Capital
Securities who is an "affiliate" of the
Company or the Trust or who intends to
participate in the Exchange Offer for the
purpose of distributing the Exchange Capital
Securities, or any broker-dealer who
purchased the Old Capital Securities from
the Trust for resale pursuant to Rule 144A
or any other available exemption under the
Securities Act, (a) will not be able to rely
on the interpretations of the staff of the
Division of Corporation Finance of the
Commission set forth in the above-mentioned
interpretive letters, (b) will not be
permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and
(c) must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any sale
or other transfer of such Old Capital
Securities unless such sale is made pursuant
to an exemption from such requirements. In
addition, as described below, if any
broker-dealer holds Old Capital Securities
acquired for its own account as a result of
market-making or other trading activities
and exchanges such Old Capital Securities
for Exchange Capital Securities, then such
broker-dealer must deliver a prospectus
meeting the requirements of the Securities
Act in connection with any resales of such
Exchange Capital
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<PAGE>
Securities. Each holder of Old Capital
Securities who wishes to exchange Old
Capital Securities for Exchange Capital
Securities in the Exchange Offer will be
required to represent in the Letter of
Transmittal or by transmission of an Agent's
Message in lieu thereof that (i) it is not
an "affiliate" of the Company or the Trust,
(ii) any Exchange Capital Securities to be
received by it are being acquired in the
ordinary course of its business, (iii) it
has no arrangement or understanding with any
person to participate in a distribution
(within the meaning of the Securities Act)
of such Exchange Capital Securities, and
(iv) if such holder is not a broker-dealer,
such holder is not engaged in, and does not
intend to engage in, a distribution (within
the meaning of the Securities Act) of such
Exchange Capital Securities. Each
broker-dealer that receives Exchange Capital
Securities for its own account pursuant to
the Exchange Offer must acknowledge that it
acquired the Old Capital Securities for its
own account as the result of market-making
activities or other trading activities and
must agree that it will deliver a prospectus
meeting the requirements of the Securities
Act in connection with any resale of such
Exchange Capital Securities. The Letter of
Transmittal states that, by so acknowledging
and by delivering a prospectus, a
broker-dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. Based on the
position taken by the staff of the Division
of Corporation Finance of the Commission in
the interpretive letters referred to above,
the Company and the Trust believe that
Participating Broker-Dealers who acquired
Old Capital Securities for their own
accounts as a result of market-making
activities or other trading activities may
fulfill their prospectus delivery
requirements with respect to the Exchange
Capital Securities received upon exchange of
such Old Capital Securities (other than Old
Capital Securities which represent an unsold
allotment from the original sale of the Old
Capital Securities) with a prospectus
meeting the requirements of the Securities
Act, which may be the prospectus prepared
for an exchange offer so long as it contains
a description of the plan of distribution
with respect to the resale of such Exchange
Capital Securities. Accordingly, this
Prospectus, as it may be amended or
supplemented from time to time, may be used
by a Participating Broker-Dealer in
connection with resales of Exchange Capital
Securities received in exchange for Old
Capital Securities where such Old Capital
Securities were acquired by such
Participating Broker-Dealer for its own
account as a result of market-making or
other trading activities. Subject to certain
provisions set forth in the Registration
Rights Agreement and to the limitations
described below under "The Exchange
Offer--Resales of Exchange Capital
Securities," the Company and the Trust have
agreed that this Prospectus, as it may be
amended or supplemented from time to time,
may be used by a Participating Broker-Dealer
in connection with resales of such Exchange
Capital Securities for a period ending
90-days after the Expiration Date (subject
to extension under certain limited
circumstances) or, if earlier, when all such
Exchange Capital Securities have
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<PAGE>
been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution."
Any Participating Broker-Dealer who is an
"affiliate" of the Company or the Trust may
not rely on such interpretive letters and
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. See "The Exchange
Offer--Resales of Exchange Capital
Securities."
EXCHANGE AGENT..................... The exchange agent with respect to the
Exchange Offer is The Chase Manhattan Bank
(the "Exchange Agent"). The address and
telephone and facsimile numbers, of the
Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent" and in the
Letter of Transmittal.
USE OF PROCEEDS.................... Neither the Company nor the Trust will
receive any cash proceeds from the issuance
of the Exchange Capital Securities offered
hereby. See "Use of Proceeds."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS;
ERISA CONSIDERATIONS............... Holders of Old Capital Securities should
review the information set forth under
"Certain Federal Income Tax Consequences"
and "ERISA Considerations" prior to
tendering Old Capital Securities in the
Exchange Offer.
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<PAGE>
THE EXCHANGE CAPITAL SECURITIES
SECURITIES OFFERED................. Up to $30,000,000 aggregate Liquidation
Amount of the Exchange Capital Securities
which have been registered under the
Securities Act (Liquidation Amount $1,000
per Exchange Capital Security). The Exchange
Capital Securities will be issued, and the
Old Capital Securities were issued, under
the Trust Agreement. The Exchange Capital
Securities and any Old Capital Securities
which remain outstanding after consummation
of the Exchange Offer will vote together as
a single class for purposes of determining
whether holders of the requisite percentage
in outstanding Liquidation Amount thereof
have taken certain actions or exercised
certain rights under the Trust Agreement.
See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the
Trust Agreement." The terms of the Exchange
Capital Securities are identical in all
material respects to the terms of the Old
Capital Securities, except that the Exchange
Capital Securities have been registered
under the Securities Act and, therefore, are
not subject to certain restrictions on
transfer applicable to the Old Capital
Securities and, subject to certain limited
exceptions specified in the Registration
Rights Agreement, will not provide for any
increase in the Distribution rate thereon.
See "The Exchange Offer--Purpose of the
Exchange Offer," "Description of Exchange
Capital Securities."
DISTRIBUTIONS...................... Holders of the Exchange Capital Securities
are entitled to receive cumulative cash
Distributions at an annual rate of 9.15% on
the Liquidation Amount of $1,000 per
Exchange Capital Security, accruing from the
last Distribution Date on the Old Capital
Securities preceding the original issue date
of the Exchange Capital Securities or, if no
Distributions have been made on the Old
Capital Securities, from the original date
of issuance of the Old Capital Securities
(March 31, 1998), and (subject to the
possible extension of Distribution payment
periods described below) will be payable
semi-annually, in arrears, on the 1st day of
April and October of each year, commencing
October 1, 1998. See "Description of the
Exchange Capital Securities --
Distributions."
OPTION TO EXTEND INTEREST
PAYMENT PERIOD..................... The Company has the right, at any time,
subject to certain conditions, to defer
payments of interest on the Junior
Subordinated Debentures, for Extension
Periods, each not exceeding 10 consecutive
semi-annual periods; provided that no
Extension Period may extend beyond the
maturity date of the Junior Subordinated
Debentures or end on a date other than a
Distribution Date. As a consequence of the
Company's extension of the interest payment
period on the Junior Subordinated
Debentures, Distributions on the Capital
Securities also would be deferred, but would
continue to accrue during any such Extension
Period to the extent permitted by law. In
the event the Company exercises its right
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<PAGE>
to extend an interest payment period, then
during any Extension Period, subject to
certain exceptions, (i) the Company shall
not declare or pay any dividend on, make any
distributions with respect to, or redeem,
purchase, acquire or make a liquidation
payment with respect to, any of its capital
stock or rights to acquire such capital
stock or make any guarantee payments (other
than payments on the Guarantee) with respect
to the foregoing and (ii) the Company shall
not make any payment of interest on or
principal of (or premium, if any, on), or
repay, repurchase or redeem, any debt
securities issued by the Company which rank
PARI PASSU with or junior to the Junior
Subordinated Debentures except in certain
situations. 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 certain
requirements. See "Description of the
Exchange Debentures -- Option to Extend
Interest Payment Period." Should an
Extension Period occur with respect to the
Capital Securities, holders of the Capital
Securities will accrue interest income (in
the form of original issue discount) for
United States federal income tax purposes in
respect of their PRO RATA shares of the
Junior Subordinated Debentures held by the
Trust. Holders of Capital Securities will be
required to include such amounts in gross
income for United States federal income tax
purposes in advance of the receipt of cash
attributable to such income, and a holder
will not receive the cash related to such
income if such holder disposes of the
Capital Securities prior to the record date
for payment of Distributions with respect to
such Extension Period. See "Certain Federal
Income Tax Consequences -- Interest Income
and Original Issue Discount."
LIQUIDATION........................ The Company, as the holder of all of the
Common Securities, has the right at any time
to dissolve the Trust (including, without
limitation, upon the occurrence of a Tax
Event, a Capital Treatment Event or an
Investment Company Event (each as defined
herein)), subject to certain conditions
(including the receipt of prior approval by
the Federal Reserve if then required under
applicable capital guidelines or policies of
the Federal Reserve), with the result that,
after satisfaction of liabilities to
creditors of the Trust (to the extent not
satisfied by the Company), the Company must
cause the Junior Subordinated Debentures
to be distributed to the holders of the
Trust Securities on a PRO RATA basis in
accordance with the respective Liquidation
Amounts thereof. In addition, the Trust will
be dissolved and liquidated under certain
other circumstances. See "Description of
Exchange Capital Securities -- Liquidation
Distribution Upon Dissolution."
LIQUIDATION DISTRIBUTION........... In the event of the voluntary or involuntary
liquidation, dissolution or winding-up of
the Trust, after satisfaction of liabilities
to creditors of the Trust (to the extent not
satisfied by the Company), holders of the
Capital Securities will be entitled to
receive a Liquidation Distribution (as
defined herein) equal to $1,000 per Capital
Security plus an amount
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equal to accrued and unpaid Distributions
thereon to the date of payment, unless the
Junior Subordinated Debentures are
distributed to holders of the Trust
Securities in exchange therefor. If such
Liquidation Distribution can be paid only in
part because the Trust has insufficient
assets available to pay in full the
aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the
Capital Securities shall be paid on a PRO
RATA basis. The holders of the Common
Securities will be entitled to receive
distributions upon any such liquidation PRO
RATA with the holders of the Capital
Securities, except that if a Debenture Event
of Default (as defined herein) has occurred
and is continuing by reason of the failure
to pay amounts due with respect to the
Junior Subordinated Debentures, the Capital
Securities shall have a priority over the
Common Securities. See "Description of the
Exchange Capital Securities -- Liquidation
Distribution Upon Dissolution."
MATURITY........................... Upon the repayment of the Junior
Subordinated Debentures, whether at maturity
or upon early redemption as provided in the
Junior Subordinated Indenture, the proceeds
from such repayment will be applied by the
Property Trustee to redeem a like amount of
the Trust Securities, upon the terms and
conditions described herein. See
"Description of the Exchange Capital
Securities -- Redemption."
TAX EVENT, CAPITAL
TREATMENT EVENT AND
INVESTMENT COMPANY EVENT
REDEMPTION......................... If at any time a Tax Event, a Capital
Treatment Event or an Investment Company
Event should occur and be continuing, the
Company may, within 90 days of the
occurrence of such Tax Event, Capital
Treatment Event or Investment Company Event,
as applicable, redeem the Junior
Subordinated Debentures in whole (but not in
part) in certain limited circumstances
described herein at a Redemption Price (as
defined herein) equal to par plus accrued
and unpaid interest to the redemption date,
subject to the Company having received prior
approval from the Federal Reserve if then
required under applicable capital guidelines
or policies of the Federal Reserve. Upon the
redemption of the Junior Subordinated
Debentures, the proceeds of such redemption
will be applied by the Property Trustee to
redeem a like amount of the Trust Securities
on a PRO RATA basis, upon the terms and
conditions described herein. See
"Description of the Exchange Capital
Securities -- Redemption."
THE GUARANTEE...................... The payment of Distributions out of moneys
held by the Trust, payments on liquidation
of the Trust, and payment upon the
redemption of the Capital Securities are
guaranteed by the Company to the extent
described herein under "Description of the
Guarantee." The Guarantee covers payments of
Distributions and other payments on the
Capital Securities only if and to the extent
that the Trust has funds available therefor,
which funds will not be available except to
the extent the Company has made payments of
interest or principal or
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other payments on the Junior Subordinated
Debentures. The Guarantee, when taken
together with the Company's obligations
under the Junior Subordinated Debentures,
the Trust Agreement and the Junior
Subordinated Indenture (including its
obligations to pay costs, expenses, debts
and other liabilities of the Trust (other
than with respect to the Trust Securities)),
provides a full and unconditional guarantee
on a subordinated basis by the Company of
amounts due on the Capital Securities.
VOTING RIGHTS...................... Holders of the Capital Securities have
limited voting rights relating generally to
the modification of the Capital Securities
and the Guarantee and the exercise of the
Trust's rights as the holder of the Junior
Subordinated Debentures. Holders of the
Capital Securities are not entitled to
appoint, remove or replace the Property
Trustee or the Delaware Trustee except upon
the occurrence of a Debenture Event of
Default (as defined herein) described
herein. See "Description of the Exchange
Capital Securities -- Voting Rights:
Amendment of Trust Agreement" and "--
Removal of Issuer Trustees; Appointment of
Successors."
TRANSFER RESTRICTIONS.............. The Old Capital Securities were, and the
Exchange Capital Securities will be, issued
and may be transferred only in blocks having
a Liquidation Amount of not less than
$100,000 (100 Old Capital Securities or
Exchange Capital Securities, as the case may
be). Any such transfer of the Old Capital
Securities or the Exchange Capital
Securities in a block having a Liquidation
Amount of less than $100,000 shall be deemed
to be void and of no legal effect
whatsoever. See "Description of the Exchange
Capital Securities -- Restrictions on
Transfer."
JUNIOR SUBORDINATED
DEBENTURES......................... The Trust invested the proceeds from the
issuance of the Old Capital Securities and
Common Securities in an equivalent amount of
Old Junior Subordinated Debentures of the
Company, up to $30,000,000 aggregate
principal amount of which will be exchanged
for Exchange Debentures. The Junior
Subordinated Debentures mature on April 1,
2028, and rank subordinate and junior in
right of payment to all Senior Indebtedness
of the Company. In addition, the Company's
obligations under the Junior Subordinated
Debentures are effectively subordinated to
all existing and future liabilities and
obligations of its subsidiaries. See "Risk
Factors -- Ranking of Subordinated
Obligations Under the Guarantee and the
Junior Subordinated Debentures" and
"Description of Exchange Debentures --
Subordination."
FORM OF CAPITAL
SECURITIES......................... The Old Capital Securities initially sold to
"qualified institutional buyers" (as defined
in Rule 144A under the Securities Act) in
reliance on Rule 144A under the Securities
Act are represented by a global certificate
or certificates registered in the name of
Cede & Co., as nominee for DTC. The Old
Capital Securities initially sold to
institutional
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<PAGE>
"accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the
Securities Act) were issued only in fully
registered, certificated form. Beneficial
interests in the Exchange Capital Securities
represented by a global certificate or
certificates will be evidenced by, and
transfers thereof will be effected only
through, records maintained by the
participants in DTC. Except in the limited
circumstances described herein, the Exchange
Capital Securities in certificated form will
not be issued in exchange for the global
certificate or certificates. See
"Description of Exchange Capital Securities
-- Book-Entry, Delivery and Form."
RANKING............................ The Exchange Capital Securities will rank
PARI PASSU, and payments thereon will be
made PRO RATA, with the Old Capital
Securities and the Common Securities except
as described under "Description of Exchange
Capital Securities--Subordination of Common
Securities." The Exchange Debentures will
rank PARI PASSU with all other junior
subordinated debentures to be issued by the
Company with substantially similar
subordination terms ("Other Debentures") and
which may be issued and sold (if at all) to
other trusts to be established by the
Company (if any) ("Other Trusts"), and will
be unsecured and subordinate and junior in
right of payment to the extent and in the
manner set forth in the Junior Subordinated
Indenture to all Senior Indebtedness (as
defined herein). Senior Indebtedness of the
Company includes existing and future senior
debt, senior subordinated debt and
subordinated debt of the Company. As of June
30, 1998, there was $193 million of Senior
Indebtedness of the Company outstanding. See
"Description of Exchange Debentures." The
Guarantee ranks PARI PASSU with all other
guarantees (if any), to be issued by the
Company with respect to capital securities
(if any), to be issued by Other Trusts
("Other Guarantees") and constitutes an
unsecured obligation of the Company and
ranks subordinate and junior in right of
payment to the extent and in the manner set
forth in the Guarantee Agreement to all
Senior Indebtedness. See "Description of
Guarantee."
REDEMPTION......................... The Exchange Capital Securities are subject
to mandatory redemption (i) in whole but not
in part at the Stated Maturity upon
repayment of the Exchange Debentures, (ii)
in whole but not in part at any time
contemporaneously with the prepayment of the
Exchange Debentures upon the occurrence and
continuation of a Tax Event, Investment
Company Event or Capital Treatment Event and
(iii) in whole or in part at any time on or
after April 1, 2008 contemporaneously with
the optional prepayment by the Company of
the Exchange Debentures, in each case at the
applicable Redemption Price. See
"Description of Exchange Capital
Securities--Redemption."
RATING............................. The Exchange Capital Securities are not
expected to be rated by any rating service.
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<PAGE>
ERISA CONSIDERATIONS............... Prospective purchasers who invested the
assets of an employee benefit plan subject
to Title I of ERISA or a plan or individual
retirement account subject to Section 4975
of the Code for their purchase of Capital
Securities should carefully consider the
information set forth under "Certain ERISA
Considerations."
ABSENCE OF MARKET FOR THE
EXCHANGE CAPITAL SECURITIES...... The Exchange Capital Securities will be a
new issue of securities for which there
currently is no market. Although the Initial
Purchasers have informed the Trust and the
Company that they each currently intend to
make a market in the Exchange Capital
Securities, the Initial Purchasers are not
obligated to do so, and any such market
making may be discontinued at any time
without notice. Accordingly, there can be no
assurance as to the development or liquidity
of any market for the Exchange Capital
Securities. The Trust and the Company do not
intend to apply for listing of the Exchange
Capital Securities on any securities
exchange or for quotation through the NASD
Automated Quotation System.
USE OF PROCEEDS.................... The proceeds to the Trust from the sale of
the Old Capital Securities were invested by
the Trust in the Junior Subordinated
Debentures. The Company is using the net
proceeds from the sale of the Junior
Subordinated Debentures for general
corporate purposes. The Company expects that
the Capital Securities will be eligible to
qualify as Tier 1 capital under the capital
guidelines of the Federal Reserve. See "Use
of Proceeds."
For additional information regarding the Exchange Capital Securities, see
"Description of Exchange Capital Securities," "Description of Exchange
Debentures," "Description of Guarantee" and "Certain Federal Income Tax
Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth
under "Risk Factors."
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<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE CAPITAL SECURITIES SHOULD CAREFULLY REVIEW
THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY
CONSIDER THE FOLLOWING MATTERS. CERTAIN STATEMENTS IN THIS PROSPECTUS AND
DOCUMENTS INCORPORATED HEREIN BY REFERENCE ARE FORWARD-LOOKING AND ARE
IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS OR PHRASES SUCH AS "INTENDED,"
"WILL BE POSITIONED," "EXPECTS," IS OR ARE "EXPECTED," "ANTICIPATES," AND
"ANTICIPATED." THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S
CURRENT EXPECTATIONS. TO THE EXTENT ANY OF THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS CONSTITUTES A "FORWARD-LOOKING
STATEMENT" AS DEFINED IN SECTION 21E(i)(1) OF THE EXCHANGE ACT, THE RISK FACTORS
SET FORTH BELOW ARE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENT.
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Company and the Trust do not intend to register under
the Securities Act any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable).
To the extent that Old Capital Securities are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Capital Securities
could be adversely affected. In addition, although the Old Capital Securities
have been designated for trading in the PORTAL market, to the extent that Old
Capital Securities are tendered and accepted in connection with the Exchange
Offer, any trading market for Old Capital Securities which remain outstanding
after the Exchange Offer could be adversely affected.
The Exchange Capital Securities and any Old Capital Securities which
remain outstanding after consummation of the Exchange Offer will vote together
as a single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain actions
or exercised certain rights under the Declaration. See "Description of Exchange
Capital Securities--Voting Rights; Amendment of the Trust Agreement."
The Old Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by
August 28, 1998 and declared effective by September 27, 1998, the Distribution
rate borne by the Old Capital Securities, currently 9.15% per annum, commencing
on March 31, 1998 will increase by 0.25% per annum until the Exchange Offer is
consummated. Upon consummation of the Exchange Offer, holders of Old Capital
Securities will not be entitled to any increase in the Distribution rate thereon
or any further registration rights under the Registration Rights Agreement,
except under limited circumstances.
