Filed Pursuant to Rule 424(b)(4)
File Number 333-64809
PROSPECTUS
CITY HOLDING CAPITAL TRUST II
$ 50,000,000
9.125% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $25.00 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
[CITY HOLDING COMPANY LOGO]
---------------
The 9.125% Capital Securities (the "Capital Securities") offered hereby
represent preferred undivided beneficial interests in the assets of City
Holding Capital Trust II, a statutory business trust created under the laws of
the State of Delaware (the "Issuer Trust"). City Holding Company, a West
Virginia corporation, (the "Company") initially will be the holder of all the
beneficial interests represented by common securities of the Issuer Trust (the
"Common Securities" and, collectively with the Capital Securities, the "Trust
Securities"). The Issuer Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in 9.125% Junior Subordinated
Deferrable Interest Debentures, Series B (the "Junior Subordinated Debentures")
to be issued by the Company and engaging in only those other activities
necessary, convenient or incidental thereto. The Junior Subordinated Debentures
will mature on October 31, 2028 (the "Stated Maturity"). See "Description of
Junior Subordinated Debentures -- General." 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. The Capital Securities have been approved for quotation on the
Nasdaq National Market System ("Nasdaq NMS"), subject to notice of issuance,
under the symbol "CHCOP." See "Description of Capital Securities --
Subordination of Common Securities."
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREOF FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN
INVESTMENT IN THE CAPITAL SECURITIES.
---------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
INSURER OR GOVERNMENT AGENCY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE (1) COMMISSION (2) ISSUER TRUST (3)(4)
<S> <C> <C> <C>
Per Capital Security ......... $ 25.00 (4) $ 25.00
Total (5) .................... $ 50,000,000 (4) $ 50,000,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accumulated Distributions (as defined herein), if any, from October
27, 1998.
(2) The Company and the Issuer Trust have agreed to indemnify the several
Underwriters (as defined herein) against certain liabilities, including
certain liabilities under the Securities Act (as defined herein). See
"Underwriting."
(3) Before deducting estimated expenses of $300,000 payable by the Company.
(4) In view of the fact that the proceeds of the sale of the Capital Securities
will be invested in the Junior Subordinated Debentures, the Company, as
issuer of the Junior Subordinated Debentures, has agreed to pay the
Underwriters, as compensation, $0.9375 per Capital Security (or $1,875,000
in the aggregate). See "Underwriting."
(5) The Issuer Trust has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 300,000 additional
Capital Securities on the same terms and conditions set forth above solely
to cover over-allotments, if any. If the Underwriters exercise such option
in full, the total Initial Public Offering Price, Underwriting Commission
and Proceeds to Issuer Trust will be $57,500,000, $2,156,250 and
$57,500,000, respectively. See "Underwriting."
---------------
The Capital Securities are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the Capital Securities will be made on or about October 27, 1998
against payment therefor in immediately available funds.
---------------
WHEAT FIRST UNION FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is October 22, 1998
<PAGE>
(COVER PAGE CONTINUED)
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions ("Distributions") accumulating from the date of
original issuance and payable quarterly in arrears on January 31, April 30,
July 31 and October 31 of each year (each a "Distribution Date"), commencing
January 31, 1999, at an annual rate equal to 9.125% on the Liquidation Amount
of $25.00 per Capital Security ("Distributions"). The distribution rate and the
distribution payment dates and other payment dates for the Capital Securities
will correspond to the interest rate and interest payment dates and other
payment dates on the Junior Subordinated Debentures, which will be the sole
assets of the Issuer Trust. So long as no Event of Default (as defined in the
Junior Subordinated Indenture (as defined herein)) has occurred and is
continuing with respect to the Junior Subordinated Debentures (a "Debenture
Event of Default"), the Company has the right to defer payment of interest on
the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. No interest shall be due and payable during any Extension Period,
except at the end thereof. Upon the termination of any such Extension Period
and the payment of all amounts then due, the Company may elect to begin a new
Extension Period subject to the requirements set forth herein. If interest
payments on the Junior Subordinated Debentures are so deferred, Distributions
on the 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 with
respect to debt securities of the Company that rank PARI PASSU in all respects
with or junior to the Junior Subordinated Debentures. During an Extension
Period, interest on the Junior Subordinated Debentures will continue to accrue
(and the amount of Distributions to which holders of the Capital Securities are
entitled will accumulate) at a rate equal to 9.125%, compounded quarterly, and
holders of Capital Securities will be required to accrue interest income for
United States federal income tax purposes. See "Description of Junior
Subordinated Debentures -- Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences -- Interest Income and Original Issue
Discount."
The Company will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guarantee all
the Issuer Trust's obligations under the Capital Securities as described below.
See "Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The
Guarantee of the Company guarantees the payment of Distributions and payments
on liquidation or redemption of the Capital Securities, but only in each case
to the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust will have insufficient funds to pay Distributions on the Capital
Securities. The Guarantee does not cover payment of Distributions when the
Issuer Trust does not have sufficient funds to pay such Distributions. In such
an 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 Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of Capital Securities." The obligations of the
Company under the Guarantee and the Capital Securities are subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Junior Subordinated 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, (ii) prior to October 31, 2003, in whole, but not in part,
contemporaneously with the optional redemption by the Company of the Junior
Subordinated Debentures 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 herein), in each case subject to possible
regulatory approval and (iii) in whole or in part at any time on or after
October 31, 2003, contemporaneously with the optional redemption by the Company
of the Junior Subordinated Debentures in whole or in part, in each case at the
applicable Redemption Price (as defined herein). The Junior Subordinated
Debentures are redeemable prior to maturity at the option of the Company (i) on
or after October 31, 2003, in whole at any time or in part from time to time,
or (ii) prior to October 31, 2003, 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 Junior Subordinated
Debentures -- Redemption" and "Description of Capital Securities -- Liquidation
Distribution Upon Dissolution."
2
<PAGE>
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Capital Securities will be entitled to receive a Liquidation
Amount of $25.00 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 Capital Securities -- Liquidation Distribution Upon
Dissolution."
The holders of the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the
Junior Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The
ability of the Company to dissolve the Issuer Trust may be subject to prior
regulatory approval of the Federal Reserve, if then required under applicable
Federal Reserve capital guidelines or policies. See "Description of Capital
Securities -- Liquidation Distribution Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures -- Subordination."
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.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
CAPITAL SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
CAPITAL SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. The Company's $2.50 par value common stock (the "Common
Stock") is traded on the Nasdaq NMS. Reports, proxy statements and other
information concerning the Company can be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company and the Issuer Trust have filed with the Commission a
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus omits, in accordance with the rules and regulations of the
Commission, certain of the information contained in the Registration Statement.
Reference is hereby made to the Registration Statement and the exhibits, and
the financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein for further information with respect to the
Company, the Issuer Trust and the securities offered hereby. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, where a copy of such document has been filed as
an exhibit to the Registration Statement or otherwise has been filed with the
Commission, reference is made to the copy so filed. Each such statement is
qualified in its entirety by such reference.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Capital Securities because (i) the Issuer Trust is a newly formed special
purpose entity, has no operating history or independent operations and is not
engaged in and does not propose to engage in any activity other than holding as
trust assets the Junior Subordinated Debentures and issuing the Trust
Securities, (ii) all of the voting securities of the Issuer Trust will be
owned, directly or indirectly by the Company, a reporting company under the
Exchange Act, and (iii) the obligations of the Issuer Trust under the Capital
Securities are guaranteed by the Company as described herein. See "City Holding
Capital Trust II," "Description of Capital Securities," "Description of Junior
Subordinated Debentures" and "Description of Guarantee." In addition, the
Company does not expect that the Issuer Trust will be filing reports under the
Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
(Commission File No. 0-11733) under the Exchange Act are hereby incorporated by
reference in this Prospectus:
(1) the Company's Annual Report on Form 10-K for the year ended December
31, 1997, filed March 16, 1998;
(2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, and June 30, 1998;
(3) the Company's Current Report on Form 8-K dated September 14, 1998;
and
(4) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, filed under the Exchange Act,
including any reports filed under the Exchange Act for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act prior to the termination of the offering of all of
the Capital Securities shall be deemed to be incorporated by reference herein.
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 that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide on request and without charge to each person to
whom this Prospectus is delivered a copy (without exhibits) of any or all
documents incorporated by reference into this Prospectus. Requests for such
copies should
4
<PAGE>
be directed to City Holding Company, 25 Gatewater Road, Charleston, West
Virginia 25313, Attention: Chief Financial Officer (telephone (304) 769-1100).
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
Management's Discussion and 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 three and six
months ended June 30, 1998 and 1997 and Management's Discussion and
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.
5
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
AS USED HEREIN, (I) THE "JUNIOR SUBORDINATED INDENTURE" MEANS THE JUNIOR
SUBORDINATED INDENTURE, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, BETWEEN
THE COMPANY AND 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 ISSUER 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 ISSUER 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 (THE "GUARANTEE TRUSTEE").
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 stockholders' equity of approximately $126 million.
Through its lead bank subsidiary, City National Bank of West Virginia
("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. In
addition to City National, the Company owns Del Amo Savings Bank, FSB ("Del
Amo" and, together with City National, the "Banks"), a federally-chartered
savings bank headquartered in Torrance, California. 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 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. 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.
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"). Horizon is a bank holding company with total assets of $1.04
billion as of June 30, 1998. 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. It is the intention of Horizon and the Company that the
transaction be accounted for as a pooling of interests and close during the
first quarter of 1999, although the consummation of this transaction is subject
to certain conditions including, but not limited to, shareholder approval by
Horizon and the Company and regulatory approval. No assurance can be provided
that the necessary shareholder and regulatory approvals can be obtained or that
the other conditions precedent to the merger will be satisfied.
Recognizing the increasing competition in the financial services industry,
the Company's management has embarked upon a strategy to increase non-interest
income and diversify the markets in which it operates in addition to increasing
its commercial banking presence in the State of West Virginia. The Company
currently operates four separate retail origination platforms, a servicer of
junior lien and other similar mortgage loan products, an escrow services
division and a wholesale loan division. It is the Company's intention to sell
the various loan products generated by these divisions through a combination of
loan securitizations and whole loan sales, where, in the case of loan
securitizations, the Company would retain the right to service the loans.
Through June 30, 1998, the Company had completed three transactions involving
the securitization of approximately $183 million of high loan-to-value loans.
The Company plans to securitize a portion of its junior lien loan 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.