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Company believes the
Old Capital Securities are currently owned by, a relatively small number of
beneficial owners. The Old Capital Securities have not been registered under the
Securities Act and will be subject to restrictions on transferability if they
are not exchanged for the Exchange Capital Securities. Although the Exchange
Capital Securities generally may be resold or otherwise transferred by the
holders (who are not affiliates of the Company or the Trust) without compliance
with the registration requirements under the Securities Act, they will
constitute a new issue of securities with no established
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<PAGE>
trading market. Both Old Capital Securities and Exchange Capital Securities may
be transferred by the holders thereof only in blocks having a Liquidation Amount
of not less than $100,000 (100 Old Capital Securities) and in integral multiples
of $1,000 (1 Old Capital Security) in excess thereof. The Company and the Trust
have been advised by the Initial Purchasers that the Initial Purchasers
presently intend to make a market in the Exchange Capital Securities. However,
the Initial Purchasers are not obligated to do so and any market-making activity
with respect to the Exchange Capital Securities may be discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer. Accordingly, no assurance can be given that an active
public or other market will develop for the Exchange Capital Securities or the
Old Capital Securities or as to the liquidity of or the trading market for the
Exchange Capital Securities or the Old Capital Securities. If an active public
market does not develop, the market price and liquidity of the Exchange Capital
Securities may be adversely affected.
If a public trading market develops for the Exchange Capital Securities,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the Company's financial results and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Capital Securities may trade at a
discount.
Notwithstanding the registration of the Exchange Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Company or the Trust may publicly offer for sale or
resell the Exchange Capital Securities only in compliance with the provisions of
Rule 144 under the Securities Act.
Each broker-dealer that receives Exchange Capital Securities for its own
account in exchange for Old Capital Securities, where such Old Capital
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Capital Securities.
See "Plan of Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Trust of such Old Capital Securities, a properly completed and
duly executed Letter of Transmittal or Agent's Message in lieu thereof and all
other required documents. Therefore, holders of the Old Capital Securities
desiring to tender such Old Capital Securities in exchange for Exchange Capital
Securities should allow sufficient time to ensure timely delivery. Neither the
Company nor the Trust is under any duty to give notification of defects or
irregularities with respect to the tenders of Old Capital Securities for
exchange. See "The Exchange Offer."
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE
JUNIOR SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company
for the benefit of the holders of Capital Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness of the Company. At June 30, 1998, the Senior Indebtedness of
the Company aggregated approximately $193 million. None of the Junior
Subordinated Indenture, the Guarantee or the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior
Indebtedness, that may be incurred by the Company. See "Description of
Guarantee--Status of the Guarantee" and "Description of Exchange
Debentures--Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company's making payments on the Junior Subordinated
Debentures as and when required.
STATUS OF THE COMPANY AS A BANK HOLDING COMPANY
Because the Company is a bank holding company, its right to participate in
any distribution of assets of City National upon City National's liquidation or
reorganization or otherwise (and thus the ability of holders of the
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<PAGE>
Capital Securities to benefit indirectly from such a distribution) is subject to
the prior claims of creditors of the Bank (including its depositors), except to
the extent that the Company may itself be recognized as a creditor of the Bank.
At June 30, 1998, the Bank had total liabilities (excluding liabilities owed to
the Company) of approximately $1.2 billion, including deposits. Accordingly, the
Capital Securities effectively will be subordinated to all existing and future
liabilities of the Bank, and holders of Capital Securities should look only to
the assets of the Company for payments on the Capital Securities. Neither the
Guarantee nor the Junior Subordinated Indenture places any limitation on the
amount of secured or unsecured debt that may be incurred by the Bank in the
future. See "Description of Exchange Debentures" and "Description of Guarantee."
In addition, almost all of the operating assets of the Company are owned
by the Bank. The Company relies primarily on dividends from the Bank to meet its
obligations for the payment of principal and interest on its separate debt
obligations and corporate expenses and for payment of dividends on its
outstanding common stock. The payment of dividends by the Bank to the Company is
subject to certain legal and regulatory limitations, is subject to ongoing
review by banking regulators and, under certain circumstances, may require prior
approval by banking regulatory authorities. At June 30, 1998, approximately $43
million was available for payment of dividends to the Company from the Bank
without prior regulatory approval. The Bank also is subject to certain
restrictions under Federal law on extensions of credit to, and certain other
transactions with, the Company and certain of its other affiliates, and on
investments in the stock or other securities thereof. Such restrictions prevent
the Company and such other affiliates from borrowing from the Bank unless the
loans are secured by various types of collateral. Further, such secured loans or
other transactions and investments by the Bank are generally limited in amount
as to the Company and as to each such other affiliate to 10% of the Bank's
capital and surplus and as to the Company and all such other affiliates to an
aggregate of 20% of the Bank's capital and surplus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. See "Description of Exchange
Debentures--Debenture Events of Default." As a consequence of any such deferral,
semi-annual Distributions on the Capital Securities by the Trust will be
deferred during any such Extension Period. Distributions to which holders of the
Capital Securities are entitled will accumulate additional Distributions thereon
during any Extension Period at a rate equal to 9.15% per annum, compounded
semi-annually from the relevant payment date for such Distributions, computed on
the basis of a 360-day year of twelve 30-day months and the actual days elapsed
in a partial month in such period. Additional Distributions payable for each
full Distribution period will be computed by dividing the rate per annum by two.
The term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company may not (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or shareholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any shareholder's rights plan, or the issuance of rights, stock
or other property under any shareholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is
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the same stock as that on which the dividend is being paid or ranks PARI PASSU
with or junior to such stock). Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest, provided that no
Extension Period may exceed 10 consecutive semi-annual periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at a rate equal to 9.15% per annum, compounded
semi-annually), the Company may elect to begin a new Extension Period subject to
the above conditions. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company must give the Issuer Trustees
notice of its election of such Extension Period at least one Business Day prior
to the earlier of (i) the date the Distributions on the Capital Securities would
have been payable but for the election to begin such Extension Period and (ii)
the date the Property Trustee is required to give notice to holders of the
Capital Securities of the record date or the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Property Trustee will give notice of the Company's election to begin a
new Extension Period to the holders of the Capital Securities. Subject to the
foregoing, there is no limitation on the number of times that the Company may
elect to begin an Extension Period. See "Description of Exchange Capital
Securities--Distributions" and "Description of Exchange Debentures--Option to
Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
accrue interest income (in the form of original issue discount) for United
States Federal income tax purposes in respect of its PRO RATA share of the
Junior Subordinated Debentures held by the Trust. As a result, a holder of
Capital Securities will include such original issue discount income in gross
income for United States Federal income tax purposes in advance of the receipt
of cash attributable to such income, and will not receive the cash related to
such income from the Trust if the holder disposes of the Capital Securities
prior to the record date for the payment of Distributions with respect to such
Extension Period. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount" and "--Sales or Redemption of Capital Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. In addition, as a result
of the existence of the Company's right to defer interest payments, the market
price of the Capital Securities (which represent preferred undivided beneficial
interests in the assets of the Trust) may be more volatile than the market
prices of other securities on which original issue discount accrues that are not
subject to such deferrals.
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time within
90 days following the occurrence of such Tax Event, Investment Company Event or
Capital Treatment Event and thereby cause a mandatory redemption of the Capital
Securities and Common Securities. Any such redemption shall be at a price equal
to the aggregate liquidation amount of the Capital Securities and Common
Securities, respectively, together with accumulated Distributions to but
excluding the date fixed for redemption and the related amount of the premium,
if any, paid by the Company upon the concurrent redemption of such Junior
Subordinated Debentures. The ability of the Company to exercise its rights to
redeem the Junior Subordinated Debentures prior to the stated maturity may be
subject to prior regulatory approval by the Federal Reserve, if then required
under applicable Federal Reserve capital guidelines or policies. See
"Description of Exchange Debentures--Redemption" and "Description of Exchange
Capital Securities--Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Trust of an opinion of counsel to
the Company experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities, there is more than an insubstantial
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risk that (i) the Trust is, or will be within 90 days of the delivery of such
opinion, subject to United States Federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures or Exchange
Debentures, (ii) interest payable by the Company on the Junior Subordinated
Debentures or Exchange Debentures is not, or within 90 days of the delivery of
such opinion will not be, deductible by the Company, in whole or in part, for
United States Federal income tax purposes or (iii) the Trust is, or will be
within 90 days of the delivery of the opinion, subject to more than a DE MINIMIS
amount of other taxes, duties or other governmental charges. According to a
petition recently filed in the United States Tax Court by a corporation
unrelated to the Company and the Trust, the Internal Revenue Service (the "IRS")
has challenged the deductibility for United States federal income tax purposes
of interest payments on certain purported debt instruments held by entities
intended to be taxable as partnerships for United States federal income tax
purposes, where those entities, in turn, issued preferred securities to
investors. Although the overall structure of the financing arrangement involved
in that case is somewhat similar to the financing structure for the Junior
Subordinated Debentures and the Trust, the relevant facts in that case appear to
differ significantly from those relating to the Junior Subordinated Debentures
and the Trust. Whether the IRS would attempt to challenge the deductibility of
interest on the Junior Subordinated Debentures cannot be predicted. The Company,
based on the advice of counsel, intends to take the position that interest
payments on the Junior Subordinated Debentures will be deductible by the Company
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences - Classification of the Junior Subordinated Debentures." Adverse
developments relating to the deductibility of interest, whether arising in
connection with the case currently pending in the United States Tax Court or
not, could give rise to a Tax Event.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the Trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), which change or prospective change becomes effective or would become
effective, as the case may be, on or after the date of the issuance of the
Capital Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
POSSIBLE TAX LAW CHANGES
In both 1996 and 1997, the Clinton Administration proposed to amend the
Internal Revenue Code of 1986, as amended (the "Code"), to deny deductions of
interest on instruments with features similar to those of the Junior
Subordinated Debentures when issued under arrangements similar to the Trust.
That proposal was not passed by, and is not currently pending before, Congress.
There can be no assurance, however, that future legislative proposals, future
regulations or official administrative pronouncements or future judicial
decisions will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company, upon approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve,
to cause a redemption of the Capital Securities, as described more fully under
"Description of Exchange Capital Securities--Redemption."
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holder of all the outstanding Common Securities has the right at any
time to dissolve the Trust and, after satisfaction of liabilities to creditors
of the Trust as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Capital Securities and Common
Securities in liquidation of the
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Trust. The ability of the Company to dissolve the Trust may be subject to prior
regulatory approval of the Federal Reserve, if then required under applicable
Federal Reserve capital guidelines or policies. See "Description of Exchange
Capital Securities--Liquidation Distribution Upon Dissolution." The Junior
Subordinated Debentures, if distributed, may be subject to restrictions on
transfer as described under "Notice to Investors."
Under current United States Federal income tax law and interpretations and
assuming, as expected, that the Trust will not be taxable as a corporation, a
distribution of the Junior Subordinated Debentures upon a liquidation of the
Trust will not be a taxable event to holders of the Capital Securities. However,
if a Tax Event were to occur that would cause the Trust to be subject to United
States Federal income tax with respect to income received or accrued on the
Junior Subordinated Debentures, a distribution of the Junior Subordinated
Debentures by the Trust would be a taxable event to the Trust and the holders of
the Capital Securities. See "Certain Federal Income Tax
Consequences--Distribution of Junior Subordinated Debentures to Holders of
Capital Securities."
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as the trustee under the Guarantee (the
"Guarantee Trustee") and will hold the Guarantee for the benefit of the holders
of the Capital Securities. The Chase Manhattan Bank will also act as Debenture
Trustee for the Junior Subordinated Debentures and as Property Trustee under the
Trust Agreement. Chase Manhattan Bank Delaware will act as Delaware Trustee
under the Trust Agreement. The Guarantee guarantees to the holders of the
Capital Securities the following payments, to the extent not paid by or on
behalf of the Trust: (i) any accumulated and unpaid Distributions required to be
paid on the Capital Securities, to the extent that the Trust has funds on hand
available therefor at such time; (ii) the Redemption Price (as defined in
"Description of Exchange Capital Securities--Redemption") with respect to any
Capital Securities called for redemption, to the extent that the Trust has funds
on hand available therefor at such time; and (iii) upon a voluntary or
involuntary dissolution of the Trust (unless the Junior Subordinated Debentures
are distributed to holders of the Capital Securities), the lesser of (a) the
aggregate of the Liquidation Amount and all accumulated and unpaid Distributions
to the date of payment, to the extent that the Trust has funds on hand available
therefor at such time, and (b) the amount of assets of the Trust remaining
available for distribution to holders of the Capital Securities on liquidation
of the Trust. The Guarantee is subordinated as described under "--Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures" and "Description of Guarantee--Status of the Guarantee." The holders
of not less than a majority in aggregate Liquidation Amount of the outstanding
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 Trust, the Guarantee Trustee or any other person or
entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Trust may lack funds for the
payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Capital Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder (a "Direct Action").
In connection with such Direct Action, the Company will have a right of set-off
under the Junior Subordinated Indenture to the extent of any payment made by the
Company to such holder of Capital Securities in the Direct Action. Except as
described herein, holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Exchange Debentures--Enforcement of
Certain Rights by Holders of Capital Securities," "--Debenture Events of
Default" and "Description of Guarantee." The Trust Agreement provides that each
holder of Capital Securities by acceptance thereof agrees to the provisions of
the Guarantee and the Junior Subordinated Indenture.
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LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Trust's rights as holder of Junior Subordinated Debentures.
Holders of Capital Securities will not be entitled to appoint, remove or replace
the Property Trustee or the Delaware Trustee except upon the occurrence of
certain events specified in the Trust Agreement and described herein. The
Property Trustee and the holders of all the Common Securities may, subject to
certain conditions, amend the Trust Agreement without the consent of holders of
Capital Securities to cure any ambiguity or make other provisions not
inconsistent with the Trust Agreement or to ensure that the Trust (i) will not
be taxable other than as a grantor trust for United States Federal income tax
purposes, or (ii) will not be required to register as an "investment company"
under the Investment Company Act. See "Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of
Issuer Trustees; Appointment of Successors."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities,
or the market prices for Junior Subordinated Debentures that may be distributed
in exchange for Capital Securities if a liquidation of the Trust occurs.
Accordingly, the Capital Securities or the Junior Subordinated Debentures that a
holder of Capital Securities may receive on liquidation of the Trust may trade
at a discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures on dissolution of the Trust, prospective
purchasers of Capital Securities are also making an investment decision with
regard to the Junior Subordinated Debentures and should carefully review all the
information regarding the Junior Subordinated Debentures contained herein. See
"Description of Exchange Debentures."
GROWTH
The Company has grown and may seek to grow by acquiring other financial
institutions and branches or related financial services companies. However,
competition for acquisitions in the Company's market area is highly competitive.
Moreover, any acquisitions will be subject to regulatory approval and there can
be no assurance that the Company will obtain such approvals. The Company may not
be as successful in the future as it has been in the past in identifying further
acquisition candidates, integrating acquired institutions or preventing deposit
erosion at acquired institutions or branches. Furthermore, the Company's ability
to grow through acquisitions will depend on its maintaining sufficient
regulatory capital levels and on economic conditions.
There is no assurance that the Company will not encounter unforeseen
expenses, as well as difficulties and complications in integrating expanded
operations and new employees without disruption to overall operations. In
addition, such growth may adversely affect the Company's operating results
because of many factors, including start-up costs, diversion of management time
and resources, asset quality, and required operating adjustments. There can be
no assurance that the Company will successfully integrate or achieve the
anticipated benefits of its growth or expanded operations, and there is no
assurance that rapid growth in its loan portfolio will not result in an increase
in the Company's loan loss experience.
COMPETITION
The banking business is highly competitive. In its primary market area,
the Bank competes with other commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, mortgage
banking companies, and brokerage and investment banking firms operating locally
and elsewhere. The Bank's primary competitors have substantially greater
resources and lending limits than the Bank. The profitability of the Company
depends upon the Bank's ability to continue to compete in its primary market
area.
The consumer finance industry is also highly competitive. Competitors in
the consumer finance business include mortgage banking companies, commercial
banks, credit unions, thrift institutions, credit card issuers and finance
companies. Certain of the Company's competitors are substantially larger, have
greater name recognition and have more capital and other resources than the
Company.
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RISKS ASSOCIATED WITH NEW BUSINESS LINES AND LTV LENDING
The Company acquired a California Title I home improvement loan servicing
company in December 1996 and a California 125% LTV mortgage loan originator in
October 1997. The Company's prospects must be considered in light of the risks,
delays, expenses, and difficulties frequently encountered in connection with an
early-stage business in a highly-regulated, competitive environment. In addition
to the normal risk of loss and reduced net earnings due to loan delinquencies
and other loan defaults by obligors, which become more acute in an economic
slow-down or recession, the Company is subject to increased risk of loss in its
125% LTV lending, because in most cases, the collateral for such loans will not
be sufficient to cover the principal amount of the loans in the event of
default. The Company, in its 125% LTV lending, relies principally on the
credit-worthiness of the buyer and, to a lesser extent, on the underlying
collateral for repayment. As a result, many of the Company's 125% LTV loans
equal or exceed the value of the mortgage properties. Upon the occurrence of a
default by a borrower, the Company evaluates the cost-effectiveness of
foreclosing on the property. The Company is less likely to use foreclosure to
mitigate its losses with its 125% LTV products because such loans exceed the
value of the mortgage properties; loss mitigation on these loans is undertaken
primarily through garnishment proceedings. Management periodically estimates
losses on these loans and records such estimates as a reduction of income. To
the extent that management's estimates of losses are less than the actual
losses, the Company's financial position and results of operations could be
adversely affected in the period of adjustment.
PREPAYMENT RISK ASSOCIATED WITH SECURITIZATIONS
In order to minimize credit risk in connection with its mortgage loan
business, the Company sells a substantial majority of the loans it originates
and purchases either through whole loan sales or through securitizations. In
connection with securitizations, the Company reports gains on sales of loans
based in part on the estimated fair value of the mortgage-related securities
retained by the Company and on the estimated fair value of retained mortgage
servicing rights related to such loans. In a securitization, the Company retains
a residual interest security and may retain an interest only strip security. The
fair value of the residual interest and interest only strip security is the
present value of the estimated net cash flows to be received after considering
the effects of prepayments and credit losses. The capitalized mortgage servicing
rights and mortgage-related securities are valued using prepayment, default, and
interest rate assumptions that the Company believes are reasonable. The amount
of revenue recognized upon the sale of loans or loan participations will vary
depending on the assumptions utilized.
The rate of prepayment, rate of default, and the estimates of the future
costs of servicing utilized by the Company are estimates, and actual results may
vary from such estimates and such variations may be material. The gain
recognized by the Company upon the sale of loans will have been overstated or
understated if prepayments and/or defaults are greater than or less than
anticipated, respectively. Higher levels of future prepayments, and/or increase
in delinquencies or liquidations, would result in a lower valuation of the
mortgage-related securities and impairment of the mortgage servicing rights,
thereby adversely affecting the Company's earnings in the period of adjustment.
DEVELOPMENTS IN TECHNOLOGY
The market for financial services, including banking services, is
increasingly affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking, telebanking, debit cards and so-called "smart" cards. The ability of
the Company to compete successfully in its markets may depend on the extent to
which it is able to exploit such technological changes. However, there can be no
assurance that the development of these or any other new technologies, or the
Company's success or failure in anticipating or responding to such developments,
will materially affect the Company's business, financial condition and operating
results.
Additionally, the Company is heavily dependent upon complex computer
systems for all phases of its operations. The "Year 2000" issue-common to most
corporations-concerns the inability of certain software and databases to
properly recognize date sensitive information beginning January 1, 2000. This
problem could result in a disruption to the Company's operations, if not
corrected. Financial services institutions are particularly sensitive to
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<PAGE>
such disruptions. The Company uses third party vendors for certain of its
systems. As a result, much of the Company's remediation effort relates to
monitoring and communicating with those vendors. The Company has assessed and
developed a detailed strategy to prevent or at least minimize problems related
to the Year 2000 issue. Resources have been committed and implementation began
to modify the affected information systems. Implementation is currently on
schedule, but the degree of success of the project cannot be determined at this
time.
USE OF PROCEEDS
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities. In consideration for issuing the
Exchange Capital Securities in exchange for the Old Capital Securities as
described in this Prospectus, the Trust will receive Exchange Debentures in like
Liquidation Amount. The Old Capital Securities surrendered in exchange for the
Exchange Capital Securities will be retired and canceled.
All the proceeds to the Trust from the sale of Capital Securities were
invested by the Trust in Junior Subordinated Debentures. The proceeds from the
Capital Securities qualify as Tier 1 or core capital with respect to the Company
under the risk-based capital guidelines established by the Federal Reserve. All
the net proceeds received by the Company from the sale of the Junior
Subordinated Debentures are being used by the Company for general corporate
purposes. The precise amounts and timing of the application of proceeds will
depend upon the funding requirements of the Company and its subsidiaries and the
availability of other funds. In view of anticipated funding requirements, the
Company may from time to time engage in additional financings of a character and
in amounts to be determined.
CITY HOLDING COMPANY
GENERAL
The Company is a registered bank holding company, chartered under the laws
of the State of West Virginia, and headquartered in Charleston, West Virginia.
At June 30, 1998, the Company had total consolidated assets of approximately
$1.5 billion, total consolidated deposits of approximately $1.1 billion, and
total consolidated shareholders' equity of approximately $126 million.
Through its lead bank subsidiary, City National, the Company provides a
wide variety of retail and commercial banking products and services to
individuals and small--and medium-sized businesses through 43 banking offices in
the State of West Virginia. Effective April 1, 1998, the Company consummated its
acquisition of Del Amo. Headquartered in Torrance, California, Del Amo is a
federally-chartered savings bank with total assets and total deposits of
approximately $116 million and $102 million, respectively at March 31, 1998. Del
Amo operates three locations in Southern California and complements the
Company's mortgage loan origination businesses located in Irvine and Costa Mesa,
California.
The Company has experienced significant growth through acquisitions,
having acquired 11 depository and five non-depository institutions since 1985,
adding approximately $700 million in assets and 29 branch offices to the
Company's franchise. In addition, the Company has started six DE NOVO
operations, including one depository institution. While the strategy of the
Company is to permit its various banking operations to be responsive to the
markets in which they operate, the Company has consolidated all back-office
functions, including portions of the credit underwriting, investment portfolio
management, and loan review functions. To promote responsiveness to customer
requests and operational efficiency, the Company has emphasized the use of
technology, including check imaging.
The Company maintains a diverse loan portfolio which consists of
commercial, real estate, and consumer loans to customers in its markets. At June
30, 1998, the Company had non-performing loans, consisting of non-accrual,
past-due, and restructured credits of $7.4 million, or 0.79% of gross loans. Net
charge-offs through June 30, 1998 were 0.12% of average loans. The allowance for
loan losses at June 30, 1998, was 0.93% of gross loans and
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117.81% of non-performing loans. Additionally, the Company's net charge-offs to
average loans ratio has averaged 0.19% over the five years ended December 31,
1997. For the six months ended June 30, 1998 the Company's return on average
assets and return on average equity were 0.94% and 11.13%, respectively.
Recognizing the increasing competition in the financial services industry,
the Company's management has embarked upon a strategy to increase non-interest
income revenue and diversify the markets in which it operates. In 1993, the
Company organized City Financial Corporation ("City Financial"), a full-service
securities brokerage and investment advisory company. City Financial operates an
office in Charleston, West Virginia, from which it offers brokerage and
investment advisory services to customers of the Company and others throughout
West Virginia.
In 1996, the Company began an initiative to originate and service junior
lien and other similar mortgage loan products. Entry into this line of business
was in recognition of the higher margins enjoyed on junior lien mortgages,
traditionally sought by consumers for home improvement and debt consolidation
purposes. The junior lien lending activities initially were conducted through
City Mortgage Corporation, a wholly owned subsidiary of the Company whose assets
have since been sold. In August 1997, the Company formed CMS, a specialty loan
servicing company with operations in Cross Lanes, West Virginia and Costa Mesa,
California. CMS focuses on servicing niche loan products through its servicing
systems which are designed to the specific requirements of sub-prime mortgage,
non-conforming mortgage, home improvement, home equity, and other similar loan
products. At June 30, 1998, CMS had a total mortgage loan servicing portfolio of
over 54,000 accounts approximating $1.3 billion in principal balance. In October
1997, the Company acquired First Allegiance, an originator of junior lien
mortgage loans, headquartered in Irvine, California, with an existing portfolio
of loans and an experienced team of junior lien mortgage originators.
Simultaneously with this acquisition, the Company, on both the east and west
coasts, formed two parallel divisions also originating junior lien mortgages.
Currently, these divisions are focusing on generating high LTV products,
primarily 125% LTV products through direct mail and telemarketing solicitation,
in various eastern and western states. At June 30, 1998, the Company's portfolio
of junior lien mortgages aggregated approximately $178 million, of which $164
million would be classified as 125% LTV products. The typical 125% LTV product
customer has an average FICO score of 680, and is generally utilizing the loan
product to consolidate high-rate credit or other debt or for college tuition,
home improvements, or vacations. It is the Company's intention to sell the
various loan products generated by these divisions through a balanced
combination of loan securitizations and whole loan sales, where, in the case of
loan securitizations, the Company would retain the servicing rights. Through
June 30, 1998, the Company had completed three securitization transactions
involving the securitization of approximately of $183 million of high LTV loans.
The Company plans to securitize a portion of its portfolio every quarter.
The Company's strategy is to develop these loan origination divisions into
marketing platforms, that through the use of technology and direct mail and
telemarketing solicitations, permit the Company to access additional geographic
markets and efficiently deliver a variety of financial service products.
The Company has also sought to expand the range of insurance products and
services that it provides through the acquisition of one insurance agency
located in Charleston, West Virginia, in December 1997, and one additional
agency in the first quarter of 1998.
On June 29, 1998, the Company (through City National) completed its
strategic investment in Mego, a specialty financial services company that
originates and purchases conventional home improvement, high loan-to-value debt
consolidation, and other similar loans. As part of an overall recapitalization
of Mego completed by several investors, the Company invested $10 million to
acquire 10,000 shares of Mego Series A Preferred Stock, which is convertible
into 6.7 million shares of Mego common stock. The Company also acquired an
option to purchase an additional 6.7 million shares of Mego common stock at a
price of $1.50 per share. Concurrent with this investment, CMS acquired the
right to service approximately $536 million of consumer mortgage loans
previously serviced by Mego and the exclusive right to service up to an
additional $1 billion of mortgage loans originated or acquired by Mego in the
future.
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<PAGE>
On August 7, 1998, the Company announced that it had entered into a
definitive agreement and plan of reorganization to merge with Horizon. The
combined company would have total assets in excess of $2.5 billion, rank third
in deposit market share in the State of West Virginia and rank among the Top 100
banks in the country in terms of market capitalization. The transaction will be
accounted for as a pooling of interests and is expected to close during the
first quarter of 1999. Certain historical financial information regarding
Horizon is incorporated by reference herein. See "Incorporation of Certain
Documents by Reference." In addition, certain pro forma financial information
about the Company and Horizon is included herein. See "Index to Financial
Information."
The Company expects to take advantage of the consolidation of the
financial services industry by further developing its franchise through the
acquisition of financial institutions and other entities engaged in lines of
business permissible for banks and bank holding companies. The Company believes
that as the competitive environment becomes increasingly challenging to smaller
financial institutions, the Company can offer community banking organizations an
attractive alternative, by providing the technology, product variety, and
efficiencies and services of a larger banking organization, while managing such
institutions in a manner that allows them to remain responsive to the markets in
which they operate. In addition to acquiring community banking organizations,
the Company also has interest in supplementing the Del Amo acquisition through
related acquisitions in California to further support the Company's mortgage
operations in California. Additionally, the Company is interested in acquiring
mortgage operations, including whole operations or portfolios of mortgage
servicing rights and mortgage loans, and in acquiring technology-related firms.
The Company continues to evaluate business combination opportunities and
as a result, business combination discussions and, in some cases, negotiations
take place and future business combinations involving cash, debt, or equity
securities can be expected. Any future business combination or series of
business combinations that the Company may undertake may be material, in terms
of assets acquired or liabilities assumed, to the Company's financial condition.
The Company was organized under the laws of the State of West Virginia on
March 12, 1982. The Company's principal executive offices are located at 25
Gatewater Road, Charleston, West Virginia 25313, and its telephone number at
such address is (304) 769-1100.
For additional information regarding the Company's financial condition
and results of operations, see "Capitalization."
NEITHER THE CAPITAL SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES ARE
OBLIGATIONS OF OR GUARANTEED BY CITY NATIONAL.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following unaudited table presents the consolidated ratios of earnings
to fixed charges of the Company. The consolidated ratio of earnings to fixed
charges has been computed by dividing income before income taxes and fixed
charges by fixed charges. Fixed charges represent all interest expense (ratios
are presented both excluding and including interest deposits). Interest expense
(other than on deposits) includes interest on borrowed funds, federal funds
purchased and securities sold under agreements to repurchase, and other funds
borrowed.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------------------------------------------------------------
<S><C>
Including interest on deposits............... 1.38x 1.45x 1.44x 1.40x 1.38x 1.46x 1.49x
Excluding interest on deposits............... 2.46 2.98 2.68 2.57 3.01 6.10 13.07
</TABLE>
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CITY HOLDING CAPITAL TRUST
The Trust is a statutory business trust created under Delaware law
pursuant to a trust agreement and the filing of a certificate of trust with the
Delaware Secretary of State. The Trust is governed by the Trust Agreement among
the Company, as Depositor, Chase Manhattan Bank Delaware, as Delaware Trustee,
The Chase Manhattan Bank, as Property Trustee, the Administrators named therein,
and the holders, from time to time, of undivided beneficial interests in the
assets of the Trust. The holders of the Common Securities are authorized to
select two individuals to act as administrators with respect to the Trust (the
"Administrators"). The Company, while holder of the Common Securities, intends
to select two individuals who are employees or officers of or affiliated with
the Company to serve as the Administrators. See "Description of Exchange Capital
Securities--Miscellaneous." The Trust exists for the exclusive purposes of (i)
issuing and selling the Trust Securities, (ii) using the proceeds from the sale
of the Trust Securities to acquire the Junior Subordinated Debentures and (iii)
engaging in only those other activities necessary, convenient or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Trust.
All the Common Securities are presently owned by the Company. The Common
Securities rank PARI PASSU, and payments will be made thereon PRO RATA, with the
Capital Securities, except that upon the occurrence and during the continuation
of a Debenture Event of Default arising as a result of any failure by the
Company to pay any amounts in respect of the Junior Subordinated Debentures when
due, the rights of the holders of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Capital Securities. See
"Description of Exchange Capital Securities--Subordination of Common
Securities." The Company has acquired Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Trust. The Trust has
a term of 31 years, but may dissolve earlier as provided in the Trust Agreement.
The address of the Delaware Trustee is Chase Manhattan Bank Delaware, 1201
Market Street, Wilmington, Delaware 19801, telephone number (302) 428-3375. The
address of the Property Trustee, the Guarantee Trustee and the Debenture Trustee
is The Chase Manhattan Bank, 450 West 33rd Street, 15th Floor, New York, New
York 10001, telephone number (212) 946-3340.
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CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of June 30, 1998, as adjusted to give effect to the
consummation of the offering of the Capital Securities and the application of
the net proceeds thereof as provided under "Use of Proceeds." The following data
should be read in conjunction with the Company's reports filed with the
Commission under the Exchange Act.
June 30, 1998
-------------
Short-term borrowings $111,974
Long-term borrowings 81,295
Corporation-obligated manditorily redeemable capital
securities of subsidiary trust holding solely junior
subordinated debentures of the corporation(1) 30,000
--------
Total borrowings 223,269
--------
Shareholders' Equity:
Common stock, $2.50 par value,
authorized, 6,749,785 issued and outstanding,
including 17,055 shares in treasury 16,874
Capital surplus 63,734
Retained earnings 44,280
Net unrealized gain on securities available for sale,
net of tax 1,811
Cost of common stock in treasury (591)
--------
Total shareholders' equity 126,108
--------
Total capitalization $349,377
========
Capital Ratios
Tier 1 risk-based capital ratio 9.37%
Total risk-based capital ratio 10.05
Leverage ratio 8.55
- ------------
(1) Reflects the Capital Securities. The Trust is a subsidiary of the Company
and holds the Junior Subordinated Debentures as its sole asset.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Trust will be
included in the consolidated financial statements of the Company. The Capital
Securities will be included in the consolidated balance sheets of the Company,
and appropriate disclosures about the Capital Securities, the Guarantee and the
Junior Subordinated Debentures will be included in the notes to the consolidated
financial statements of the Company. For financial reporting purposes,
Distributions on the Capital Securities will be recorded in the consolidated
statements of income of the Company as interest expense.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Trust entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which the Company and the Trust agreed to file and to use
their reasonable efforts to cause to become effective with the Commission a
registration statement with respect to the exchange of the Old Capital
Securities for the Exchange Capital Securities. A copy of the
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Registration Rights Agreement has been filed as an Exhibit to the Registration
Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Trust under the Registration Rights Agreement. The form and
terms of the Exchange Capital Securities are the same as the form and terms of
the Old Capital Securities except that the Exchange Capital Securities have been
registered under the Securities Act, and will not provide for any increase in
the Distribution rate thereon.
The Registration Rights Agreement provides that (i) the Company and the
Trust shall use their respective best efforts to cause the Registration
Statement to be declared effective by the Commission on or prior to 180 days
after the date of the original issuance of the Trust Securities, and to keep the
Registration Statement effective for not less than 30 business days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
made to the holders, (ii) unless the Exchange Offer will not be permitted by
applicable law or Commission policy, the Trust will commence the Exchange Offer
and use its best efforts to consummate the Exchange Offer within 30 business
days after the effective date of the Registration Statement, and (iii) if
obligated to file the "Shelf Registration Statement" (as defined in the
Registration Rights Agreement), the Company and Trust will use their best
efforts to file the Shelf Registration Statement with the Commission as promptly
as practicable, but, in any event, within 45 days after such filing obligation
arises, and to cause the Shelf Registration Statement to be declared effective
by the Commission on or prior to 180 days after such obligation arises.
If (i) the Company and the Trust fail to file, if appropriate, the Shelf
Registration Statement on or before the dates specified for such filing, (ii)
the Registration Statement or the Shelf Registration Statement, if applicable,
is not declared effective by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target Date"), (iii) the Company and
Trust fail to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Registration Statement, or (iv)
the Registration Statement or the Shelf Registration Statement, if applicable,
is declared effective but thereafter ceases to be effective or usable in
connection with resales of "Transfer Restricted Securities" (as defined below)
during the period specified in the Registration Rights Agreement (each such
event referred to in clauses (i) through (iv) above, a "Registration Default"),
then liquidated damages shall accrue on the principal amount ("Additional
Interest") of the Junior Subordinated Debentures, and additional Distributions
shall accumulate on the Liquidation Amount ("Additional Distributions") of the
Capital Securities immediately following the occurrence of such Registration
Default, each at a rate of 0.25% per annum. Notwithstanding the foregoing,
neither the Additional Interest on the Junior Subordinated Debentures nor the
Additional Distribution rate on the Liquidation Amount of the Capital Securities
may exceed in the aggregate 0.25% per annum. Such Additional Interest and
Additional Distributions shall cease to accrue and accumulate upon the curing of
the respective Registration Default.
For purposes of the preceding paragraph, "Transfer Restricted Security"
means each Old Capital Security, the Old Guarantee or Old Junior Subordinated
Debenture until (i) the date on which such Old Capital Security, the Old
Guarantee or Old Junior Subordinated Debenture has been exchanged for an
Exchange Capital Security, the Guarantee or Exchange Junior Subordinated
Debenture in the Exchange Offer and are thereafter freely tradable by the holder
thereof (other than an affiliate of the Company), (ii) such Old Capital
Security, Old Guarantee or Old Junior Subordinated Debenture, as the case may
be, shall have ceased to be outstanding, (iii) the date on which such Old
Capital Security, Old Guarantee or Old Junior Subordinated Debenture has been
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement or the Shelf Registration Statement, if
applicable, or (iv) the date on which such Old Capital Security, Old Guarantee
or Old Junior Subordinated Debenture is distributed to the public pursuant to
Rule 144 (or any similar provision then in force, but not Rule 144A) under the
Securities Act.
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Old Capital Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Trust or any other person who has obtained a
properly completed bond power from such holder, or any participant in The
Depository Trust Company
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("DTC") system whose name appears on a security position listing as the holder
of such Old Capital Securities and who desires to deliver such Old Capital
Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange promptly after
the Expiration Date, the Old Junior Subordinated Debentures, in an amount
corresponding to the Old Capital Securities accepted for exchange, for a like
aggregate principal amount of the Exchange Debentures. The Guarantee and
Exchange Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $30,000,000 aggregate Liquidation Amount of Exchange Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date and not properly withdrawn
in accordance with the procedures described below. The Trust will issue,
promptly after the Expiration Date, an aggregate Liquidation Amount of up to
$30,000,000 of Exchange Capital Securities in exchange for a like principal
amount of outstanding Old Capital Securities tendered and accepted in connection
with the Exchange Offer. Holders may tender their Old Capital Securities in
whole or in part in a Liquidation Amount of not less than $100,000 (100 Capital
Securities) or any integral multiple of $1,000 Liquidation Amount (1 Capital
Security) in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered. As of the date of this Prospectus,
$30,000,000 aggregate Liquidation Amount of Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Trust Agreement, but will not be entitled to any further registration rights
under the Registration Rights Agreement, except under limited circumstances. See
"Risk Factors--Consequences of a Failure to Exchange Old Capital Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Company will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
NEITHER THE COMPANY, ITS BOARD OF DIRECTORS NOR ANY ISSUER TRUSTEE OF THE
TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL SECURITIES AS TO
WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD
CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL SECURITIES
MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER
AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO TENDER BASED ON
SUCH HOLDERS OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on October
30, 1998 unless the Exchange Offer is extended by the Company or the Trust (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
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The Company and the Trust expressly reserve the right in their sole and
absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old Capital Securities for exchange,
(ii) to terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) if the Trust determines, in its
sole and absolute discretion, that any of the events or conditions referred to
under "--Conditions to the Exchange Offer" have occurred or exist or have not
been satisfied, (iii) to extend the Expiration Date of the Exchange Offer and
retain all Old Capital Securities tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Old Capital Securities to withdraw
their tendered Old Capital Securities as described under "--Withdrawal Rights,"
and (iv) to waive any condition or otherwise amend the terms of the Exchange
Offer in any respect. If the Exchange Offer is amended in a manner determined by
the Company and the Trust to constitute a material change, or if the Company and
the Trust waive a material condition of the Exchange Offer, the Company and the
Trust will promptly disclose such amendment by means of a prospectus supplement
that will be distributed to the holders of the Old Capital Securities, and the
Company and the Trust will extend the Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral (promptly confirmed in writing) or written notice
thereof to the Exchange Agent and by making a public announcement thereof, and
such announcement in the case of an extension will be made no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Company and
the Trust may choose to make any public announcement and subject to applicable
law, the Company and the Trust shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, Exchange Capital
Securities for Old Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of Exchange Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of Old
Capital Securities into the Exchange Agent's account at DTC, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees or (in case of a book-entry transfer) an
Agent's Message in lieu of the Letter of Transmittal, and (iii) any other
documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by, and make the representations and warranties contained in,
the Letter of Transmittal and that the Trust and the Company may enforce such
Letter of Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the Trust will
be deemed to have accepted for exchange, and thereby exchanged, Old Capital
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral (promptly confirmed in writing) or written notice to the Exchange Agent of
the Trust's acceptance of such Old Capital Securities for exchange pursuant to
the Exchange Offer. The Exchange Agent will act as agent for the Trust for the
purpose of receiving tenders of Old Capital Securities, Letters of Transmittal
and related documents, and as agent for tendering holders for the purpose of
receiving Old Capital Securities, Letters of Transmittal and related documents
and transmitting Exchange Capital Securities to validly tendering holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Old Capital
Securities tendered pursuant to the Exchange Offer is delayed (whether before or
after the Trust's acceptance for exchange of Old Capital Securities) or the
Trust extends the Exchange Offer or is unable to accept for exchange or exchange
Old Capital Securities tendered pursuant to the Exchange Offer, then,
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without prejudice to the Trust's rights set forth herein, the Exchange Agent
may, nevertheless, on behalf of the Trust and subject to Rule 14e-1(c) under the
Exchange Act, retain tendered Old Capital Securities and such Old Capital
Securities may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof,
a holder of Old Capital Securities will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Old Capital Securities, that the Trust will acquire good,
marketable and unencumbered title to the tendered Old Capital Securities, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Capital Securities tendered for exchange are not subject to any adverse claims
or proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the Trust or the Exchange
Agent to be necessary or desirable to complete the exchange, sale, assignment,
and transfer of the Old Capital Securities tendered pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees or (in the case of a book-entry transfer) an
Agent's Message in lieu of the Letter of Transmittal and any other required
documents, must be received by the Exchange Agent at the address set forth under
"--Exchange Agent," and either (i) tendered Old Capital Securities must be
received by the Exchange Agent, or (ii) such Old Capital Securities must be
tendered pursuant to the procedures for book-entry transfer set forth below and
a book-entry confirmation, including an Agent's Message if the tendering holder
has not delivered a Letter of Transmittal, must be received by the Exchange
Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal or so indicate in an Agent's
Message in lieu of the Letter of Transmittal. The entire amount of Old Capital
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Company understands that the Exchange Agent has
confirmed with DTC that any financial institution that is a participant in DTC's
system may utilize DTC's Automated Tender Offer Program ("ATOP") to tender Old
Capital Securities. The Exchange Agent will establish an account with respect to
the Old Capital Securities at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution that
is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the Old Capital Securities by causing DTC to transfer
such Old Capital Securities into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. However, although delivery of
Old Capital Securities may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any
other required documents, must in any case be delivered to and received by the
Exchange Agent at its address set forth under "--Exchange Agent" on or prior to
the Expiration Date, or the guaranteed delivery procedures set forth below must
be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
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SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (b) such holder completes the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the Letter of Transmittal. In the case of (a)
or (b) above, such certificates for Old Capital Securities must be duly endorsed
or accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined therein):
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on behalf of such
Eligible Institution. See Instruction 1 to the Letter of Transmittal.