In addition to these mortgage and servicing operations, the Company also
operates a full-service securities brokerage and investment advisory company,
an insurance agency, a direct mail/marketing division and an internet service
provider
6
<PAGE>
and web site development division. Additionally, it has acquired an equity
stake in a specialty financial services company that originates and purchases
conventional home improvement, high loan-to-value debt consolidation, and other
similar loans.
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 and its financial
condition and results of operations, see "City Holding Company,"
"Capitalization," "Selected Consolidated Financial Data and Other Information,"
"Selected Pro Forma Financial Data of the Company and Horizon Combined,"
"Selected Historical Financial Data of Horizon" and "Index to Financial
Information."
CITY HOLDING CAPITAL TRUST II
The Issuer Trust is a statutory business trust created under Delaware law
on September 17, 1998. The Issuer 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 Issuer Trust exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures and (iii)
engaging in only those other activities necessary, convenient or incidental
thereto (such as registering the transfer of the Trust Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Issuer Trust, and payments under the Junior Subordinated Debentures will be the
sole source of revenue of the Issuer Trust.
Upon issuance of the Capital Securities, the purchasers thereof will own
all of the Capital Securities of the Issuer Trust. Upon issuance of the Common
Securities, the Company will own all of the Common Securities of the Issuer
Trust which will represent an aggregate Liquidation Amount equal to at least 3%
of the Issuer Trust's total capital. See "City Holding Capital Trust II."
THE OFFERING
Securities Offered.............. $50,000,000 aggregate Liquidation Amount of
9.125% Capital Securities (Liquidation Amount
$25.00 per Capital Security).
Offering Price.................. $25.00 per Capital Security, plus
accumulated Distributions, if any, from the
date of original issuance.
Distribution Dates.............. January 31, April 30, July 31 and October
31 of each year, commencing January 31, 1999.
Extension Periods............... So long as no Debenture Event of Default
(as defined herein) has occurred and is
continuing, Distributions on Capital
Securities may be deferred for the duration
of any Extension Period selected by the
Company with respect to the payment of
interest on the Junior Subordinated
Debentures. No Extension Period may exceed 20
consecutive quarterly periods or extend
beyond the Stated Maturity. See "Description
of Capital Securities -- Distributions,"
"Description of Junior Subordinated
Debentures -- Option to Extend Interest
Payment Period" and "Certain Federal Income
Tax Consequences -- Interest Income and
Original Issue Discount."
Ranking......................... The Capital Securities will rank PARI
PASSU, and payments thereon will be made PRO
RATA, with the Common Securities except as
described under "Description of Capital
Securities -- Subordination of Common
Securities." The Junior Subordinated
Debentures will be unsecured and subordinate
and junior in right of payment to the extent
and in the manner set forth in the Junior
Subordinated Indenture to all Senior
Indebtedness of the Company. See "Description
of Junior Subordinated Debentures." The
Guarantee will constitute an unsecured
obligation of the Company and will rank
subordinate and junior in right of payment to
the extent and in the manner set forth in the
Guarantee to all Senior Indebtedness of the
Company. See "Description of
7
<PAGE>
Guarantee." In addition, because the Company
is a holding company, the Junior
Subordinated Debentures and the Guarantee
will be effectively subordinated to all
existing and future liabilities of the
Company's subsidiaries, including the Banks'
deposit liabilities. See "Description of
Capital Securities -- Redemption" and
"Description of Junior Subordinated
Debentures -- Subordination."
Redemption...................... The Trust Securities are subject to
mandatory redemption (i) in whole, but not in
part, at the Stated Maturity upon repayment
of the Junior Subordinated Debentures, (ii)
prior to October 31, 2003, in whole, but not
in part, contemporaneously with the optional
redemption at any time by the Company of the
Junior Subordinated Debentures at any time
within 90 days following the occurrence and
during the continuation of a Tax Event,
Investment Company Event or Capital Treatment
Event in each case, subject to possible
regulatory approval and (iii) in whole or in
part, at any time on or after October 31,
2003, contemporaneously with the optional
redemption by the Company of the Junior
Subordinated Debentures in whole or in part,
in each case at the applicable Redemption
Price (as defined herein). See "Description
of Capital Securities -- Redemption."
No Rating....................... The Capital Securities are not expected to
be rated by any rating service.
ERISA Considerations............ Prospective purchasers should carefully
consider the restrictions on purchase set
forth under "Certain ERISA Considerations."
Absence of Market for the
Capital Securities.............. The Capital Securities will be a new issue of
securities for which there currently is no
market. The Capital Securities have been
approved for quotation on the Nasdaq NMS,
subject to notice of issuance, under the
symbol "CHCOP." However, there can be no
assurance that an active public market will
develop for the Capital Securities or that,
if such market develops, that it will be
maintained. See "Underwriting."
For additional information regarding the Capital Securities, see "City
Holding Capital Trust II," "Accounting Treatment," "Use of Proceeds,"
"Description of Capital Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee," "Relationship Among the Capital
Securities, the Junior Subordinated Debentures and the Guarantee," "Certain
Federal Income Tax Consequences" and "Certain ERISA Considerations."
USE OF PROCEEDS
All proceeds to the Issuer Trust from the sale of the Capital Securities
will be invested by the Issuer Trust in the Junior Subordinated Debentures. All
the net proceeds to be received by the Company from the sale of the Junior
Subordinated Debentures will be used for general corporate purposes, potential
future acquisitions, repayment of corporate debt and investments in or
extensions of credit to its subsidiaries. See "Use of Proceeds." Approximately
24% or $12 million of the proceeds from the Capital Securities will immediately
qualify as Tier 1 or core capital, with the remaining 76% or $38 million of the
proceeds afforded Tier 2 capital treatment under the risk-based capital
guidelines of the Federal Reserve. However, it is anticipated that upon the
consummation of the merger with Horizon, the remaining $38 million of the
proceeds will qualify as Tier 1 capital.
RISK FACTORS
Prospective investors should carefully consider the matters set forth
under "Risk Factors."
8
<PAGE>
RECENT DEVELOPMENTS
On October 21, 1998, the Company reported its preliminary unaudited
financial results for the third quarter ended September 30, 1998, as follows:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
INFORMATION)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income ................... $28,749 $24,823 $83,475 $70,875
Interest expense .................. 14,461 11,502 40,719 32,084
Net interest income ............... 14,288 13,321 42,756 38,791
Provision for loan losses ......... 846 393 2,047 1,221
Non-interest income ............... 17,909 6,490 49,905 16,389
Non-interest expense .............. 26,227 14,156 75,428 39,348
Net income ........................ 3,760 3,485 10,172 9,489
</TABLE>
Net income for the three months ended September 30, 1998 increased to
$3.76 million as compared to $3.48 million, an increase of 7.9%, reported for
the three months ended September 30, 1997. Earnings per common share for the
third quarter of 1998 were 0.56 compared to 0.57 for the third quarter of 1997.
For the nine months ended September 30, 1998, the Company reported net
income of $10.17 million compared to $9.49 million reported for the nine months
ended September 30, 1997, an increase of 7.2%. Earnings per common share for
the nine months ended September 30, 1998 were $1.52 compared to $1.56 during
the same period in 1997.
The foregoing information for the quarters ended September 30, 1998 and
1997, and the prior nine months ended September 30, 1998 is unaudited and
includes all adjustments, consisting only of normal recurring adjustments,
which the Company considers necessary for a fair presentation in accordance
with generally accepted accounting principles.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
The following table sets forth selected consolidated financial information
for the Company for the five years ended December 31, 1997, and the six-month
periods ended June 30, 1998 and 1997. The selected consolidated financial data
as of and for each of the years in the five-year period ended December 31, 1997
have been derived from the Company's consolidated financial statements which
have been audited by Ernst & Young, LLP, independent auditors. The data should
be read in conjunction with the consolidated financial statements and related
notes incorporated by reference herein. The information presented as of and for
the six-month periods ended June 30, 1998 and 1997 is derived from the
Company's unaudited consolidated financial statements for those periods. Those
unaudited consolidated financial statements, which are incorporated by
reference elsewhere in this Prospectus, include all adjustments, consisting
only of normal recurring accruals, which management considers necessary for a
fair presentation of the financial condition and results of operations for such
interim periods. Results for the six-month period ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year or any other
interim period. See also "Incorporation of Certain Documents by Reference,"
"Experts" and "Index to Financial Information."
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Summary of Operations
Total interest income ...................... $ 54,726 $ 46,052
Total interest expense ..................... 26,258 20,582
Net interest income ........................ 28,468 25,470
Provision for loan losses .................. 1,201 828
Total other income ......................... 31,996 9,899
Total other expenses ....................... 49,201 25,192
Income before income taxes ................. 10,062 9,349
Net income ................................. 6,412 6,004
Per Share Data
Net income (basic) ......................... 0.97 0.99
Net income (diluted) ....................... 0.96 0.99
Cash dividends declared (1) ................ 0.38 0.36
Book value per share ....................... 18.73 14.41
Average Balance Sheet Summary
Total loans ................................ 841,367 739,362
Securities ................................. 162,074 179,447
Deposits ................................... 1,010,554 876,887
Long-term debt ............................. 88,313 37,504
Stockholders' equity ....................... 115,229 85,172
Total assets ............................... 1,371,538 1,147,712
At Period End
Net loans .................................. 920,592 752,539
Securities ................................. 166,994 182,393
Deposits ................................... 1,131,709 901,087
Long-term debt ............................. 81,295 39,400
Stockholders' equity ....................... 126,108 87,483
Total assets ............................... 1,501,500 1,147,684
Selected Ratios
Return on average assets ................... 0.94% 1.05%
Return on average stockholders' equity ..... 11.13 14.10
Average equity to assets ................... 8.40 7.42
Dividend payout ratio (1) .................. 39.18 36.36
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Total interest income ...................... $ 96,796 $ 86,069 $ 75,125 $ 62,762 $ 55,301
Total interest expense ..................... 44,691 39,064 33,580 25,168 22,425
Net interest income ........................ 52,105 47,005 41,545 37,594 32,876
Provision for loan losses .................. 1,662 1,678 1,104 1,040 1,434
Total other income ......................... 26,716 11,123 6,346 5,249 3,862
Total other expenses ....................... 57,670 40,982 33,887 30,116 24,292
Income before income taxes ................. 19,489 15,468 12,900 11,687 11,012
Net income ................................. 12,464 10,130 8,718 8,141 7,645
Per Share Data
Net income (basic) ......................... 2.03 1.81 1.55 1.44 1.35
Net income (diluted) ....................... 2.02 1.81 1.55 1.44 1.35
Cash dividends declared (1) ................ 0.73 0.63 0.56 0.49 0.46
Book value per share ....................... 16.56 14.21 13.09 11.66 11.56
Average Balance Sheet Summary
Total loans ................................ 757,803 665,641 608,551 504,795 413,645
Securities ................................. 179,590 166,667 221,743 264,976 262,742
Deposits ................................... 892,865 812,655 771,303 736,115 639,480
Long-term debt ............................. 46,129 24,666 8,204 6,252 4,387
Stockholders' equity ....................... 92,317 76,130 69,463 67,652 63,511
Total assets ............................... 1,213,261 1,079,540 957,048 864,690 739,804
At Period End
Net loans .................................. 772,689 690,701 650,195 547,809 462,424
Securities ................................. 162,912 163,922 194,368 239,882 283,833
Deposits ................................... 938,498 828,670 797,415 746,805 709,958
Long-term debt ............................. 68,400 34,250 20,000 6,875 5,875
Stockholders' equity ....................... 106,255 79,373 73,139 66,299 65,605
Total assets ............................... 1,266,143 1,048,810 1,040,969 895,785 816,225
Selected Ratios
Return on average assets ................... 1.03% 0.94% 0.91% 0.94% 1.03%
Return on average stockholders' equity ..... 13.50 13.31 12.55 12.03 12.04
Average equity to assets ................... 7.61 7.05 7.26 7.82 8.58
Dividend payout ratio (1) .................. 35.96 34.81 36.47 33.91 34.36
</TABLE>
- ---------
(1) Cash dividends and the related payout ratio are based on historical results
of the Company and do not include cash dividends of acquired subsidiaries
prior to the dates of consummation.