DELIVERY. The method of delivery of the Book-Entry Confirmation,
certificates representing tendered Old Capital Securities, the Letter of
Transmittal, and all other required documents is at the option and sole risk of
the tendering holder, and "delivery" will be deemed made only when actually
received by the Exchange Agent. If delivery is to be made by mail, registered
mail, return receipt requested, properly insured, or an overnight delivery
service, is recommended. In all such cases, sufficient time should be allowed to
ensure timely delivery on or before the Expiration Date.
GUARANTEED DELIVERY. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is received by
the Exchange Agent, as provided below, on or prior to the Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all tendered
Old Capital Securities, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof or
Agent's Message in lieu thereof), with any required signature guarantees and any
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the date
of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mailed to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange
Capital Securities in exchange for Old Capital Securities tendered and accepted
for exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old Capital Securities, and a
properly completed and duly executed Letter of Transmittal (or facsimile thereof
or Agent's Message in lieu thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Capital Securities might not be made to
all tendering holders at the same time, and will depend upon when Old Capital
Securities, book-entry confirmations with respect to Old Capital Securities and
other required documents are received by the Exchange Agent.
The Trust's acceptance for exchange of Old Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and subject
to the conditions of the Exchange Offer.
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DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. The Company and the Trust reserve the absolute right, in their
sole and absolute discretion, to reject any and all tenders determined by them
not to be in proper form or the acceptance of which, or exchange for, may, in
the opinion of counsel to the Company and the Trust, be unlawful. The Company
and the Trust also reserve the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under
"--Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Old Capital Securities of any particular holder whether or not similar
conditions or irregularities are waived in the case of other holders.
The interpretation by the Company and the Trust of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the Company, the
Trust, any affiliates or assigns of the Company or the Trust, the Exchange Agent
nor any other person shall be under any duty to give any notification of any
irregularities in tenders or incur any liability for failure to give any such
notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company
and the Trust, proper evidence satisfactory to the Company and the Trust, in
their sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE CAPITAL SECURITIES
The Trust is making the Exchange Offer for the Exchange Capital Securities
in reliance on the position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, neither the Company nor the Trust
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, the Company and the Trust believe that Exchange
Capital Securities issued pursuant to the Exchange Offer in exchange for Old
Capital Securities may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Capital Securities are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Capital Securities. However, any holder of Old Capital Securities
who is an "affiliate" of the Company or the Trust as defined under Rule 405 of
the Securities Act or who intends to participate in the Exchange Offer for the
purpose of distributing Exchange Capital Securities, or any broker-dealer who
purchased Old Capital Securities from the Trust for resale pursuant to Rule 144A
or any other available exemption under the Securities Act, (a) will not be able
to rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive letters,
(b) will not be permitted or entitled to tender such Old Capital Securities in
the Exchange Offer and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Old Capital Securities unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Capital Securities acquired for its own account as a
result of market-making or other trading activities and exchanges such Old
Capital Securities for Exchange Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Capital Securities.
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Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for Exchange Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company or the
Trust, (ii) any Exchange Capital Securities to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Capital Securities, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Capital Securities. In addition, the Company and the Trust may
require such holder, as a condition to such holder's eligibility to participate
in the Exchange Offer, to furnish to the Company and the Trust (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Old Capital Securities to be exchanged in the Exchange Offer. Each
broker-dealer that receives Exchange Capital Securities for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old Capital
Securities for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, the Company and
the Trust believe that Participating Broker-Dealers who acquired Old Capital
Securities for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery requirements with
respect to the Exchange Capital Securities received upon exchange of such Old
Capital Securities (other than Old Capital Securities which represent an unsold
allotment from the original sale of the Old Capital Securities) with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of such Exchange Capital
Securities. Accordingly, this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer during the
period referred to below in connection with resales of Exchange Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such Exchange Capital Securities for a period ending
90-days after the Expiration Date (subject to extension under certain limited
circumstances described below) or, if earlier, when all such Exchange Capital
Securities have been disposed of by such Participating Broker-Dealer. See "Plan
of Distribution." However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of Exchange Capital Securities received
in exchange for Old Capital Securities pursuant to the Exchange Offer must
notify the Company or the Trust, or cause the Company or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "--Exchange Agent." Any Participating
Broker-Dealer who is an "affiliate" of the Company or the Trust may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old
Capital Securities pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal or delivery of an Agent's Message in
lieu thereof, that, upon receipt of notice from the Company or the Trust of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of
Exchange Capital Securities (or the Guarantee or the Exchange Debentures, as
applicable) pursuant to this Prospectus until the Company or the Trust has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer or the Company or the Trust has given notice that
the sale of the Exchange Capital Securities (or the Guarantee or the Exchange
Debentures, as applicable) may be resumed, as the case may be. If the Company or
the Trust gives such notice to suspend the sale of the Exchange Capital
Securities (or the Guarantee or the Exchange Debentures, as applicable), it
shall extend the 90-day period referred to above
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during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of Exchange Capital Securities by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales of
the Exchange Capital Securities or to and including the date on which the
Company or the Trust has given notice that the sale of Exchange Capital
Securities (or the Guarantee or the Exchange Debentures, as applicable) may be
resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent the address set forth under "--Exchange Agent" on or prior to
the Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Old Capital Securities to be withdrawn, the aggregate
principal amount of Old Capital Securities to be withdrawn, and (if certificates
for such Old Capital Securities have been tendered) the name of the registered
holder of the Old Capital Securities as set forth on the Old Capital Securities,
if different from that of the person who tendered such Old Capital Securities.
If Old Capital Securities have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Capital
Securities, the tendering holder must submit the serial numbers shown on the
particular Old Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Capital Securities tendered for the account of an Eligible
Institution. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "--Procedures for Tendering Old
Capital Securities," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Old Capital
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic or facsimile transmission.
Withdrawals of tenders of Old Capital Securities may not be rescinded. Old
Capital Securities properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described
above under "--Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither the Company, the Trust, any affiliates or assigns of the Company or the
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Capital Securities
which have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
DISTRIBUTIONS ON EXCHANGE CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are
accepted for exchange will not receive accumulated Distributions on such Old
Capital Securities for any period from and after the last Distribution Date with
respect to such Old Capital Securities prior to the original issue date of the
Exchange Capital Securities or, if no such Distributions have been made, will
not receive any accumulated Distributions on such Old Capital Securities, and
will be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after such Distribution Date or, if no
such Distributions have been made, from and after March 31, 1998. However,
because Distributions on the Exchange Capital Securities will accumulate from
such date, the amount of the Distributions received by holders whose Old Capital
Securities are accepted for exchange will not be affected by the exchange.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company and the Trust will not be required
to accept for exchange, or to exchange, any Old Capital Securities for
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any Exchange Capital Securities, and, as described below, may terminate the
Exchange Offer (whether or not any Old Capital Securities have theretofore been
accepted for exchange) or may waive any conditions to or amend the Exchange
Offer, if any of the following conditions have occurred or exists or have not
been satisfied:
(a) there shall occur a change in the current interpretation by the staff of the
Commission which permits the Exchange Capital Securities issued pursuant to the
Exchange Offer in exchange for Old Capital Securities to be offered for resale,
resold and otherwise transferred by holders thereof (other than broker-dealers
and any such holder which is an "affiliate" of the Company or the Trust within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Capital Securities are acquired in the ordinary course of
such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such Exchange Capital
Securities; or
(b) any law, statute, rule or regulation shall have been adopted or enacted
which, in the judgment of the Company or the Trust, would reasonably be expected
to impair its ability to proceed with the Exchange Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration Statement
or proceedings shall have been initiated or, to the knowledge of the Company or
the Trust, threatened for that purpose or any governmental approval has not been
obtained, which approval the Company or the Trust shall, in its sole discretion,
deem necessary for the consummation of the Exchange Offer as contemplated
hereby.
If the Company or the Trust determines in its sole and absolute discretion
that any of the foregoing events or conditions has occurred or exists or has not
been satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company or the Trust will promptly
disclose such waiver or amendment by means of a prospectus supplement that will
be distributed to the registered holders of the Old Capital Securities and will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent by registered or certified mail or by hand or overnight
delivery as follows:
By Registered or Certified Mail or Hand or Overnight Delivery:
The Chase Manhattan Bank
55 Water Street, Room 234
North Building
New York, New York 10041
Attention: Carlos Esteves
Confirm By Telephone: (212) 638-0828
Facsimile Transmissions: (212) 638-7375/344-9367
Delivery to other than the above address or facsimile numbers will not
constitute a valid delivery.
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FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Capital Securities, and in handling or tendering
for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Capital Securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Old Capital
Securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of Old Capital Securities in connection with the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
Neither the Company nor the Trust will make any payment to brokers,
dealers or other nominees soliciting acceptances of the Exchange Offer.
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer Trustees on
behalf of the Trust have issued the Capital Securities and the Common Securities
and will issue the Exchange Capital Securities pursuant to the Exchange Offer.
The Exchange Capital Securities will represent preferred undivided beneficial
interests in the assets of the Trust and the holders thereof will be entitled to
a preference in certain circumstances with respect to Distributions and amounts
payable on redemption or liquidation of the Common Securities, as well as other
benefits as described in the Trust Agreement. This summary of certain provisions
of the Exchange Capital Securities and the Trust Agreement does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein of
certain terms. Whenever particular defined terms of the Trust Agreement are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of the Trust Agreement is available upon request from the Trust
by contacting the Issuer Trustees.
GENERAL
The Capital Securities (including the Old Capital Securities and the
Exchange Capital Securities) are limited to $30,000,000 aggregate Liquidation
Amount outstanding. The Capital Securities will rank PARI PASSU, and payments
will be made thereon PRO RATA, with the Common Securities except as described
under "--Subordination of Common Securities." The Junior Subordinated Debentures
will be registered in the name of the Trust and held by the Property Trustee in
trust for the benefit of the holders of the Capital Securities and Common
Securities. The Guarantee will be a guarantee on a subordinated basis with
respect to the Capital Securities but will not guarantee payment of
Distributions or amounts payable on redemption or liquidation of such Capital
Securities when the Trust does not have funds on hand available to make such
payments. See "Description of Guarantee."
DISTRIBUTIONS
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Trust, and Distributions on each Capital Security will be
payable at an annual rate equal to 9.15% on the stated Liquidation Amount of
$1,000, payable semi-annually in arrears on the 1st day of April and October of
each year (each a "Distribution Date"), to the holders of the Capital Securities
at the close of business on March 15 or September 15 (whether or not a Business
Day (as defined below)) next preceding the relevant Distribution Date.
Distributions on the Capital Securities will be cumulative. Distributions will
accumulate from the date of original issuance. The first Distribution Date for
the Capital Securities will be October 1, 1998. The amount of Distributions
payable for any
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period less than a full Distribution period will be computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. Distributions payable for each full Distribution period
will be computed by dividing the rate per annum by two. If any date on which
Distributions are payable on the Capital Securities is not a Business Day, then
payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (without any additional Distributions or
other payment in respect of any such delay), with the same force and effect as
if made on the date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, semi-annual Distributions on the Capital
Securities by the Trust will be deferred during any such Extension Period.
Distributions to which holders of the Capital Securities are entitled will
accumulate additional Distributions thereon at a rate per annum of 9.15%
thereof, compounded semi-annually from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution Period will be computed by
dividing the rate per annum by two. The term "Distributions" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank PARI PASSU in all respects with or junior in
interest to the Junior Subordinated Debentures (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
shareholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any shareholder's rights
plan, or the issuance of rights, stock or other property under any shareholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks PARI PASSU with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 10 consecutive semi-annual periods
or extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the Issuer Trustees notice of its election of such Extension
Period at least one Business Day prior to the earlier of (i) the date the
Distributions on the Capital Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee will give
notice of the Company's election to begin a new Extension Period to the holders
of the Capital Securities. Subject to the foregoing, there is no limitation on
the number of times that the Company may elect to begin an Extension Period. See
"Description of Exchange Debentures--Option to Extend Interest Payment Period"
and "Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance
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and sale of the Capital Securities. See "Description of Exchange
Debentures--General." If the Company does not make interest payments on the
Junior Subordinated Debentures, the Trust may not have funds available to pay
Distributions or other amounts payable on the Capital Securities. The payment of
Distributions and other amounts payable on the Capital Securities (if and to the
extent the Trust has funds legally available for and cash sufficient to make
such payments) is guaranteed by the Company on a limited basis as set forth
herein under "Description of Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the 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 Capital Securities plus accumulated but
unpaid Distributions thereon to but excluding the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Company upon the concurrent redemption of such Junior Subordinated Debentures.
See "Description of Exchange Debentures--Redemption." If less than all the
Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption PRO RATA of the Capital Securities and the Common Securities. The
amount of premium, if any, paid by the Company upon the redemption of all or any
part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption PRO RATA of the Capital
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after April 1, 2008, in whole at any time or in part from time to time, or
(ii) in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event, Investment Company Event
or Capital Treatment Event (each as defined below), in each case subject to
possible regulatory approval. See "--Liquidation Distribution Upon Dissolution."
A redemption of the Junior Subordinated Debentures would cause a mandatory
redemption of a Like Amount of the Capital Securities and Common Securities at
the Redemption Price.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices, expressed in percentages of the Liquidation Amount
(as defined below), together with accumulated Distributions to but excluding the
date fixed for redemption, if redeemed during the 12-month period beginning
April 1:
REDEMPTION
YEAR PRICE
- ---- ----------
2008........................................................... 104.58
2009........................................................... 104.12
2010........................................................... 103.66
2011........................................................... 103.20
2012........................................................... 102.75
2013........................................................... 102.29
2014........................................................... 101.83
2015........................................................... 101.37
2016........................................................... 100.92
2017........................................................... 100.46
and at 100% on or after April 1, 2018.
The Redemption Price, in the case of a redemption on or after April 1,
2008 following a Tax Event, Investment Company Event or Capital Treatment Event
shall equal the Redemption Price then applicable to a redemption under (i)
above. The Redemption Price, in the case of a redemption prior to April 1, 2008
following a Tax Event, Investment Company Event or Capital Treatment Event as
described under (ii) above, will equal for each Capital Security the Make-Whole
Amount for a corresponding $1,000 principal amount of Junior Subordinated
Debentures together with accumulated Distributions to but excluding the date
fixed for redemption. The "Make-
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Whole Amount" will be equal to the greater of (i) 100% of the principal amount
of such Junior Subordinated Debentures and (ii) as determined by a Quotation
Agent (as defined below), the sum of the present values of the principal amount
and premium payable as part of the Redemption Price with respect to an optional
redemption of such Junior Subordinated Debentures on April 1, 2008, together
with the present values of scheduled payments of interest (not including the
portion of any such payments of interest accrued as of the Redemption Date) from
the Redemption Date to April 1, 2008 (the "Remaining Life"), in each case
discounted to the Redemption Date on a semi-annual basis (assuming a 360-day
year consisting of 30-day months) at the Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate plus (i) 200 basis points if such Redemption Date occurs on or
before April 1, 1999 or (ii) 150 basis points if such Redemption Date occurs
after April 1, 1999.
"Treasury Rate" means (i) the yield, under the heading which represents
the average for the week immediately prior to the calculation date, appearing in
the most recently published statistical release designated "H.15 (519)" or any
successor publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
Business Day preceding the Redemption Date.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York or Charleston, West
Virginia are authorized or required by law or executive order to remain closed,
or (c) a day on which the Property Trustee's Corporate Trust Office or the
Corporate Trust Office of the Debenture Trustee is closed for business.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Capital Securities based upon the
relative Liquidation Amounts of such classes and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Tax Event" means the receipt by the Trust of an opinion of counsel to the
Company experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities, there is more than an insubstantial risk
that (i) the Trust is, or will be within 90 days of the delivery of such
opinion, subject to United States Federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures or Exchange
Debentures, (ii) interest payable by the Company on the Junior Subordinated
Debentures or Exchange Debentures is not, or within 90 days of the delivery of
such opinion, will not be, deductible by the Company, in whole or in part, for
United States Federal income tax purposes or (iii) the Trust is, or will be
within 90 days of the delivery of such opinion, subject to more than a DE
MINIMIS amount of other taxes, duties or other governmental charges.
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"Investment Company Event" means the receipt by the Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the Trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Capital Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
PAYMENT OF ADDITIONAL SUMS. If a Tax Event described in clause (i) or
(iii) of the definition of Tax Event above has occurred and is continuing and
the Trust is the holder of all the Junior Subordinated Debentures, the Company
will pay Additional Sums (as defined below), if any, on the Junior Subordinated
Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities of the Trust will not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Trust has become subject as a result of a Tax Event.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Trust has funds on hand available
for the payment of such Redemption Price. See also "--Subordination of Common
Securities."
If the Trust gives a notice of redemption in respect of any Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Capital Securities. With respect to Capital Securities not held in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Capital Securities funds sufficient to pay
the applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of the Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit all
rights of the holders of the Exchange Capital Securities so called for
redemption will cease, except the right of the holders of such Exchange Capital
Securities to receive the Redemption Price, and any distribution payable in
respect of the Capital Securities, but without interest on such Redemption
Price, and the Exchange Capital Securities will cease to be outstanding. If any
date fixed for redemption of Exchange Capital Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Capital
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Securities called for redemption is improperly withheld or refused and not paid
either by the Trust or by the Company pursuant to the Guarantee as described
under "Description of Guarantee," Distributions on such Capital Securities will
continue to accumulate at the then applicable rate, from the Redemption Date
originally established by the Trust for such Capital Securities to the date such
Redemption Price is actually paid, in which case the actual payment date will be
the date fixed for redemption for purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
Federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated PRO
RATA to the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Capital Securities to be
redeemed shall be selected on a PRO RATA basis not more than 60 days prior to
the Redemption Date by the Property Trustee from the outstanding Capital
Securities not previously called for redemption, or if the Capital Securities
are then held in the form of a Global Capital Security (as defined below), in
accordance with DTC's customary procedures. The Property Trustee shall promptly
notify the securities registrar for the Trust Securities in writing of the
Capital Securities selected for redemption and, in the case of any Capital
Securities selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of the Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Capital Securities shall
relate, in the case of any Capital Securities redeemed or to be redeemed only in
part, to the portion of the aggregate Liquidation Amount of Capital Securities
which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either by
the Trust or the Company pursuant to the Guarantee, Distributions will cease to
accumulate on the Capital Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, the Liquidation Distribution in respect of,
and the Redemption Price of, the Capital Securities and Common Securities, as
applicable, shall be made PRO RATA based on the Liquidation Amount of such
Capital Securities and Common Securities. However, if on any Distribution Date
or Redemption Date a Debenture Event of Default has occurred and is continuing
as a result of any failure by the Company to pay any amounts in respect of the
Junior Subordinated Debentures when due, no payment of any Distribution on, or
Liquidation Distribution in respect of, or the Redemption Price of, any of the
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all the
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all the outstanding Capital Securities then called
for redemption, or in the case of payment of the Liquidation Distribution, the
full amount of such Liquidation Distribution on all outstanding Capital
Securities, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Capital Securities
then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Capital Securities have been cured, waived or otherwise eliminated. See
"--Events of Default; Notice" and "Description of Exchange Debentures--Debenture
Events of Default." Until all such Events of Default under the Trust Agreement
with respect to the Capital Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will
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act solely on behalf of the holders of the Capital Securities and not on behalf
of the holders of the Common Securities, and only the holders of the Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any
liquidation of the Trust is $1,000 per Capital Security plus accumulated and
unpaid Distributions to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior Subordinated
Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Trust and, after satisfaction of liabilities to creditors
of the Trust as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Capital Securities and Common
Securities in liquidation of the Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities, dissolves
the Trust prior to the Stated Maturity of the Capital Securities and the
dissolution of the Trust is deemed to constitute the redemption of capital
instruments by the Federal Reserve under its risk-based capital guidelines or
policies, the dissolution of the Trust by the Company may be subject to the
prior approval of the Federal Reserve. Moreover, any changes in applicable law
or changes in the Federal Reserve's risk-based capital guidelines or policies
could impose a requirement on the Company that it obtain the prior approval of
the Federal Reserve to dissolve the Trust.
Pursuant to the Trust Agreement, the Trust will automatically dissolve
upon expiration of its term or, if earlier, will dissolve on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the Company
or the holder of the Common Securities, (ii) if the holders of Common Securities
have given written direction to the Property Trustee to dissolve the Trust
(which direction, subject to the foregoing restrictions, is optional and wholly
within the discretion of the holders of Common Securities), (iii) the repayment
of all the Capital Securities in connection with the redemption of all the Trust
Securities as described under "--Redemption" and (iv) the entry of an order for
the dissolution of the Trust by a court of competent jurisdiction.
If dissolution of the Trust occurs as described in clause (i), (ii) or
(iv) above, the Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of the
Trust available for distribution to holders, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, an amount equal to, in
the case of holders of Capital Securities, the aggregate of the Liquidation
Amount plus accumulated and unpaid Distributions thereon to the date of payment
(such amount being the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because the Trust has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on its Capital Securities shall be paid on
a PRO RATA basis. The holders of the Common Securities will be entitled to
receive distributions upon any such liquidation PRO RATA with the holders of the
Capital Securities, except that if a Debenture Event of Default has occurred and
is continuing as a result of any failure by the Company to pay any amounts in
respect of the Junior Subordinated Debentures when due, the Capital Securities
shall have a priority over the Common Securities. See "--Subordination of Common
Securities."
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After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
the Stated Maturity and the Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Capital Securities offered hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an Event of Default under the
Trust Agreement (an "Event of Default") (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see
"Description of Exchange Debentures--Debenture Events of Default");
or
(ii) default by the Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default
for a period of 30 days; or
(iii) default by the Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Issuer Trustees in the
Trust Agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is addressed in clause
(ii) or (iii) above), and continuation of such default or breach for
a period of 60 days after there has been given, by registered or
certified mail, to the defaulting Issuer Trustees and the Company by
the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Capital Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency
with respect to the Property Trustee if a successor Property Trustee
has not been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Trust Securities and the
Administrators, unless such Event of Default shall have been cured or waived.
The Company, as Depositor, and
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the Administrators are required to file annually with the Property Trustee a
certificate as to whether or not they are in compliance with all the conditions
and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
the Capital Securities as described above. See "--Liquidation Distribution Upon
Dissolution" and "Description of Exchange Debentures--Debenture Events of
Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding Capital
Securities, the successor may be appointed by the holders of at least 25% in
Liquidation Amount of Capital Securities. If an Issuer Trustee resigns, such
Issuer Trustee will appoint its successor. If an Issuer Trustee fails to appoint
a successor, the holders of at least 25% in Liquidation Amount of the
outstanding Capital Securities may appoint a successor. If a successor has not
been appointed by the holders, any holder of Capital Securities or Common
Securities or the other Issuer Trustee may petition a court in the State of
Delaware to appoint a successor. Any Delaware Trustee must meet the applicable
requirements of Delaware law. Any Property Trustee must be a national or
state-chartered bank, and at the time of appointment have securities rated in
one of the three highest rating categories by a nationally recognized
statistical rating organization and have a combined capital and surplus of at
least $50,000,000. No resignation or removal of an Issuer Trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee shall be a party, or any entity succeeding to all or substantially all
the corporate trust business of such Issuer Trustee, shall be the successor of
such Issuer Trustee under the Trust Agreement, provided such entity shall be
otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except as
described below or as otherwise set forth in the Trust Agreement. The Trust may,
at the request of the holders of the Common Securities and with the consent of
the holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities, merge with or into, consolidate, amalgamate, or
be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of any
State, so long as (i) such successor entity either (a) expressly assumes all of
the obligations of the Trust with respect to the Capital Securities or (b)
substitutes for the Capital Securities other securities having substantially the
same terms as the Capital Securities (the "Successor Securities") so long as the
Successor Securities have the same priority as the Capital Securities with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) a trustee of such successor entity, possessing the same powers
and duties as the Property Trustee, is appointed to hold the Junior Subordinated
Debentures, (iii) such merger, consolidation, amalgamation, replacement,
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conveyance, transfer or lease does not cause the Capital Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities (including
any Successor Securities) in any material respect, (v) such successor entity has
a purpose substantially identical to that of the Trust, (vi) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
the Trust has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect, and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust nor such successor entity will be required
to register as an investment company under the Investment Company Act, and (vii)
the Company or any permitted successor or assignee owns all 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 Trust shall not, except
with the consent of holders of 100% in aggregate Liquidation Amount of the
Capital Securities, consolidate, amalgamate, merge with or into, or be replaced
by or convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust or the successor entity to be classified other than as a grantor trust for
United States Federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority in Liquidation Amount of the Common Securities and the Property
Trustee, without the consent of the holders of the Capital Securities (i) to
cure any ambiguity, correct or supplement any provisions in the Trust Agreement
that may be inconsistent with any other provision, or to make any other
provisions with respect to matters or questions arising under the Trust
Agreement, provided that any such amendment does not adversely affect in any
material respect the interests of any holders of Trust Securities, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as may be necessary to ensure that the Trust will be classified for United
States Federal income tax purposes as a grantor trust at all times that any
Trust Securities are outstanding or to ensure that the Trust will not be
required to register as an "investment company" under the Investment Company
Act. Any amendments to the Trust Agreement will become effective when notice of
such amendment is given to the holders of the Trust Securities. The Trust
Agreement may be amended by the holders of a majority of the Common Securities
and the Property Trustee with (i) the consent of holders representing not less
than a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, and (ii) receipt by the Issuer Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Issuer Trustees in accordance with such amendment will not affect the Trust's
not being taxable other than as a grantor trust for United States Federal income
tax purposes or the Trust's exemption from status as an "investment company"
under the Investment Company Act, except that without the consent of each holder
of Trust Securities affected thereby, the Trust Agreement may not be amended to
(x) 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 (y) restrict the right
of a holder of Trust Securities to institute suit for the enforcement of any
such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Trust, the
Property Trustee will not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or executing
any trust or power conferred on the Property Trustee with respect to the Junior
Subordinated Debentures, (ii) waive any past default that is waivable under
Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior Subordinated
Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Junior Subordinated Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the holders of a majority in aggregate
Liquidation Amount of the Capital Securities, except that, if a consent under
the Junior Subordinated Indenture would require the consent of each holder of
Junior Subordinated Debentures affected thereby, no such consent will be given
by the Property Trustee without the prior consent of each holder of the Capital
Securities. The Property Trustee may not revoke any action previously authorized
or approved by a vote of the holders of the Capital Securities. The Property
Trustee will notify each holder of Capital Securities of any notice of default
with respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Capital Securities, before taking any
of the foregoing actions, the Property Trustee
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will obtain an opinion of counsel experienced in such matters to the effect that
the Trust will not be taxable other than as a grantor trust for United States
Federal income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of such 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
to redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of the Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Capital Securities that are owned by the Company, the Issuer Trustees or any
affiliate of the Company or any Issuer Trustees, shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
BOOK ENTRY, DELIVERY AND FORM
The Exchange Capital Securities may be evidenced by a global Capital
Security certificate (collectively, the "Global Capital Securities") which will
be deposited with, or on behalf of, DTC and registered in the name of Cede & Co.
("Cede") as DTC's nominee. Except as set forth below, record ownership of the
Global Capital Security may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee.
A person may hold its interest in the Global Capital Security directly
through DTC if such person is a participant in DTC, or indirectly through
organizations that are participants in DTC ("Participants"). Transfers between
Participants will be effected in the ordinary way in accordance with DTC rules
and will be settled in same-day funds.
Persons who are not Participants may beneficially own interests in the
Global Capital Security held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is
the registered holder of the Global Capital Security, Cede for all purposes will
be considered the sole holder of the Global Capital Security. Except as provided
below, owners of beneficial interests in the Global Capital Security will not be
entitled to have certificates registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and
will not be considered holders thereof.
Payment of Distributions on, and the Redemption Price of, the Global
Capital Security will be made to Cede, the nominee for DTC, as the registered
holder of the Global Capital Security, by wire transfer of immediately available
funds on each Distribution Date or Redemption Date. Neither the Company nor the
Issuer Trustees (or any Administrator, securities registrar, paying agent or
exchange agent under the Trust Agreement) will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Capital Security, for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for the performance by DTC or its Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
The Company and the Trust have been informed by DTC that, with respect to
any payment of Distributions on, or the Redemption Price of, the Global Capital
Security, DTC's practice is to credit Participants' accounts on the payment date
therefor with payments in amounts proportionate to their respective beneficial
interests in the Capital Securities represented by the Global Capital Security,
as shown on the records of DTC (adjusted as necessary so that such payments are
made with respect to whole Capital Securities only), unless DTC has reason to
believe that it will not receive payment on such payment date. Payments by
Participants to owners of beneficial interests in Capital Securities represented
by the Global Capital Security held through such Participants will be the
responsibility of such Participants, as is the case with securities held for the
accounts of customers registered in "street name."
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Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Capital Securities represented by the Global
Capital Security to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest. Furthermore, the laws of some states require that certain persons take
physical delivery of securities in definitive form. Consequently, the ability to
transfer beneficial interests in the Global Capital Security to such persons may
be limited.
DTC has advised the Company and the Trust that it will take any action
permitted to be taken by a holder of Capital Securities only at the direction of
one or more Participants to whose account with DTC interests in the Global
Capital Security are credited and only in respect of the aggregate Liquidation
Amount of the Capital Securities represented by the Global Capital Security as
to which such Participant or Participants has or have given such direction.
DTC has advised the Company and the Trust as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the Initial Purchaser. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Capital Security among Participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. The Global Capital Security is
exchangeable for definitive Capital Securities in registered certificated form
if (i) DTC advises the Company and the Property Trustee in writing that it is no
longer willing or able to properly discharge its responsibilities with respect
to the Global Capital Security, and the Company is unable to locate a qualified
successor, (ii) the Trust at its option advises DTC in writing that it elects to
terminate the book-entry system through DTC or (iii) there shall occur and be
continuing an Event of Default. In all cases, certificated Capital Securities
delivered in exchange for any Global Capital Security or beneficial interests
therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of DTC (in accordance with its
customary procedures) and will bear the restrictive legend referenced in "Notice
to Investors," unless the Property Trustee (based upon an opinion of counsel)
determines otherwise in compliance with applicable law.
So long as DTC or its nominee is the registered holder of the Global
Capital Security, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Capital Securities represented by the Global
Capital Security for all purposes under the Trust Agreement. Except as provided
above, 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 such Capital Securities in
definitive form and will not be considered the owners or holders thereof under
the Trust Agreement.
EXPENSES AND TAXES
In the Trust Agreement, the Company, has agreed to pay all debts and other
obligations (other than with respect to the Capital Securities) and all costs
and expenses of the Trust (including costs and expenses relating to the
organization of the Trust, the fees and expenses of the Issuer Trustees and the
costs and expenses relating to the operation of the Trust) and to pay any and
all taxes and all costs and expenses with respect thereto (other than
withholding taxes) to which the Trust might become subject. The foregoing
obligations of the Company under the Trust Agreement are for the benefit of, and
shall be enforceable by, any person to whom any such debts, obligations,
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costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
the Company directly against the Company, and the Company has irrevocably waived
any right or remedy to require that any such Creditor take any action against
the Trust or any other person before proceeding against the Company. The Company
has also agreed in the Trust Agreement to execute such additional agreements as
may be necessary or desirable to give full effect to the foregoing.
RESTRICTIONS ON TRANSFER
The Old Capital Securities were, and the Exchange of Capital Securities
will be, issued and may be transferred only in blocks having a Liquidation
Amount of not less than $100,000 (100 Old Capital Securities or Exchange Capital
Securities, as the case may be). Any such transfer of Capital Securities in a
block having a Liquidation Amount of less than $100,000 shall be deemed to be
void and of no legal effect whatsoever. Any such transferee shall be deemed not
to be the holder of such Capital Securities for any purpose, including but not
limited to the receipt of Distributions on such Capital Securities, and such
transferee shall be deemed to have no interest whatsoever in such Capital
Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are not held by DTC, such payments will be made by
check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") initially will be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust company reasonably acceptable to the
Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required to register or cause to be registered
the transfer of the Capital Securities after the Capital Securities have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationships between The Chase Manhattan
Bank, the Property Trustee, and the Company, see "Description of Exchange
Debentures--Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Trust in such a way that the Trust
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act or taxable other than as a grantor trust for United
States Federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company
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for United States Federal income tax purposes. In this connection, the Property
Trustee and the holders of Common Securities are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Trust or
the Trust Agreement, that the Property Trustee and the holders of Common
Securities determine in their discretion to be necessary or desirable for such
purposes, as long as such action does not materially adversely affect the
interests of the holders of the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF EXCHANGE DEBENTURES
The Old Junior Subordinated Debentures were issued, and the Exchange
Debentures will be issued under the Junior Subordinated Indenture. This summary
of certain terms and provisions of the Junior Subordinated Debentures and the
Junior Subordinated Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Junior Subordinated Indenture, including the definitions therein of certain
terms. Whenever particular defined terms of the Junior Subordinated Indenture
(as amended or supplemented from time to time) are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of Junior
Subordinated Indenture is available from the Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Capital Securities, the Trust
invested the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in Old Junior Subordinated Debentures issued
by the Company. Pursuant to the Exchange Offer, the Company will exchange the
Old Junior Subordinated Debenture in an amount corresponding to the Old Capital
Securities accepted for exchange, for a like principal amount of Exchange
Debentures. The Exchange Debentures will bear interest at the annual rate of
9.15% of the principal amount thereof, payable semi-annually in arrears on the
1st day of April and October of each year (each, an "Interest Payment Date"),
commencing October 1, 1998, to the person in whose name each Exchange Junior
Subordinated Debenture is registered at the close of business on March 15 or
September 15 (whether or not a Business Day) next preceding such Interest
Payment Date. It is anticipated that, until the liquidation of the Trust, each
Exchange Junior Subordinated Debenture will be registered in the name of the
Trust and held by the Property Trustee in trust for the benefit of the holders
of the Trust Securities. The amount of interest payable for any period less than
a full year will be computed on the basis of a 360-day year of twelve 30-day
months and the actual days elapsed in a partial month in such period. The amount
of interest payable for any full interest period will be computed by dividing
the rate per annum by two. If any date on which interest is payable on the
Exchange Debentures is not a Business Day, then payment of the interest payable
on such date will be made on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any such delay), with the
same force and effect as if made on the date such payment was originally
payable. Accrued interest that is not paid on the applicable Interest Payment
Date will bear additional interest on the amount thereof (to the extent
permitted by law) at a rate equal to 9.15% per annum, compounded semi-annually
and computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by two. The term "interest" as used herein includes semi-annual
interest payments, interest on semi-annual interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Exchange Debentures will mature on April 1, 2028.
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The Exchange Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Indebtedness of the Company. The
Exchange Debentures will not be subject to a sinking fund and will not be
eligible as collateral for any loan made by the Company. The Junior Subordinated
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt by the Company, including Senior Indebtedness, whether under the
Junior Subordinated Indenture or any existing or other indenture or agreement
that the Company may enter into in the future or otherwise. See
"--Subordination." As used herein, "Junior Subordinated Debentures" includes the
Exchange Debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 10 consecutive semi-annual periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. At the end of such Extension
Period, the Company must pay all interest then accrued and unpaid (together with
interest thereon at a rate equal to 9.15% per annum, compounded semi-annually
and computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period, to the extent permitted
by applicable law). The amount of additional interest payable for any full
interest period will be computed by dividing the rate per annum by two. During
an Extension Period, interest will continue to accrue and holders of Junior
Subordinated Debentures (or holders of Capital Securities while outstanding)
will be required to accrue original issue discount income for United States
Federal income tax purposes. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or shareholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any shareholder's rights plan, or the issuance of rights, stock
or other property under any shareholder rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks PARI PASSU with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period subject to the above conditions. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company must give the Issuer Trustees notice of its election of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the Distributions on the Capital Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee will give
notice of the Company's election to begin a new Extension Period to the holders
of the Capital Securities. There is no limitation on the number of times that
the Company may elect to begin an Extension Period.
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REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after April 1, 2008, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Exchange Capital Securities--Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Trust to redeem the Capital Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company prior
to their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve. The redemption of the
Junior Subordinated Debentures also could be subject to the additional prior
approval of the Federal Reserve.
The Redemption Price for Junior Subordinated Debentures in the case of a
redemption under (i) above shall equal the following prices, expressed in
percentages of the principal amount, together with accrued interest to but
excluding the date fixed for redemption. If redeemed during the 12-month period
beginning April 1:
REDEMPTION
YEAR PRICE
- ---- ----------
2008........................................................... 104.58%
2009........................................................... 104.12
2010........................................................... 103.66
2011........................................................... 103.20
2012........................................................... 102.75
2013........................................................... 102.29
2014........................................................... 101.83
2015........................................................... 101.37
2016........................................................... 100.92
2017........................................................... 100.46
and at 100% on or after April 1, 2018.
The Redemption Price in the case of a redemption on or after April 1, 2008
following a Tax Event, Investment Company Event or Capital Treatment Event shall
equal the Redemption Price then applicable to a redemption under (i) above. The
Redemption Price for Junior Subordinated Debentures, in the case of a redemption
prior to April 1, 2008 following a Tax Event, Investment Company Event or
Capital Treatment Event as described under (ii) above, will equal the Make-Whole
Amount (as defined under "Description of Exchange Capital
Securities--Redemption"), together with accrued interest to but excluding the
date fixed for redemption.
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Trust is the holder of all Junior Subordinated
Debentures and (ii) the Trust is required to pay any additional taxes, duties or
other governmental charges as a result of a Tax Event, the Company will pay as
additional sums on the Junior Subordinated Debentures such amounts as may be
required so that the Distributions payable by the Trust will not be
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reduced as a result of any such additional taxes, duties or other governmental
charges. See "Description of Exchange Capital Securities--Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Exchange Debentures will initially be registered in the name of the
Trust. If the Exchange Debentures are distributed to holders of Capital
Securities, it is anticipated that the depository arrangements for the Junior
Subordinated Debentures will be substantially identical to those in effect for
the Capital Securities. See "Description of Exchange Capital Securities--Book
Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depository and a successor depository is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Exchange Debentures to be issued in definitive form.
Payments on Exchange Debentures represented by a global security will be
made to Cede, the nominee for DTC, as the registered holder of the Exchange
Debentures, as described under "Description of Exchange Capital Securities--Book
Entry, Delivery and Form." If Exchange Debentures are issued in certificated
form, principal and interest will be payable, the transfer of the Exchange
Debentures will be registrable and Exchange Debentures will be exchangeable for
Exchange Debentures of other authorized denominations of a like aggregate
principal amount, at the corporate trust office of the Debenture Trustee in New
York, New York or at the offices of any Paying Agent or transfer agent appointed
by the Company, provided that payment of interest may be made at the option of
the Company by check mailed to the address of the persons entitled thereto.
However, a holder of $1 million or more in aggregate principal amount of
Exchange Debentures may receive payments of interest (other than interest
payable at the Stated Maturity) by wire transfer of immediately available funds
upon written request to the Debenture Trustee not later than 15 calendar days
prior to the date on which the interest is payable.
The Exchange Debentures will be issuable only in registered form without
coupons in integral multiples of $1,000. The minimum purchase requirement will
be $100,000 (100 Capital Securities). Exchange Debentures will be exchangeable
for other Exchange Debentures of like tenor, of any authorized denominations,
and of a like aggregate principal amount.
Exchange Debentures may be presented for exchange as provided above, and
may be presented for registration of transfer (with the form of transfer
endorsed thereon, or a satisfactory written instrument of transfer, duly
executed), at the office of the securities registrar appointed under the Junior
Subordinated Indenture or at the office of any transfer agent designated by the
Company for such purpose without service charge and upon payment of any taxes
and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Exchange Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Exchange Debentures during a period beginning at the opening of business 15 days
before the day of selection for redemption of the Exchange Debentures to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption or (ii) to register the transfer or exchange of
any Exchange Debentures so selected for redemption, except, in the case of any
Exchange Debentures being redeemed in part, any portion thereof not to be
redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Exchange Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall, at the request of the Company, be repaid to the Company
and the holder of such Exchange Debenture shall thereafter look, as a general
unsecured creditor, only to the Company for payment thereof.