10
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
OF THE COMPANY AND HORIZON COMBINED
The following selected pro forma financial data gives effect to the
proposed merger of the Company with Horizon, to be accounted for as a pooling
of interests, based on an exchange ratio of 1.111 shares of the Company's
Common Stock for each share of common stock of Horizon. The pro forma data is
based upon the historical financial statements of the Company and Horizon and
may not be indicative of the results that actually would have occurred if the
combination had been in effect on the dates indicated. See also "Incorporation
of Certain Documents by Reference," "Experts" and "Index to Financial
Information."
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
--------------------------- --------------------------------------------
1998 1997 1997 1996 1995
------------- ------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
(UNAUDITED) INFORMATION)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Total interest income ...................... $ 95,754 $ 83,002 $ 173,166 $ 159,708 $ 145,743
Total interest expense ..................... 44,229 35,307 76,012 68,334 61,180
Net interest income ........................ 51,525 47,695 97,154 91,374 84,563
Provision for loan losses .................. 2,467 1,928 4,064 5,012 3,609
Total other income ......................... 35,335 12,661 32,613 16,473 11,343
Total other expense ........................ 63,167 38,645 84,899 70,066 61,908
Income before income taxes ................. 21,226 19,783 40,804 32,769 30,389
Net income ................................. 13,736 12,758 26,291 21,281 20,200
Per Share Data
Net income (basic) ......................... 0.82 0.78 1.60 1.34 1.26
Net income (diluted) ....................... 0.81 0.78 1.60 1.34 1.26
Cash dividends declared .................... 0.38 0.36 0.73 0.63 0.56
Book value per share ....................... 14.34 12.19 13.24 11.86 11.52
Average Balance Sheet Summary
Total loans ................................ 1,586,237 1,382,963 1,427,270 1,286,868 1,206,408
Securities ................................. 375,541 414,516 409,713 419,974 464,024
Deposits ................................... 1,870,118 1,669,961 1,698,699 1,616,479 1,559,106
Long-term debt ............................. 96,080 37,504 47,603 24,666 8,204
Stockholders' equity ....................... 229,968 195,504 204,118 181,923 168,353
Total assets ............................... 2,416,831 2,088,471 2,180,461 2,021,988 1,874,056
At Period End
Net loans .................................. 1,670,724 1,406,939 1,490,411 1,315,078 1,262,243
Securities ................................. 376,017 408,353 378,330 412,586 450,570
Deposits ................................... 1,993,215 1,702,442 1,779,805 1,626,666 1,602,996
Long-term debt ............................. 87,267 39,400 75,502 34,250 20,000
Stockholders' equity ....................... 242,020 199,365 220,277 188,784 177,522
Total assets ............................... 2,542,007 2,102,385 2,286,424 1,995,878 1,983,871
Selected Ratios
Return on average assets ................... 1.14% 1.22% 1.21% 1.05% 1.08%
Return on average stockholders' equity ..... 11.95 13.05 12.88 11.70 12.00
Dividend payout ratio ...................... 39.18 36.36 35.96 34.81 36.47
Average equity to assets ................... 9.52 9.36 9.36 9.00 8.98
</TABLE>
11
<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.
RISK FACTORS RELATING TO THE CAPITAL SECURITIES
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 Junior Subordinated
Debentures -- Subordination."
The obligations of the Company under the Junior Subordinated Debentures
and the Guarantee also rank PARI PASSU to the Company's obligations under the
debentures issued pursuant to the Indenture and the Guarantee of the Company
dated March 31, 1998, related to the sale of trust preferred securities of City
Holding Capital Trust on March 31, 1998.