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RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or shareholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any shareholder rights plan, or the
issuance of rights, stock or other property under any shareholder rights plan,
or the redemption or repurchase of rights pursuant thereto, or (e) any dividend
in the form of stock, warrants, options or other rights where the dividend stock
or the stock issuable upon exercise of such warrants, options or other rights is
the same stock as that on which the dividend is being paid or ranks PARI PASSU
with or junior to such stock), if at such time (x) there has occurred any event
(1) of which the Company has actual knowledge that with the giving of notice or
the lapse of time, or both, would constitute a Debenture Event of Default and
(2) that the Company has not taken reasonable steps to cure, (y) if the Junior
Subordinated Debentures are held by the Trust, the Company is in default with
respect to its payment of any obligations under the Guarantee or (z) the Company
has given notice of its election of an Extension Period as provided in the
Junior Subordinated Indenture and has not rescinded such notice, or such
Extension Period, or any extension thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
dissolve, windup or liquidate the Trust, other than (a) in connection with a
distribution of Junior Subordinated Debentures to the holders of the Capital
Securities in liquidation of the Trust or (b) in connection with certain
mergers, consolidations or amalgamations permitted by the Trust Agreement and
(iii) to use its reasonable efforts, consistent with the terms and provisions of
the Trust Agreement, to cause the Trust to continue not to be taxable other than
as a grantor trust for United States Federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to: (i) evidence succession of another corporation or association to the Company
and the assumption by such person of the obligations of the Company under the
Junior Subordinated Debentures; (ii) add further covenants, restrictions or
conditions for the protection of holders of the Junior Subordinated Debentures;
(iii) cure ambiguities or correct the Junior Subordinated Debentures in the case
of defects or inconsistencies in the provisions thereof, so long as any such
cure or correction does not adversely affect the interest of the holders of the
Junior Subordinated Debentures in any material respect; (iv) change the terms of
the Junior Subordinated Debentures to facilitate the issuance of the Junior
Subordinated Debentures in certificated or other definitive form; (v) evidence
or provide for the appointment of a successor Debenture Trustee; (vi) qualify,
or maintain the qualification of, the Junior Subordinated Indentures under the
Trust Indenture Act; (vii) convey, transfer, assign, mortgage or pledge any
property to or with the Debenture Trustee or to surrender any right or power
conferred on the Company in the Junior Subordinated Indenture; (viii) establish
the form or terms of Junior Subordinated Debentures; or (ix) change or eliminate
any provision of the Junior Subordinated Indenture, so long as at the time of
such change there are no outstanding Junior Subordinated Debentures entitled to
the benefit of such provision or such change does not apply to then outstanding
Junior Subordinated Debentures. The Junior Subordinated Indenture contains
provisions
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permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the principal of, or any installment of interest on, Junior
Subordinated Debentures, or reduce the principal amount thereof, the rate of
interest thereon or any premium payable upon the redemption thereof, or change
the place of payment where, or the currency in which, any such amount is payable
or impair the right to institute suit for the enforcement of any Junior
Subordinated Debenture or (ii) reduce the percentage of principal amount of
Junior Subordinated Debentures, the holders of which are required to consent to
any such modification of the Junior Subordinated Indenture. Furthermore, so long
as any of the Capital Securities remain outstanding, no such modification may be
made that adversely affects the holders of such Capital Securities in any
material respect, and no termination of the Junior Subordinated Indenture may
occur, and no waiver of any Debenture Event of Default or compliance with any
covenant under the Junior Subordinated Indenture may be effective, without the
prior consent of the holders of at least a majority of the aggregate Liquidation
Amount of the outstanding Capital Securities unless and until the principal of
(and premium, if any, on) the Junior Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other conditions are
satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated
Debentures when due and payable, and continuance of such default for
a period of 30 days (subject to the deferral of any due date in the
case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at maturity, upon
redemption, by declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect
certain other covenants contained in the Junior Subordinated
Indenture for 90 days after written notice to the Company from the
Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of the outstanding Junior Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization
of the Company.
For purposes of the Trust Agreement and this Prospectus, each such Event
of Default under the Junior Subordinated Debenture is referred to as a
"Debenture Event of Default." As described in "Description of Exchange Capital
Securities--Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Capital Securities shall
have such right. The holders of a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures may annul such declaration and waive
the default if all defaults (other than the non-payment of the principal of
Junior Subordinated Debentures which has become due solely by such acceleration)
have been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee. Should the holders of Junior Subordinated Debentures
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fail to annul such declaration and waive such default, the holders of a majority
in aggregate Liquidation Amount of the outstanding Capital Securities shall have
such right. The holders of at least a majority in aggregate principal amount of
the outstanding Junior Subordinated Debentures affected thereby may, on behalf
of the holders of all the Junior Subordinated Debentures, waive any past
default, except a default in the payment of principal (or premium, if any) or
interest (unless such default has been cured or waived and a sum sufficient to
pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Junior Subordinated Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Junior Subordinated Debenture affected thereby. See "--Modification
of Junior Subordinated Indenture." The Company is required to file annually with
the Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby, and the holders of
a majority in aggregate Liquidation Amount of the Capital Securities issued by
the Trust, may, on behalf of the holders of all the Junior Subordinated
Debentures, waive any past default, except a default in the payment of principal
(or premium, if any) or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interests and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Junior
Subordinated Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture affected thereby. See
"--Modification of Junior Subordinated Indenture." The Company is required to
file annually with the Debenture Trustee a certificate as to whether or not the
Company is in compliance with all the conditions and covenants applicable to it
under the Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to such
holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder (a "Direct
Action"). The Company may not amend the Junior Subordinated Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all the Capital Securities. The Company will have the right
under the Junior Subordinated Indenture to set-off any payment made to such
holder of Capital Securities by the Company in connection with a Direct Action.
With certain exceptions, the holders of the Capital Securities would not
be able to exercise directly any remedies available to the holders of the Junior
Subordinated Debentures except under the circumstances described in the
preceding paragraph. See "Description of Exchange Capital Securities--Events of
Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of
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time or both, would constitute a Debenture Event of Default, has occurred and is
continuing; and (iii) certain other conditions as prescribed in the Junior
Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable or (ii) will become due
and payable at the 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 sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity, as the case may be, then
the Junior Subordinated Indenture will cease to be of further effect (except as
to the Company's obligations to pay all other sums due pursuant to the Junior
Subordinated Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied and
discharged the Junior Subordinated Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If the Company defaults
in the payment of any principal, premium, if any, or interest, if any, or any
other amount payable on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by setoff or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all or
a portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person the payment of which the Company has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise; without limiting the generality of the foregoing. "Senior
Indebtedness" shall not include (i) any obligations which, by their terms, are
expressly stated to rank PARI PASSU in right of payment with, or to not be
superior in right of payment to, the Junior Subordinated Debentures, (ii) any
Senior Indebtedness of the Company which when incurred and without respect to
any election under Section 111 1(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company, (iii) any Senior
Indebtedness of the Company to any of its subsidiaries, (iv) Senior Indebtedness
to any executive officer or director of the Company, or (v) any indebtedness in
respect of debt securities issued to any trust, or a trustee of such trust,
partnership or other entity affiliated with the Company that is a financing
entity of the Company in connection with the issuance of such financing entity
of securities that are similar to the Capital Securities.
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In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshaling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a default by the Company in performance of its obligations under the Junior
Subordinated Indenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
The Chase Manhattan Bank, the Debenture Trustee, may serve from time to
time as trustee under other indentures or trust agreements with the Company or
its subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
The Chase Manhattan Bank and its affiliates.
RESTRICTIONS ON TRANSFER
The Junior Subordinated Debentures will be issued, and may be transferred
only, in blocks having an aggregate principal amount of not less than $100,000
(100 Junior Subordinated Debentures). Any such transfer of
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Junior Subordinated Debentures in a block having an aggregate principal amount
of less than $100,000 shall be deemed to be void and of no legal effect
whatsoever. Any such transferee shall be deemed not to be the holder of such
Junior Subordinated Debentures for any purpose, including but not limited to the
receipt of payments on such Junior Subordinated Debentures, and such transferee
shall be deemed to have no interest whatsoever in such Junior Subordinated
Debentures.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
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DESCRIPTION OF GUARANTEE
The Guarantee was executed and delivered by the Company concurrently with
the issuance of the Old Capital Securities for the benefit of the holders from
time to time of the Old Capital Securities. The Guarantee also provides a
Guarantee as herein described for the benefit of the holders from time to time
of the Exchange Capital Securities. The Chase Manhattan Bank acts as Guarantee
Trustee under the Guarantee. This summary of certain provisions of the Guarantee
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all of the provisions of the Guarantee, including the
definitions therein of certain terms. A copy of the Guarantee is available upon
request from the Guarantee Trustee. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Exchange Capital Securities.
GENERAL
The Company has irrevocably agreed to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Exchange Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Exchange Capital Securities, to the extent not paid by or on behalf of the Trust
(the "Guarantee Payments"), are subject to the Guarantee: (i) any accrued and
unpaid Distributions required to be paid on such Capital Securities, to the
extent that the Trust has funds on hand available therefor at such time; (ii)
the Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Trust has funds on hand available therefor at
such time; and (iii) upon a voluntary or involuntary termination, dissolution,
winding up or liquidation of the Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital Securities), the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Trust has funds on
hand available therefor at such time and (b) the amount of assets of the Trust
remaining available for distribution to holders of the Capital Securities on
liquidation of the Trust. The Company's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Company to the
holders of the Exchange Capital Securities or by causing the Trust to pay such
amounts to such holders.
The Guarantee is an irrevocable guarantee on a subordinated basis of the
Trust's obligations under the Exchange Capital Securities, but will apply only
to the extent that the Trust has funds sufficient to make such payments, and is
not a guarantee of collection.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Trust, the Trust will not be able to pay any amounts in
respect of the Capital Securities and will not have funds legally available
therefor. The Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness of the Company. See "--Status of the Guarantee." The
Guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, including Senior Indebtedness, whether under the
Junior Subordinated Indenture, any other indenture that the Company may enter
into in the future or otherwise.
The Company has, through the Guarantee, the Exchange Trust Agreement, the
Exchange Debentures, the Junior Subordinated Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed all
the Trust's obligations under the Exchange 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 Trust's obligations under the Exchange Capital
Securities. See "Relationship Among the Exchange Capital Securities, the
Exchange Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of the Company and ranks
subordinate and junior in right of payment to all liabilities of the Company in
the same manner as the Exchange Debentures.
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The Guarantee constitutes a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Exchange Capital Securities. The Guarantee will not be discharged except
by payment of the Guarantee Payments in full to the extent not paid by the Trust
or upon distribution to the holders of the Exchange Capital Securities or the
Exchange Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Exchange Capital Securities (in which case
no vote will be required), the Guarantee may not be amended without the prior
approval of the holders of not less than a majority of the aggregate Liquidation
Amount of the Exchange Capital Securities. The manner of obtaining any such
approval will be as set forth under "Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement." All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Exchange Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the Exchange Capital Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct the exercise
of any trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any registered holder of Exchange 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 Trust, the
Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Exchange Capital Securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby. For information concerning the relationship
between The Chase Manhattan Bank, the Guarantee Trustee, and the Company, see
"Description of Exchange Debentures--Information Concerning the Debenture
Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Exchange Capital Securities, upon
full payment of the amounts payable with respect to the Exchange Capital
Securities upon liquidation of the Trust or upon distribution of Exchange
Debentures to the holders of the Exchange Capital Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the Exchange Capital Securities must restore payment of any
sums paid under the Exchange Capital Securities or the Guarantee.
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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 THE EXCHANGE CAPITAL SECURITIES,
THE EXCHANGE DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Exchange Capital
Securities (to the extent the Trust has funds available for such payment) are
irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee." Taken together, the Company's obligations under the
Exchange Debentures, the Junior Subordinated Indenture, the Exchange Trust
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Exchange Capital Securities. No single document standing alone or operating
in conjunction with fewer than all the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Exchange Capital Securities. If and to the extent
that the Company does not make payments on the Exchange Debentures, the Trust
will not have sufficient funds to pay Distributions or other amounts due on the
Exchange Capital Securities. The Guarantee does not cover payment of amounts
payable with respect to the Capital Securities when the Trust does not have
sufficient funds to pay such amounts. In such event, the remedy of a holder of
the Exchange Capital Securities is to institute a legal proceeding directly
against the Company for enforcement of payment of the Company's obligations
under Exchange Debentures having a principal amount equal to the Liquidation
Amount of the Exchange Capital Securities held by such holder.
The obligations of the Company under the Exchange Debentures and the
Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Exchange Debentures, such
payments will be sufficient to cover Distributions and other payments
distributable on the Exchange Capital Securities, primarily because: (i) the
aggregate principal amount of the Exchange Debentures will be equal to the sum
of the aggregate stated Liquidation Amount of the Exchange Capital Securities
and Common Securities; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Trust Securities; (iii) the
Company will pay for all and any costs, expenses and liabilities of the Trust
except the Trust's obligations to holders of the Trust Securities; and (iv) the
Trust Agreement further provides that the Trust will not engage in any activity
that is not consistent with the limited purposes of the Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES
A holder of any Exchange 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 Trust or
any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default in respect of the Exchange Capital
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness, the subordination provisions of the Junior Subordinated
Indenture provide that no payments may be made in respect of the Exchange
Debentures until such Senior Indebtedness has been paid in full or any payment
default thereunder has been cured or waived. See "Description of Exchange
Debentures--Subordination."
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LIMITED PURPOSE OF TRUST
The Exchange Capital Securities evidence preferred undivided beneficial
interests in the assets of the Trust, and the Trust exists for the sole purpose
of issuing the Trust Securities and investing the proceeds thereof in Junior
Subordinated Debentures. A principal difference between the rights of a holder
of a Capital Security and a holder of a Junior Subordinated Debenture is that a
holder of a Junior Subordinated Debenture is entitled to receive from the
Company payments on Junior Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions or other amounts
distributable with respect to the Capital Securities from the Trust (or from the
Company under the Guarantee only) if and to the extent the Trust has funds
available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution involving the distribution
of the Junior Subordinated Debentures, after satisfaction of liabilities to
creditors of the Trust as required by applicable law, the holders of the
Exchange Capital Securities will be entitled to receive, out of assets held by
the Trust, the Liquidation Distribution in cash. See "Description of Exchange
Capital Securities--Liquidation Distribution Upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the Trust, as
registered holder of the Junior Subordinated Debentures, would be a subordinated
creditor of the Company, subordinated and junior in right of payment to all
Senior Indebtedness as set forth in the Junior Subordinated Indenture, but
entitled to receive payment in full of all amounts payable with respect to the
Junior Subordinated Debentures before any shareholders of the Company receive
payments or distributions. Since the Company is the guarantor under the
Guarantee and has agreed under the Junior Subordinated Indenture to pay for all
costs, expenses and liabilities of the Trust (other than the Trust's obligations
to the holders of its Trust Securities), the positions of a holder of the
Exchange Capital Securities and a holder of such Exchange 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the principal United States Federal income
tax consequences of the Exchange Offer and the purchase, ownership and
disposition of Capital Securities to the beneficial owners of Capital Securities
(the "Securityholders"). The statements of law and legal conclusions set forth
in this summary regarding the tax consequences to the Securityholders represent
the opinion of Hunton & Williams, counsel to the Company. This summary does not
address all tax consequences that may be applicable to a Securityholder, nor
does it address the tax consequences to (i) persons that may be subject to
special treatment under United States Federal tax law, such as banks, insurance
companies, thrift institutions, regulated investment companies, real estate
investment trusts, tax-exempt organizations and dealers in securities or
currencies, (ii) persons that will hold Capital Securities as part of a position
in a "straddle" or as part of a "hedging," "conversion" or other integrated
investment transaction for Federal income tax purposes, (iii) except with
respect to the discussion under the caption "United States Alien
Securityholders," persons whose functional currency is not the United States
dollar or (iv) persons that do not hold Capital Securities as capital assets.
This summary is based upon the Code, Treasury Regulations, IRS rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of Capital
Securities. In addition, the authorities on which this summary is based
(including authorities distinguishing debt from equity) are subject to various
interpretations, and it is therefore possible that the Federal income tax
treatment of the Capital Securities may differ from the treatment described
below. No ruling has been received from the IRS regarding the tax consequences
of the Capital Securities. Counsel's opinion regarding such tax consequences
represents only counsel's best legal judgment based on current authorities and
is not binding on the IRS or the courts.
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INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN LIGHT OF
THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES OF THE
EXCHANGE OFFER AND THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL
SECURITIES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are intended to be, in the opinion of
Hunton & Williams should be, and the Company intends to take the position that
the Junior Subordinated Debentures will be, classified for United States federal
income tax purposes as indebtedness under current law. No assurance can be
given, however, the IRS will not challenge that position. According to a
petition recently filed in the United States Tax Court by a corporation
unrelated to the Company and the Trust, the IRS has challenged the status as
indebtedness, for United States federal income tax purposes, of certain
purported debt instruments held by entities intended to be taxable as
partnerships for United States federal income tax purposes, where those
entities, in turn, issued preferred securities to investors. Although the
overall structure of the financing arrangement involved in that case is somewhat
similar to the financing structure for the Junior Subordinated Debentures and
the Trust, the relevant facts involved in that case appear to differ
significantly from those relating to the Junior Subordinated Debentures and the
Trust. The remainder of this summary assumes that the Junior Subordinated
Debentures will be classified as indebtedness for United States federal income
tax purposes.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Old Capital Securities for Exchange Capital Securities
will not be a taxable event to Securityholders for United States federal income
tax purposes. Accordingly, the Exchange Capital Securities will have the same
issue price as the Old Capital Securities, and a Securityholder will have the
same adjusted tax basis and holding period for Exchange Capital Securities as
the holder had for Old Capital Securities immediately before the exchange.
CLASSIFICATION OF THE TRUST
In the opinion of Hunton & Williams, under current law and assuming
compliance with the terms of the Trust Agreement, the Trust will be classified
as a grantor trust and not as an association taxable as a corporation for United
States Federal income tax purposes. As a result, each Securityholder will be
treated as owning an undivided beneficial interest in the Junior Subordinated
Debentures. Accordingly, each Securityholder will be required to include in its
gross income its PRO RATA share of the interest income, including any original
issue discount, and any other income received or accrued with respect to the
Junior Subordinated Debentures whether or not cash is actually distributed to
the Securityholders. See "--Interest Income and Original Issue Discount." No
amount included in income with respect to the Capital Securities will be
eligible for the dividends received deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations applicable to debt instruments issued after
August 12, 1996 (the "Regulations"), a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with original issue discount ("OID"). The Company believes that the
likelihood of its exercising its option to defer payments of interest on the
Junior Subordinated Debentures is remote. Based on the foregoing, in the opinion
of Hunton & Williams, the Junior Subordinated Debentures are not to be
considered issued with OID at the time of their original issuance and,
accordingly, a Securityholder should include in gross income such
Securityholder's allocable share of interest on the Junior Subordinated
Debentures (other than an amount of the first interest payment attributable to
pre-issuance accrued interest, which a Securityholder may treat as a reduction
of the issue price of the Junior Subordinated Debentures rather than as gross
income) in accordance with such Securityholder's method of tax accounting.
Under the Regulations, if the Company should actually exercise its option
to defer any payment of interest, the Junior Subordinated Debentures would at
that time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID so long as the Junior
Subordinated Debentures
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remained outstanding. In such event, all of a Securityholder's taxable interest
income with respect to the Junior Subordinated Debentures would be accounted for
as OID on an economic accrual basis regardless of such Securityholder's method
of tax accounting, and actual payments of stated interest would not be reported
as taxable income. Consequently, a Securityholder would be required to include
in gross income OID even though the Company would not make any cash payments
during an Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation herein.
MARKET DISCOUNT AND AMORTIZABLE PREMIUM
A secondary market purchaser of Capital Securities at a discount from the
principal amount (or, if the Junior Subordinated Debentures are deemed to be
issued with OID, the issue price plus accrued but unpaid OID) of the PRO RATA
share of Junior Subordinated Debentures represented by the Capital Securities
acquires such Capital Securities with "market discount" if the discount is not
less than the product of (i) 0.25% of the principal amount (or, if the Junior
Subordinated Debentures are deemed to be issued with OID, the issue price plus
accrued but unpaid OID) multiplied by (ii) the number of complete years to
maturity of the Junior Subordinated Debentures after the date of purchase. A
purchaser of Capital Securities with market discount generally will be required
to treat any gain on the sale, redemption or other disposition of all or part of
such Capital Securities as ordinary income to the extent of accrued (but not
previously taxable) market discount. Market discount generally will accrue
ratably during the period from the date of purchase to the maturity date, unless
the Securityholder elects to accrue such market discount on the basis of a
constant interest rate. A Securityholder who acquires Capital Securities at a
market discount may be required to defer some interest deductions attributable
to any indebtedness incurred or continued to purchase or carry the Capital
Securities.
A secondary market purchaser of Capital Securities at a premium over the
stated principal amount of the PRO RATA share of Junior Subordinated Debentures
(plus accrued interest) generally may elect to amortize such premium ("Section
171 premium"), under a constant yield method, as an offset to interest income on
the Junior Subordinated Debentures. If the Junior Subordinated Debentures are
deemed to be issued with OID and Capital Securities are acquired at a premium,
the premium will not be Section 171 premium but will be amortized as a reduction
in the amount of OID includable in the Securityholder's income.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL SECURITIES
Except as noted below, under current law, a distribution by the Trust of
the Junior Subordinated Debentures as described under the caption "Description
of Exchange Capital Securities--Liquidation Distribution Upon Dissolution" would
be a non-taxable event to Securityholders for United States Federal income tax
purposes; such a distribution would result in a Securityholder receiving
directly its PRO RATA share of the Junior Subordinated Debentures previously
held indirectly through the Trust, with a holding period and aggregate tax basis
equal to the holding period and aggregate tax basis such Securityholder had in
its Capital Securities before such distribution; and a Securityholder would
account for interest, market discount and amortizable premium in respect of
Junior Subordinated Debentures received from the Trust as described above under
"--Interest Income and Original Issue Discount" and "--Market Discount and
Amortizable Premium." If, however, the Junior Subordinated Debentures were
distributed in connection with a Tax Event that would cause the Trust to be
subject to United States Federal income tax with respect to income received or
accrued on the Junior Subordinated Debentures, the distribution likely would be
a taxable event to Securityholders. In that case, Securityholders would
recognize gain or loss equal to the difference between their adjusted bases in
their Capital Securities and the fair market value of the Junior Subordinated
Debentures distributed to the Securityholders, and they would obtain new holding
periods and fair market value bases for such Junior Subordinated Debentures.
SALES OR REDEMPTION OF CAPITAL SECURITIES
Upon a sale (including redemption) of Capital Securities, a Securityholder
will recognize gain or loss equal to the difference between its adjusted tax
basis in the Capital Securities and the amount realized on the sale of such
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Capital Securities (excluding any amount attributable to any accrued interest
with respect to such Securityholder's PRO RATA share of the Junior Subordinated
Debentures not previously included in income, which will be taxable as ordinary
income). Provided that the Company does not exercise its option to defer payment
of interest on the Junior Subordinated Debentures and the Capital Securities are
not considered to be issued with OID, a Securityholder's adjusted tax basis in
the Capital Securities generally will be the Securityholder's purchase price,
increased by any market discount included in income and reduced by any amortized
Section 171 premium for such Capital Securities. If the Junior Subordinated
Debentures are deemed to be issued with OID as a result of the Company's
deferral of any interest payment, a Securityholder's tax basis in the Capital
Securities generally will be increased by OID previously includable in such
Securityholder's gross income to the date of disposition and decreased by
distributions or other payments received on the Capital Securities since and
including the commencement date of the first Extension Period. Such gain or
loss, except to the extent of any accrued market discount, generally will be a
capital gain or loss, and generally will be a long-term capital gain or loss if
the Capital Securities have been held for more than one year.
Should the Company exercise its option to defer any payment of interest on
the Junior Subordinated Debentures, the Capital Securities may trade at a price
that does not accurately reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. As a result, and
because a Securityholder will be required to include in income accrued but
unpaid interest on Junior Subordinated Debentures and to add such amount to its
adjusted tax basis, such Securityholder may recognize a capital loss on a sale
of Capital Securities during an Extension Period. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States Federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid and any OID accrued on the Junior Subordinated
Debentures to Securityholders (other than corporations and other exempt
Securityholders) will be reported to the IRS. It is expected that such income
will be reported to Securityholders on Form 1099 and mailed to Securityholders
by January 31 following each calendar year. "Backup" withholding at a rate of
31% will apply to payments of interest and payments of disposition (including
redemption) proceeds to a non-exempt Securityholder unless the Securityholder
furnishes to the payor its taxpayer identification number, certifies that such
number is correct, and meets certain other conditions. Any amounts withheld from
a Securityholder under the backup withholding rules will be allowable as a
refund or a credit against such Securityholder's United States Federal income
tax liability.
UNITED STATES ALIEN SECURITYHOLDERS
For purposes of this discussion, a United States Alien Securityholder is
any corporation, individual, partnership, estate or trust that for United States
Federal income tax purposes is a foreign corporation, nonresident alien
individual, a foreign partnership, a foreign estate or foreign trust. This
discussion assumes that income with respect to the Capital Securities is not
effectively connected with a trade or business in the United States in which the
United States Alien Securityholder is engaged.
Under current United States Federal income tax law:
(i) payments by the Trust or any of its paying agents to any
holder of Capital Securities that is a United States Alien
Securityholder generally will not be subject to withholding or other
United States Federal income tax, provided that, in the case of
payments with respect to interest (including OID), (a) the
beneficial owner of the Capital Securities does not actually or
constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote, (b) the
beneficial owner of the Capital Securities is not a controlled
foreign corporation that is related to the Company through stock
ownership, and (c) either (A) the beneficial owner of theCapital
Securities certifies to the Trust or its agent, under penalties of
perjury, that it is a United States Alien Securityholder and
provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds
customers' securities in the
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<PAGE>
ordinary courses of its trade or business (a "Financial
Institution") and holds the Capital Securities in such capacity
certifies to the Trust or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or
by a Financial Institution between it and the beneficial owner and
furnishes the Trust or its agent with a copy thereof; and
(ii) a United States Alien Securityholder of Capital Securities
generally will not be subject to withholding or other United States
Federal income tax on any gain realized upon the sale or other
disposition of Capital Securities.
POSSIBLE TAX LAW CHANGES
In both 1996 and 1997, the Clinton Administration proposed to amend the
Code to deny deductions of interest on instruments with features similar to
those of the Junior Subordinated Debentures when issued under arrangements
similar to the Trust. That proposal was not passed by, and is not currently
pending before, Congress. There can be no assurance, however, that future
legislative proposals, future regulations or official administrative
pronouncements or future judicial decisions will not affect the ability of the
Company to deduct interest on the Junior Subordinated Debentures. Such a change
could give rise to a Tax Event, which may permit the Company, upon approval of
the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve, to cause a redemption of the Capital
Securities, as described more fully under "Description of Exchange Capital
Securities--Redemption."
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Exchange Capital Securities,
fiduciaries of pension, profit sharing or other employee benefit plans subject
to ERISA or Section 4975 of the Code ("Plans") should consider, among other
matters, (a) ERISA's fiduciary standards (including its prudence and
diversification requirements), (b) whether such fiduciaries have authority to
make such investment in the Exchange Capital Securities under the applicable
Plan investment policies and governing instruments, and (c) rules under ERISA
and the Code that prohibit Plan fiduciaries from causing a Plan to engage in a
"prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code from, among other things, engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as defined in Section
3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are
not subject to the requirements of ERISA or Section 4975 of the Code.
The Department of Labor (the "DOL") has issued a regulation (29 C.F.R.
2510.3-101) (the "Plan Assets Regulation") concerning the definition of what
constitutes the assets of a Plan. The Plan Assets Regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Trust would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interests in the Trust
were held by Plans, other employee benefit plans not subject to ERISA or Section
4975 of the Code (such as governmental, church and foreign plans), individual
retirement accounts, Keogh plans and entities holding assets deemed to be "plan
assets" of any Plan (collectively, "Benefit Plan Investors"). No assurance can
be given that the value of the Capital Securities held by Benefit Plan Investors
will be less than 25% of the total value of such Capital Securities at the
completion of the
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initial offering or thereafter, and no monitoring or other measures will be
taken with respect to the satisfaction of the conditions to this exception. All
the Common Securities will be purchased and held directly by the Company.
Under another exception contained in the Plan Assets Regulation, if the
New Capital Securities received as a result of an Exchange Offer were to qualify
as "publicly offered securities" under the Plan Assets Regulation, the assets of
the Trust would not be deemed to be "plan assets" by reason of a Plan's
acquisition or holding of such securities. The New Capital Securities would
qualify as "publicly offered securities" if, among other things, they are
offered pursuant to an effective registration statement, are owned by 100 or
more investors independent of the issuer and each other at the time of the
offering, and are subsequently registered under the Exchange Act. It is expected
that the 100 investor requirement will not be satisfied and that the New Capital
Securities will not be registered under the Exchange Act.
There can be no assurance that any of the exceptions set forth in the Plan
Assets Regulation will apply to the purchase of Capital Securities offered
hereby and, as a result, an investing Plan's assets could be considered to
include an undivided interest in the Junior Subordinated Debentures held by the
Trust. In the event that assets of the Trust are considered assets of an
investing Plan, the Trustees, the Company and/or other persons, in providing
services with respect to the Junior Subordinated Debentures, could be considered
fiduciaries to such Plan and subject to the fiduciary responsibility provisions
of Title I of ERISA. In addition, certain transactions involving the Trust
and/or the Capital Securities could be deemed to constitute direct or indirect
prohibited transactions under ERISA and Section 4975 of the Code with respect to
a Plan. For example, if the Company is a Party in Interest with respect to an
investing Plan (either directly or by reason of its ownership of the Bank or
other subsidiaries), extensions of credit between the Company and the Trust (as
represented by the Junior Subordinated Debentures and the Guarantee) would
likely be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B)
of the Code.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the Capital Securities, assuming that
assets of the Trust were deemed to be "plan assets" of Plans investing in the
Trust (see above). Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 95-60 (for
certain transactions involving insurance company general accounts), PTCE 90-1
(for certain transactions involving insurance company pooled separate accounts),
and PTCE 84-14 (for certain transactions determined by independent qualified
asset managers).
Because of ERISA's prohibitions and those of Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any other person investing "plan assets"
of any Plan, unless such purchase or holding is covered by the exemptive relief
provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. If a purchaser or holder of the Capital Securities that is a Plan or
a Plan Asset Entity elects to rely on an exemption other than PTCE 96-23, 95-60,
91-38, 90-1 or 84-14, the Company and the Trust may require a satisfactory
opinion of counsel or other evidence with respect to the availability of such
exemption for such purchase and holding. Any purchaser or holder of the Capital
Securities that is a Plan or a Plan Asset Entity or that is purchasing such
securities on behalf of or with "plan assets" will be deemed to have represented
by its purchase and holding thereof that (a) the purchase and holding of the
Capital Securities is covered by the exemptive relief provided by PTCE 96-23,
95-60, 91-38, 90-1 or 84-14 or another applicable exemption, (b) the Company and
the Administrators are not "fiduciaries," within the meaning of Section 3(21) of
ERISA and the regulations thereunder, with respect to such person's interest in
the Capital Securities or the Junior Subordinated Debentures, and (c) in
purchasing the Capital Securities, such person approves the purchase of the
Junior Subordinated Debentures and the appointment of the Issuer Trustees.
See "Notice to Investors" herein.
Any plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Capital Securities should
consult with their own counsel.
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975 of
the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions
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<PAGE>
similar to those under ERISA and the Code discussed above. Accordingly,
fiduciaries of governmental and church plans, in consultation with their
advisers, should consider the impact of their respective state laws on
investments in the Capital Securities and the considerations discussed above to
the extent applicable.
SUPERVISION, REGULATION AND OTHER MATTERS
The following information is not intended to be an exhaustive description
of the statutes and regulations applicable to the Company. The discussion is
qualified in its entirety by reference to all particular statutory or regulatory
provisions. Additional information regarding supervision and regulation is
included in the documents incorporated herein by reference. See "Available
Information."
The business of the Company is influenced by prevailing economic
conditions and governmental policies, both foreign and domestic. The actions and
policy directives of the Federal Reserve determine to a significant degree the
cost and the availability of funds obtained from money market sources for
lending and investing. The Federal Reserve's policies and regulations also
influence, directly and indirectly, the rates of interest paid by commercial
banks on their time and savings deposits. The nature and impact on the Company
of future changes in economic conditions and monetary and fiscal policies, both
foreign and domestic, are not predictable.
The Company is subject to supervision and examination by Federal bank
regulatory authorities. As a bank holding company regulated under the BHC Act,
the Company's primary bank regulatory authority is the Federal Reserve. Bank
holding companies are expected to serve as a source of strength to their
subsidiary banks under the Federal Reserve's regulations and policies. As a
National Banking Association, the Bank's primary Federal bank regulator is the
Comptroller of the Currency. As a Federal Savings Bank, Del Amo's primary
regulator is the Office of Thrift Supervision.
The Federal bank regulatory authorities have each adopted risk-based
capital guidelines to which the Company and the Bank are subject. These
guidelines are based on an international agreement developed by the Basle
Committee on Banking Regulations and Supervisory Practices, which consists of
representatives of central banks and supervisory authorities in 12 countries
including the United States of America. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations, takes off-balance
sheet exposures into explicit account in assessing capital adequacy and
minimizes disincentives to holding liquid, low-risk assets. Risk-based assets
are determined by allocating assets and specified off-balance sheet commitments
and exposures into four weighted categories, with higher levels of capital being
required for the categories perceived as representing greater risk.
The Bank is required to maintain a minimum total risk-based ratio of 8%,
of which half (4%) must be Tier 1 capital. In addition, the Federal bank
regulators established leverage ratio (Tier 1 capital to total adjusted average
assets) guidelines providing for a minimum leverage ratio of 3% for banks
meeting certain specified criteria, including excellent asset quality, high
liquidity, low interest rate exposure and the highest regulatory rating.
Institutions not meeting these criteria are expected to maintain a ratio which
exceeds the 3% minimum by at least 100 to 200 basis points. The Federal bank
regulatory authorities may, however, set higher capital requirements when a
bank's particular circumstances warrant.
From time to time, the Federal bank regulatory authorities, including the
Federal Reserve, propose amendments to and issue interpretations of their
risk-based capital guidelines and reporting instructions, which can affect
reported capital ratios and net risk-adjusted assets. Effective June 26, 1996,
the Federal Reserve, the Office of the Comptroller of the Currency and the
Federal Deposit Insurance Corporation ("FDIC") issued a joint policy statement
that provides guidance on sound practices for interest rate risk management and
describes critical factors affecting the agencies' evaluation of a bank's
interest rate risk when making a determination of capital adequacy.
The Federal banking agencies possess broad powers to take corrective
action as deemed appropriate for an insured depository institution and its
holding companies. The extent of these powers depends upon whether the
institution in question is considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Generally, as an institution is deemed to be less
well capitalized,
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<PAGE>
the scope and severity of the agencies' supervisory powers increase. The
agencies' corrective powers can include, among other things, requiring an
insured financial institution to adopt a capital restoration plan which cannot
be approved unless guaranteed by the institution's parent holding company;
placing limits on asset growth and restrictions on activities; placing
restrictions on transactions with affiliates; restricting the interest rates the
institution may pay on deposits; prohibiting the institution from accepting
deposits from correspondent banks; prohibiting the payment of principal or
interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval; and, ultimately,
appointing a receiver for the institution. Business activities may also be
influenced by an institution's capital classification. For instance, only a
"well capitalized" depository institution may accept brokered deposits without
prior regulatory approval, and only an "adequately capitalized" depository
institution may accept brokered deposits with prior regulatory approval. At June
30, 1998, the Bank exceeded the required capital ratios for classification as a
"well capitalized" bank.
The deposits of the Bank are insured by the FDIC and are subject to FDIC
insurance assessments. The amount of FDIC assessments paid by individual insured
depository institutions is based on their relative risk as measured by
regulatory capital ratios and certain other factors. Currently, the Bank is not
assessed any premiums for deposits insured by either the Bank Insurance Fund or
the Savings Association Insurance Fund. The Bank, however, continues to pay
premiums based on deposit levels to service debt on Financing Corporation bonds.
Under Federal law, a financial institution insured by the FDIC under
common ownership with a failed institution can be required to indemnify the FDIC
for its losses resulting from the insolvency of the failed institution, even if
such indemnification causes the affiliated institution also to become insolvent.
As a result, the Company could, under certain circumstances, be obligated for
the liabilities of its affiliates that are FDIC-insured institutions. In
addition, if any insured depository institution becomes insolvent and the FDIC
is appointed its conservator or receiver, the FDIC may disaffirm or repudiate
any contract or lease to which such institution is a party, the performance of
which is determined to be burdensome and the disaffirmance or repudiation of
which is determined to promote the orderly administration of the institution's
affairs. If Federal law were construed to permit the FDIC to apply these
provisions to debt obligations of an insured depository institution, the result
could be that such obligations would be prepaid without premium. Federal law
also accords the claims of a receiver of an insured depository institution for
administrative expenses and the claims of holders of deposit liabilities of such
an institution priority over the claims of general unsecured creditors of such
an institution in the event of a liquidation or other resolution of such
institution.
The BHC Act currently permits adequately capitalized and adequately
managed bank holding companies from any state to acquire banks and bank holding
companies located in any other state, subject to certain conditions. The Company
has the ability, subject to certain restrictions, including state opt-out
provisions, to acquire by acquisition or merger branches outside of its home
state. Competition may increase as banks branch across state lines and enter new
markets.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Capital Securities for its own
account in connection with the Exchange Officer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Capital
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by Participating Broker-Dealers during the period referred to
below in connection with resales of Exchange Capital Securities received in
exchange for Old Capital Securities if such Old Capital Securities were acquired
by such Participating Broker-Dealers for their own accounts as a result of
market-making activities or other trading activities. The Company and the Trust
have agreed that this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of such Exchange Capital Securities for a period ending 90 days after the
Expiration Date (subject to extension under certain limited circumstances
described herein) or, if earlier, when all such Exchange Capital Securities have
been disposed of by such Participating Broker-Dealer. However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of Exchange Capital Securities received in exchange for Old Capital Securities
pursuant to the Exchange Offer must notify the Company or the Trust, or cause
the Company or the Trust to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set
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forth herein under "The Exchange Offer--Exchange Agent." See "The Exchange
Offer--Resales of Exchange Capital Securities."
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. Exchange Capital
Securities received by broker-dealers for their own accounts in connection with
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commission or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Capital Securities.
Any broker-dealer that resells Exchange Capital Securities that were
received by it for its own account in connection with the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Capital
Securities may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Exchange Capital Securities
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a prospectus
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
VALIDITY OF NEW SECURITIES
The validity of the Guarantee and the Exchange Debentures will be passed
upon for the Company by Hunton & Williams, Richmond, Virginia. Certain matters
relating to United States federal income tax considerations will be passed upon
for the Company by Hunton & Williams, Richmond, Virginia. Certain matters of
Delaware law relating to the validity of the Exchange Capital Securities will be
passed upon on behalf of the Trust by Richards, Layton & Finger, P.A., special
Delaware counsel to the Trust.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, have been audited by Ernst & Young, LLP, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Horizon incorporated by reference
in Horizon's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, have been audited by Ernst & Young, LLP, independent auditors, as set
forth in their report thereon incorporated by reference therein and incorporated
herein by reference which as to 1995 are based in part on the report of Diamond,
Leftwich, Goheen & Dunn, independent auditors. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.
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INDEX TO FINANCIAL INFORMATION
Pro Forma Balance Sheet - City Holding Company
and Horizon Bancorp, Inc. as of June 30, 1998...........................F-3
Pro Forma Balance Sheet - City Holding Company
and Horizon Bancorp, Inc. as of June 30, 1997..........................F-4
Pro Forma Balance Sheet - City Holding Company
and Horizon Bancorp, Inc. as of December 31, 1997.......................F-5
Pro Forma Balance Sheet - City Holding Company
and Horizon Bancorp, Inc. as of December 31, 1996.......................F-6
Pro Forma Statement of Income - City Holding Company
and Horizon Bancorp, Inc. for the six months ended June 30, 1998........F-7
Pro Forma Statement of Income - City Holding Company
and Horizon Bancorp, Inc. for the six months ended June 30, 1997.......F-8
Pro Forma Statement of Income - City Holding Company
and Horizon Bancorp, Inc. for the year ended December 31, 1997..........F-9
Pro Forma Statement of Income - City Holding Company
and Horizon Bancorp, Inc. for the year ended December 31, 1996..........F-10
Pro Forma Statement of Income - City Holding Company
and Horizon Bancorp, Inc. for the year ended December 31, 1995..........F-11
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Balance Sheets as of June 30,
1998 and 1997 and as of December 31, 1997 and 1996 combine the historical
consolidated balance sheets of the Company and Horizon as if the merger with
Horizon (the "Merger") had been effective on December 31, 1996. The Company's
historical financial statements are incorporated by reference from its Annual
Report on Form 10-K for each of the three years in the period ended December 31,
1997 as filed with the Commission on March 16, 1998. In addition, the Company's
historical interim financial statements for the six months ended June 30, 1998
are incorporated by reference from its Form 10-Q as filed with the Commission on
August 14, 1998. Horizon's historical financial statements are incorporated by
reference from the Company's current report on Form 8-K, as filed with the
Commission on September 14, 1998. The unaudited pro forma condensed financial
information should be read in conjunction with the historical financial
statements of the Company and Horizon.