The ability of the Issuer 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.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a day other
than an Interest Payment Date. See "Description of Junior Subordinated
Debentures -- Debenture Events of Default." As a consequence of any such
deferral, quarterly Distributions on the Capital Securities by the Issuer 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 9.125% per
annum, compounded quarterly from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distributions" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank PARI PASSU in all respects with or junior
in interest to the Junior Subordinated Debentures (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
shareholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period, (b) as a result of an exchange or
conversion of any class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's indebtedness
for any class or series of the Company's capital stock, (c) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (d) any declaration of a dividend in connection with
any 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
12
<PAGE>
form of stock, warrants, options or other rights where the dividend stock or
the stock issuable upon exercise of such warrants, options or other rights is
the same stock as that on which the dividend is being paid or ranks PARI PASSU
with or junior to such stock). Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at a rate equal to 9.125% per annum, compounded
quarterly), 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 Capital Securities --
Distributions" and "Description of Junior Subordinated 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 Issuer 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 Issuer 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 " -- Sale 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 Issuer Trust) may be more volatile than the
market prices of other securities on which original issue discount accrues that
are not subject to such deferrals.
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 Junior Subordinated Debentures -- Redemption" and "Description
of Capital Securities -- Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or
any political subdivision or taxing authority thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or which pronouncement or decision is announced on or after
the date of issuance of the Capital Securities (including, without limitation,
any of the foregoing arising with respect to, or resulting from, any proposal,
proceeding or other action commencing on or before such date of issuance),
there is more than an insubstantial risk that (i) the Issuer Trust is, or will
be within 90 days of the delivery of such opinion, subject to United
13
<PAGE>
States federal income tax with respect to income received or accrued on the
Junior Subordinated Debentures or New Junior Subordinated Debentures, (ii)
interest payable by the Company on the Junior Subordinated Debentures or New
Junior Subordinated Debentures is not, or within 90 days of the delivery of
such opinion will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes or (iii) the Issuer Trust is, or will
be within 90 days of the delivery of the opinion, subject to more than a DE
MINIMIS amount of other taxes, duties or other governmental charges. According
to a petition recently filed in the United States Tax Court by a corporation
unrelated to the Company and the Issuer 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 Issuer Trust, the relevant facts in that
case appear to differ significantly from those relating to the Junior
Subordinated Debentures and the Issuer 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 Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority, there is more than an
insubstantial risk that the Issuer Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the 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 the allowable amount (subject to current interpretation of
the Federal Reserve as of the date of this Prospectus) of 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 Issuer
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 Capital Securities -- Redemption."
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The
ability of the Company to dissolve the Issuer Trust may be subject to prior
regulatory approval of the Federal Reserve, if then required under applicable
Federal Reserve capital guidelines or policies. See "Description of Capital
Securities -- Liquidation Distribution Upon Dissolution." The Junior
Subordinated Debentures, if distributed, may be subject to restrictions on
transfer.
14
<PAGE>
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Capital Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a
distribution of the Junior Subordinated Debentures by the Issuer Trust would be
a taxable event to the Issuer Trust and the holders of the Capital Securities.
See "Certain Federal Income Tax Consequences -- Distribution of Junior
Subordinated Debentures to Holders of Capital Securities."
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as the Guarantee Trustee under the
Guarantee 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 Issuer Trust: (i) any accumulated and unpaid Distributions required to be
paid on the Capital Securities, to the extent that the Issuer Trust has funds
on hand available therefor at such time; (ii) the Redemption Price (as defined
in "Description of Capital Securities -- Redemption") with respect to any
Capital Securities called for redemption, to the extent that the Issuer Trust
has funds on hand available therefor at such time; and (iii) upon a voluntary
or involuntary dissolution of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital Securities), the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining available for distribution to holders of the Capital
Securities on liquidation of the Issuer Trust. The Guarantee is 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 Issuer
Trust, the Guarantee Trustee or any other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust would lack funds for
the payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, 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 a 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 Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities,"
" -- Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Capital Securities by acceptance thereof
agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee 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
15
<PAGE>
to ensure that the Issuer 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 Capital Securities -- Voting Rights; Amendment of
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 Issuer Trust occurs.
Accordingly, the Capital Securities or the Junior Subordinated Debentures that
a holder of Capital Securities may receive on liquidation of the Issuer Trust
may trade at a discount to the price that the investor paid to purchase the
Capital Securities offered hereby. Because holders of Capital Securities may
receive Junior Subordinated Debentures on dissolution of the Issuer Trust,
prospective purchasers of Capital Securities are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein. See "Description of Junior Subordinated Debentures."
ABSENCE OF PRIOR MARKET FOR THE CAPITAL SECURITIES AND CERTAIN TRADING
RESTRICTIONS
There is no current public market for the Capital Securities. Although the
Capital Securities have been approved for listing on the Nasdaq NMS, subject to
notice of issuance, there can be no assurance that an active public market will
develop for the Capital Securities or that, if such market develops, that it
will be maintained or that the market price will equal or exceed the public
offering price set forth on the cover page of this Prospectus. The public
offering price for the Capital Securities has been determined through
negotiations between the Company and the Underwriters. Prices for the Capital
Securities will be determined in the marketplace and may be influenced by many
factors, including prevailing interest rates, the liquidity of the market for
the Capital Securities, investor perceptions of the Company and general
industry and economic conditions. In addition, notwithstanding the registration
of the Capital Securities, holders who are "affiliates" of the Company or the
Issuer Trust as defined under Rule 405 of the Securities Act may publicly offer
for sale or resell the Capital Securities only in compliance with the
provisions of Rule 144 under the Securities Act. See "Underwriting."