The Unaudited Pro Forma Condensed Statements of Income for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995 present the combined results of operations of the Company and Horizon as if
the Merger had been effective at January 1, 1995.
The unaudited pro forma condensed financial information reflect the
application of the pooling of interests method of accounting for the Merger.
Under this method of accounting, the recorded assets, liabilities, shareholders'
equity, income and expenses of the Company and Horizon are combined and
reflected at their historical amounts.
The Company expects to achieve certain benefits from the Merger in the
form of operating cost savings that may be significant. The pro forma earnings,
which do not reflect any direct costs or potential savings that are expected to
result from the consolidation of operations of the Company and Horizon, may not
be indicative of the results of future operations. No assurance can be given
with respect to the ultimate level of expense savings.
F-2
<PAGE>
PRO FORMA BALANCE SHEET - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
AS OF JUNE 30, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
CITY HORIZON PRO FORMA
HOLDING BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
------------------------------------------------------------
<S><C>
ASSETS
Cash and due from bank $ 62,111 $ 25,721 $ $ $ 87,832
Federal funds sold 570 12,265 12,835
------------------------------------------------------------
CASH AND CASH EQUIVALENTS 62,681 37,986 100,667
Securities available for sale 166,994 168,593 335,587
Investment securities 40,430 40,430
Loans:
Gross loans 936,161 764,244 1,700,405
Unearned income (6,889) (4,328) (11,217)
Allowance for loan
losses (8,680) (9,784) (18,464)
------------------------------------------------------------
NET LOANS 920,592 750,132 1,670,724
Loans held for sale 194,959 0 194,959
Bank premises and equipment 50,371 16,732 67,103
Accrued interest receivable 10,292 9,305 19,597
Other assets 95,611 17,329 112,940
------------------------------------------------------------
TOTAL ASSETS $1,501,500 $1,040,507 $ $ $2,542,007
============================================================
LIABILITIES
Deposits:
Non-interest bearing $ 174,707 $ 120,301 $ $ $ 295,008
Interest bearing 957,002 741,205 1,698,207
------------------------------------------------------------
TOTAL DEPOSITS 1,131,709 861,506 1,993,215
Short-term borrowings 111,974 43,704 155,678
Long-term debt 81,295 5,972 87,267
Other liabilities 20,414 13,413 33,827
------------------------------------------------------------
TOTAL LIABILITIES 1,345,392 924,595 2,269,987
Corporation-obligated
mandatorily redeemable
capital securities of
subsidiary trust holding
solely subordinated
debentures of City Holding
Company ("Trust Preferred
Securities") 30,000 0 30,000
STOCKHOLDERS' EQUITY
Common stock 16,874 9,312 25,864 (9,312) 42,738
Capital surplus 63,734 19,814 (30,916) 9,312 61,944
Retained earnings 44,280 90,616 134,896
Cost of common stock in
treasury (591) (5,052) 5,052 (591)
Accumulated other
comprehensive income 1,811 1,222 3,033
------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 126,108 115,912 242,020
------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,501,500 $1,040,507 $ $ $2,542,007
============================================================
</TABLE>
F-3
<PAGE>
PRO FORMA BALANCE SHEET - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
AS OF JUNE 30, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
CITY HORIZON PRO FORMA
HOLDING BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
------------------------------------------------------------
<S><C>
ASSETS
Cash and due from bank $ 45,011 $ 35,990 $ $ $ 81,001
Federal funds sold 532 980 1,512
------------------------------------------------------------
CASH AND CASH EQUIVALENTS 45,543 36,970 82,513
Securities available for sale 182,393 184,062 366,455
Investment securities 41,898 41,898
Loans:
Gross loans 768,553 671,307 1,439,860
Unearned income (8,150) (6,151) (14,301)
Allowance for loan losses (7,864) (10,756) (18,620)
------------------------------------------------------------
NET LOANS 752,539 654,400 1,406,939
Loans held for sale 110,342 0 110,342
Bank premises and equipment 30,848 16,627 47,475
Accrued interest receivable 8,317 8,615 16,932
Other assets 17,702 12,129 29,831
------------------------------------------------------------
TOTAL ASSETS $1,147,684 $954,701 $ $ $2,102,385
============================================================
LIABILITIES
Deposits:
Non-interest bearing 138,037 121,503 259,540
Interest bearing 763,050 679,852 1,442,902
------------------------------------------------------------
TOTAL DEPOSITS 901,087 801,355 1,702,442
Short-term borrowings 101,832 28,659 130,491
Long-term debt 39,400 0 39,400
Other liabilities 17,882 12,805 30,687
------------------------------------------------------------
TOTAL LIABILITIES 1,060,201 842,819 1,903,020
STOCKHOLDERS' EQUITY
Common stock 15,207 9,309 25,856 (9,309) 41,063
Capital surplus 35,795 19,768 (26,950) 9,309 37,922
Retained earnings 36,214 83,474 119,688
Cost of common stock in treasury (310) (1,094) 1,094 (310)
Accumulated other
comprehensive income 577 425 1,002
------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 87,483 111,882 199,365
------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,147,684 $954,701 $ $ $2,102,385
============================================================
</TABLE>
F-4
<PAGE>
PRO FORMA BALANCE SHEET - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
AS OF DECEMBER 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
CITY HORIZON PRO FORMA
HOLDING BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
------------------------------------------------------------
<S><C>
ASSETS
Cash and due from bank $ 47,207 $ 31,262 $ $ $ 78,469
Federal funds sold 40,028 14,035 54,063
------------------------------------------------------------
CASH AND CASH EQUIVALENTS 87,235 45,297 132,532
Securities available for sale 162,912 173,864 336,776
Investment securities 41,554 41,554
Loans:
Gross loans 787,716 734,145 1,521,861
Unearned income (7,354) (5,906) (13,260)
Allowance for loan losses (7,673) (10,517) (18,190)
------------------------------------------------------------
NET LOANS 772,689 717,722 1,490,411
Loans held for sale 134,990 0 134,990
Bank premises and equipment 36,635 17,123 53,758
Accrued interest receivable 8,677 8,876 17,553
Other assets 63,005 15,845 78,850
------------------------------------------------------------
TOTAL ASSETS $1,266,143 $1,020,281 $ $ $2,286,424
============================================================
LIABILITIES
Deposits:
Non-interest bearing $ 136,842 $ 113,415 $ $ $ 250,257
Interest bearing 801,656 727,892 1,529,548
------------------------------------------------------------
TOTAL DEPOSITS 938,498 841,307 1,779,805
Short-term borrowings 130,191 42,642 172,833
Long-term debt 68,400 7,102 75,502
Other liabilities 22,799 15,208 38,007
------------------------------------------------------------
TOTAL LIABILITIES 1,159,888 906,259 2,066,147
STOCKHOLDERS' EQUITY
Common stock 16,067 9,310 25,859 (9,310) 41,926
Capital surplus 48,769 19,784 (28,797) 9,310 49,066
Retained earnings 40,374 86,768 127,142
Cost of common stock in treasury (310) (2,938) 2,938 (310)
Accumulated other
comprehensive income 1,355 1,098 2,453
------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 106,255 114,022 220,277
------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,266,143 $1,020,281 $ $ $2,286,424
============================================================
</TABLE>
F-5
<PAGE>
PRO FORMA BALANCE SHEET - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
AS OF DECEMBER 31, 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
CITY HORIZON PRO FORMA
HOLDING BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
------------------------------------------------------------
<S><C>
ASSETS
Cash and due from bank $ 47,351 $ 36,503 $ $ $ 83,854
Federal funds sold 413 2,455 2,868
------------------------------------------------------------
CASH AND CASH EQUIVALENTS 47,764 38,958 86,722
Securities available for sale 122,944 205,923 328,867
Investment securities 40,978 42,741 83,719
Loans:
Gross loans 704,775 640,352 1,345,127
Unearned income (6,793) (6,368) (13,161)
Allowance for loan losses (7,281) (9,607) (16,888)
------------------------------------------------------------
NET LOANS 690,701 624,377 1,315,078
Loans held for sale 92,472 0 92,472
Bank premises and equipment 30,025 16,580 46,605
Accrued interest receivable 7,510 7,940 15,450
Other assets 16,416 10,549 26,965
------------------------------------------------------------
TOTAL ASSETS $1,048,810 $947,068 $ $ $1,995,878
============================================================
LIABILITIES
Deposits:
Non-interest bearing $ 118,976 $119,831 $ $ $ 238,807
Interest bearing 709,694 678,165 1,387,859
------------------------------------------------------------
TOTAL DEPOSITS 828,670 797,996 1,626,666
Short-term borrowings 90,298 29,154 119,452
Long-term debt 34,250 0 34,250
Other liabilities 16,219 10,507 26,726
------------------------------------------------------------
TOTAL LIABILITIES 969,437 837,657 1,807,094
STOCKHOLDERS' EQUITY
Common stock 13,998 9,308 25,853 (9,308) 39,851
Capital surplus 35,426 19,757 (26,028) 9,308 38,463
Retained earnings 30,246 79,876 110,122
Cost of common stock in treasury (300) (175) 175 (300)
Accumulated other
comprehensive income 3 645 648
------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 79,373 109,411 188,784
------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,048,810 $947,068 $ $ $1,995,878
============================================================
</TABLE>
F-6
<PAGE>
PRO FORMA STATEMENT OF INCOME - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CITY HOLDING HORIZON BANCORP PRO FORMA
AS REPORTED AS REPORTED COMBINED
------------------------------------------------------
<S><C>
INTEREST INCOME
Interest and fees on loans $48,982 $33,936 $82,918
Interest on investment securities:
Taxable 4,133 4,804 8,937
Tax-exempt 828 1,581 2,409
Other interest income 783 707 1,490
------------------------------------------------------
TOTAL INTEREST INCOME 54,726 41,028 95,754
INTEREST EXPENSE
Interest on deposits 19,374 16,885 36,259
Interest on short-term borrowings 3,475 1,086 4,561
Interest on long-term debt 3,409 0 3,409
------------------------------------------------------
TOTAL INTEREST EXPENSE 26,258 17,971 44,229
------------------------------------------------------
NET INTEREST INCOME 28,468 23,057 51,525
PROVISION FOR POSSIBLE LOAN LOSSES 1,201 1,266 2,467
------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 27,267 21,791 49,058
OTHER INCOME
Investment securities gains 16 (22) (6)
Service charges 2,392 2,149 4,541
Mortgage loan servicing fees 8,009 0 8,009
Net origination fees on junior
lien mortgages 6,217 0 6,217
Gain on sale of loans 7,333 0 7,333
Other income 8,029 1,212 9,241
------------------------------------------------------
TOTAL OTHER INCOME 31,996 3,339 35,335
OTHER EXPENSES
Salaries and employee benefits 19,402 6,470 25,872
Occupancy, excluding depreciation 2,644 853 3,497
Depreciation 3,661 1,364 5,025
Advertising 9,119 162 9,281
Other expenses 14,375 5,117 19,492
------------------------------------------------------
TOTAL OTHER EXPENSES 49,201 13,966 63,167
------------------------------------------------------
INCOME BEFORE INCOME TAXES 10,062 11,164 21,226
INCOME TAXES 3,650 3,840 7,490
------------------------------------------------------
NET INCOME $ 6,412 $ 7,324 $13,736
======================================================
Basic earnings per common share $ 0.97 $ 0.80 $ 0.82
Diluted earnings per common share $ 0.96 $ 0.80 $ 0.81
Average common shares
outstanding:
Basic 6,589 10,171 16,760
Diluted 6,640 10,226 16,866
</TABLE>
F-7
<PAGE>
PRO FORMA STATEMENT OF INCOME - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CITY HOLDING HORIZON BANCORP PRO FORMA
AS REPORTED AS REPORTED COMBINED
------------------------------------------------------
<S><C>
INTEREST INCOME
Interest and fees on loans $40,563 $29,525 $70,088
Interest on investment securities:
Taxable 4,456 5,696 10,152
Tax-exempt 974 1,615 2,589
Other interest income 59 114 173
------------------------------------------------------
TOTAL INTEREST INCOME 46,052 36,950 83,002
INTEREST EXPENSE
Interest on deposits 15,851 14,248 30,099
Interest on short-term borrowings 3,479 477 3,956
Interest on long-term debt 1,252 0 1,252
------------------------------------------------------
TOTAL INTEREST EXPENSE 20,582 14,725 35,307
------------------------------------------------------
NET INTEREST INCOME 25,470 22,225 47,695
PROVISION FOR POSSIBLE LOAN LOSSES 828 1,100 1,928
------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 24,642 21,125 45,767
OTHER INCOME
Investment securities gains 11 (36) (25)
Service charges 2,086 1,864 3,950
Mortgage loan servicing fees 5,352 0 5,352
Gain on sale of loans 993 0 993
Other income 1,457 934 2,391
------------------------------------------------------
TOTAL OTHER INCOME 9,899 2,762 12,661
OTHER EXPENSES
Salaries and employee benefits 13,991 6,304 20,295
Occupancy, excluding depreciation 1,753 925 2,678
Depreciation 2,253 1,128 3,381
Advertising 724 294 1,018
Other expenses 6,471 4,802 11,273
------------------------------------------------------
TOTAL OTHER EXPENSES 25,192 13,453 38,645
------------------------------------------------------
INCOME BEFORE INCOME TAXES 9,349 10,434 19,783
INCOME TAXES 3,345 3,680 7,025
======================================================
NET INCOME $ 6,004 $ 6,754 $12,758
======================================================
Basic earnings per common share $ 0.99 $ 0.73 $ 0.78
Diluted earnings per common share $ 0.99 $ 0.73 $ 0.78
Average common shares
outstanding:
Basic 6,069 10,313 16,382
Diluted 6,080 10,333 16,413
</TABLE>
F-8
<PAGE>
PRO FORMA STATEMENT OF INCOME - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CITY HOLDING HORIZON BANCORP PRO FORMA
AS REPORTED AS REPORTED COMBINED
------------------------------------------------------
<S><C>
INTEREST INCOME
Interest and fees on loans $85,844 $61,916 $147,760
Interest on investment securities:
Taxable 9,005 10,835 19,840
Tax-exempt 1,877 3,200 5,077
Other interest income 70 419 489
------------------------------------------------------
TOTAL INTEREST INCOME 96,796 76,370 173,166
INTEREST EXPENSE
Interest on deposits 33,117 29,969 63,086
Interest on short-term borrowings 8,546 1,352 9,898
Interest on long-term debt 3,028 3,028
------------------------------------------------------
TOTAL INTEREST EXPENSE 44,691 31,321 76,012
------------------------------------------------------
NET INTEREST INCOME 52,105 45,049 97,154
PROVISION FOR POSSIBLE LOAN LOSSES 1,662 2,402 4,064
------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 50,443 42,647 93,090
OTHER INCOME
Investment securities gains (losses) 26 (18) 8
Service charges 4,307 3,938 8,245
Mortgage loan servicing fees 11,933 0 11,933
Gain on sale of loans 4,392 0 4,392
Other income 6,058 1,977 8,035
------------------------------------------------------
TOTAL OTHER INCOME 26,716 5,897 32,613
OTHER EXPENSES
Salaries and employee benefits 28,747 12,845 41,592
Occupancy, excluding depreciation 3,914 2,436 6,350
Depreciation 4,837 1,760 6,597
Advertising 4,402 533 4,935
Other expenses 15,770 9,655 25,425
------------------------------------------------------
TOTAL OTHER EXPENSES 57,670 27,229 84,899
------------------------------------------------------
INCOME BEFORE INCOME TAXES 19,489 21,315 40,804
INCOME TAXES 7,025 7,488 14,513
======================================================
NET INCOME $12,464 $13,827 $ 26,291
======================================================
Basic earnings per common share $ 2.03 $ 1.49 $ 1.60
Diluted earnings per common share $ 2.02 $ 1.49 $ 1.60
Average common shares
outstanding:
Basic 6,147 10,281 16,428
Diluted 6,166 10,308 16,474
</TABLE>
F-9
<PAGE>
PRO FORMA STATEMENT OF INCOME - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CITY HOLDING HORIZON BANCORP PRO FORMA
AS REPORTED AS REPORTED COMBINED
------------------------------------------------------
<S><C>
INTEREST INCOME
Interest and fees on loans $75,888 $57,577 $133,465
Interest on investment securities:
Taxable 8,139 12,579 20,718
Tax-exempt 2,012 2,673 4,685
Other interest income 30 810 840
------------------------------------------------------
TOTAL INTEREST INCOME 86,069 73,639 159,708
INTEREST EXPENSE
Interest on deposits 29,238 28,424 57,662
Interest on short-term borrowings 8,138 846 8,984
Interest on long-term debt 1,688 0 1,688
------------------------------------------------------
TOTAL INTEREST EXPENSE 39,064 29,270 68,334
------------------------------------------------------
NET INTEREST INCOME 47,005 44,369 91,374
PROVISION FOR POSSIBLE LOAN LOSSES 1,678 3,334 5,012
------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 45,327 41,035 86,362
OTHER INCOME
Investment securities gains (losses) 87 (79) 8
Service charges 3,700 3,432 7,132
Mortgage loan servicing fees 2,958 0 2,958
Gain on sale of loans 1,260 0 1,260
Other income 3,118 1,997 5,115
------------------------------------------------------
TOTAL OTHER INCOME 11,123 5,350 16,473
OTHER EXPENSES
Salaries and employee benefits 21,593 12,878 34,471
Occupancy, excluding depreciation 2,736 2,099 4,835
Depreciation 3,466 1,525 4,991
Advertising 914 585 1,499
Other expenses 12,273 11,997 24,270
------------------------------------------------------
TOTAL OTHER EXPENSES 40,982 29,084 70,066
------------------------------------------------------
INCOME BEFORE INCOME TAXES 15,468 17,301 32,769
INCOME TAXES 5,338 6,150 11,488
======================================================
NET INCOME $10,130 $11,151 $ 21,281
======================================================
Basic earnings per common share $ 1.81 $ 1.20 $ 1.34
Diluted earnings per common share $ 1.81 $ 1.20 $ 1.34
Average common shares
outstanding:
Basic 5,586 10,328 15,914
Diluted 5,587 10,341 15,928
</TABLE>
F-10
<PAGE>
PRO FORMA STATEMENT OF INCOME - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CITY HOLDING HORIZON BANCORP PRO FORMA
AS REPORTED AS REPORTED COMBINED
------------------------------------------------------
<S><C>
INTEREST INCOME
Interest and fees on loans $61,124 $54,921 $116,045
Interest on investment securities:
Taxable 11,612 12,185 23,797
Tax-exempt 2,300 2,355 4,655
Other interest income 89 1,157 1,246
------------------------------------------------------
TOTAL INTEREST INCOME 75,125 70,618 145,743
INTEREST EXPENSE
Interest on deposits 27,149 26,869 54,018
Interest on short-term borrowings 5,675 731 6,406
Interest on long-term debt 756 0 756
------------------------------------------------------
TOTAL INTEREST EXPENSE 33,580 27,600 61,180
------------------------------------------------------
NET INTEREST INCOME 41,545 43,018 84,563
PROVISION FOR POSSIBLE LOAN LOSSES 1,104 2,505 3,609
------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 40,441 40,513 80,954
OTHER INCOME
Investment securities gains (losses) 2 (131) (129)
Service charges 3,347 3,256 6,603
Mortgage loan servicing fees 350 0 350
Gain on sale of loans 581 0 581
Other income 2,066 1,872 3,938
------------------------------------------------------
TOTAL OTHER INCOME 6,346 4,997 11,343
OTHER EXPENSES
Salaries and employee benefits 17,815 12,567 30,382
Occupancy, excluding depreciation 2,555 2,180 4,735
Depreciation 2,534 1,642 4,176
Advertising 889 758 1,647
Other expenses 10,094 10,874 20,968
------------------------------------------------------
TOTAL OTHER EXPENSES 33,887 28,021 61,908
------------------------------------------------------
INCOME BEFORE INCOME TAXES 12,900 17,489 30,389
INCOME TAXES 4,182 6,007 10,189
======================================================
NET INCOME $ 8,718 $11,482 $ 20,200
======================================================
Basic earnings per common share $ 1.55 $ 1.23 $ 1.26
Diluted earnings per common share $ 1.55 $ 1.23 $ 1.26
Average common shares
outstanding:
Basic 5,642 10,330 15,972
Diluted 5,642 10,333 15,975
</TABLE>
F-11