Because holders of Capital Securities may receive Junior Subordinated
Debentures on termination of the Issuer Trust, prospective purchasers of
Capital Securities are also making an investment decision with regard to the
Junior Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein. See "Description
of Junior Subordinated Debentures."
CAPITAL SECURITIES ARE NOT INSURED
The Capital Securities are not insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
or any other governmental agency.
RISK FACTORS RELATING TO THE COMPANY GROWTH
The Company has grown and may seek to continue growing by acquiring other
financial institutions (such as Horizon), branches of such financial
institutions, and companies engaged in related businesses. 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
connection with the acquisition of Horizon, the Company will be acquiring a
bank holding company of almost equal size and may experience certain
integration issues in connection with this acquisition. 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.
16
<PAGE>
RISKS ASSOCIATED WITH MORTGAGE BANKING OPERATION
After approximately two years of providing warehouse funding to an
independent third party financial institution that participated in a FHA Title
I loan securitization conduit, in August 1996 the Company formed City Mortgage
Services ("CMS"), a division of City National. CMS, with offices in Costa Mesa,
California and Cross Lanes, West Virginia, was created as a specialty loan
servicing division focusing on servicing niche loan products such as sub-prime
mortgage, non-conforming mortgage, home improvement, home equity, and other
similar products. During the Fall of 1996, CMS began servicing FHA Title I
loans that were securitized by the third party financial institution to which
the Company had previously provided warehouse funding. In December 1996, the
Company acquired certain assets and assumed certain liabilities of a California
FHA Title I loan servicing company and, as a result, acquired the right to
service, through CMS, a number of securitized loan pools approximating $600
million in unpaid principal balances. In October 1997, the Company acquired an
originator of high loan-to-value, predominately junior lien, mortgage loans,
located in Irvine, California, with an experienced team of junior lien mortgage
originators. Soon thereafter, the Company formed two additional retail
origination platforms, one located in Southern California and the other located
in Charleston, West Virginia. In addition to these three separate retail
origination platforms, the Company maintains a wholesale division in California
which focuses on acquiring high loan-to-value mortgage loans from a network of
correspondent lenders. In August 1998, the Company opened a fourth retail
origination office and expanded its loan servicing division with facilities
located in Dallas, Texas.
High loan-to-value loans obtained by the Company through retail
originations or acquired through the correspondent network are generally sold
to independent third parties or securitized by the Company generally within
90-180 days of funding. Management does not intend to include these high
loan-to-value loans in its core loan portfolio. However, 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 high
loan-to-value 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 high loan-to-value 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 high
loan-to-value 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 high loan-to-value 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.
However, as discussed previously, management intends to mitigate this risk of
loss by selling or securitizing this loss product generally within 90 to 180
days of funding.
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.
17
<PAGE>
COMPETITION
The banking business is highly competitive. In their primary market areas,
the Banks compete 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 Banks' primary competitors have substantially greater
resources and lending limits than the Banks. The profitability of the Company
depends upon the Banks' ability to continue to compete in their primary market
areas.
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.
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 is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal business
activities.
Based on its assessment, the Company has determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 Issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The Company began initiating its Year 2000 project throughout the Company
in January 1997. The project is sponsored and closely monitored by both senior
and executive level management. The Office of the Comptroller of the Currency
("OCC") and the Federal Financial Institutions Examination Council recommends
that all systems reprogramming efforts be completed by December 31, 1998 to
allow for sufficient testing and implementation. Management intends to meet
this recommendation. Plan components are being executed in accordance with
guidelines that have been mandated by the OCC. The Company's approach to Year
2000 compliance encompasses five industry standard phases: awareness,
assessment, renovation, validation, and implementation. The Company has
completed the awareness, assessment, and renovation phases of the project.
Currently, the Company is completing the validation phase and has begun the
implementation phase in certain areas. Management of the Company does not
believe that the sum of the costs incurred to date and the estimated costs
remaining to be incurred are material to the consolidated financial statements
of the Company.
The Company also uses third-party vendors for certain system applications.
The Company has initiated formal communications with its vendors and large
credit customers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. The Company's total Year 2000 project cost and estimates to
complete include the estimated costs and time associated with the impact of
third party Year 2000 Issues based on presently available information. However,
there can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and would not have an adverse
effect on the Company's systems.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in
18
<PAGE>
this area, the ability to locate and correct all relevant computer codes, the
ability of vendors and other third-parties, such as credit customers, to
remediate their own Year 2000 problems and similar uncertainties.
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 the Banks upon the Banks' liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such a distribution) is subject to the
prior claims of creditors of the Banks (including their depositors), except to
the extent that the Company may itself be recognized as a creditor of the
Banks. At June 30, 1998, the Banks had total liabilities (excluding liabilities
owed to the Company) of approximately $1.3 billion, including deposits.
Accordingly, the Capital Securities effectively will be subordinated to all
existing and future liabilities of the Banks, 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 Banks in the future. See "Description of Junior Subordinated Debentures"
and "Description of Guarantee."
In addition, almost all of the operating assets of the Company are owned
by the Banks. Historically, the Company has relied primarily on dividends from
the Banks 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
Banks 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.
The Banks also are 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 Banks unless the loans are secured by
various types of collateral. Further, such secured loans or other transactions
and investments by the Banks are generally limited in amount as to the Company
and as to each such other affiliate to 10% of the Banks' capital and surplus
and as to the Company and all such other affiliates to an aggregate of 20% of
the Banks' capital and surplus.
19
<PAGE>
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 stockholders' 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. In addition to City National, the Company
operates Del Amo, a federally-chartered savings bank headquartered in Torrance,
California. 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. 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 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.
After approximately two years of providing warehouse funding to an
independent third party financial institution that participated in a FHA Title
I loan securitization conduit, in August 1996 the Company formed CMS, a
division of City National. CMS, with offices in Costa Mesa, California and
Cross Lanes, West Virginia, was created as a specialty loan servicing division
focusing on servicing niche loan products such as sub-prime mortgage,
non-conforming mortgage, home improvement, home equity, and other similar
products. During the Fall of 1996, CMS began servicing FHA Title I loans that
were securitized by the third party financial institution to which the Company
had previously provided warehouse funding. In December 1996, the Company
acquired certain assets and assumed certain liabilities of a California FHA
Title I loan servicing company and, as a result, acquired the right to service,
through CMS, a number of securitized loan pools approximating $600 million in
unpaid principal balances. In October 1997, the Company acquired an originator
of high loan-to-value, predominately junior lien, mortgage loans, located in
Irvine, California, with an experienced team of junior lien mortgage
originators. Soon thereafter, the Company formed two additional retail
origination platforms, one located in Southern California and the other located
in Charleston, West Virginia. In addition to these three separate retail
origination platforms, the Company maintains a wholesale division in California
which focuses on acquiring high loan-to-value mortgage loans from a network of
correspondent lenders. In August 1998, the Company opened a fourth retail
origination office and expanded its loan servicing division with facilities
located in Dallas, Texas.
20
<PAGE>
Currently, these divisions are focusing on generating high loan-to-value
products, primarily 125% loan-to-value products through direct mail and
telemarketing solicitation nationwide. 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% loan-to-value products. The
typical 125% loan-to-value product customer has an average FICO score of
approximately 680, and is generally utilizing the loan product to consolidate
high-rate credit card 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 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 transactions involving the securitization of approximately $183 million
of high loan-to-value loans. The Company plans to securitize a portion of its
junior lien mortgage loan 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.
In addition to these mortgage origination and servicing divisions, the
Company also operates an escrow services division, a direct mail/marketing
division and an internet service provider and web site development division.
The Company has also sought to expand the range of insurance products and
services that it provides through the acquisition of an insurance agency
located in Charleston, West Virginia, in December 1997, and one additional
agency in the first quarter of 1998.
RECENT DEVELOPMENTS
HORIZON. On August 7, 1998, the Company announced that it had entered into
a definitive agreement and plan of reorganization to merge with Horizon.
Horizon is a West Virginia bank holding company with assets of $1.04 billion as
of June 30, 1998. 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. It is the intent of the Company and Horizon that the
transaction be accounted for as a pooling of interests and close during the
first quarter of 1999. The Company expects to issue approximately 10,300,000
shares of Common Stock in connection with the merger with Horizon. Subsequent
to the completion of this merger, Horizon's five bank subsidiaries will be
merged into City National. Steven J. Day, President and Chief Executive Officer
of the Company and City National, will continue to serve in those roles for the
combined entity. Consummation of this transaction is subject to shareholder
approval by Horizon and the Company, regulatory approval, and satisfaction of
other conditions. No assurance can be provided that the necessary shareholder
and regulatory approvals can be obtained or that the other conditions precedent
to the merger will be satisfied. 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."
MEGO. 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 are 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.
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. However, the Company remains firmly committed to its
commercial banking operations and expects to increase its commercial banking
presence in West Virginia significantly through its merger with Horizon.
21
<PAGE>
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," "Selected Consolidated Financial
Data and Other Information," Selected Pro Forma Financial Data of the Company
and Horizon Combined" and "Index to Financial Information."
NEITHER THE CAPITAL SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES ARE
OBLIGATIONS OF OR GUARANTEED BY CITY NATIONAL OR DEL AMO.
22
<PAGE>
CITY HOLDING CAPITAL TRUST II
The Issuer 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 Issuer Trust will be 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 Issuer Trust. Two individuals will be
selected by the holders of the Common Securities to act as administrators with
respect to the Issuer Trust (the "Administrators"). The Company, while holder
of the Common Securities, intends to select two individuals who are employees
or officers of or affiliated with the Company to serve as the Administrators.
See "Description of Capital Securities -- Miscellaneous." The Issuer Trust
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust. The Delaware Trustee, the Property Trustee and the
Guarantee Trustee serve in the same capacities to City Holding Capital Trust,
and the Securities issued by City Holding Capital Trust rank PARI PASSU with
the Trust Securities.
All the Common Securities will initially be owned by the Company. The
Common Securities will rank PARI PASSU, and payments will be made thereon PRO
RATA, with the 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 Capital Securities -- Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to approximately 3% of the total capital of the Issuer
Trust. The Issuer 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.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Capital Securities will be included in the consolidated balance sheets as
liabilities 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. See also "Capitalization."
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Capital
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. All of the net proceeds to be received by the Company from the sale
of the Junior Subordinated Debentures will be used for general corporate
purposes, potential future acquisitions, repayment of corporate debt, and
investments in or extensions of credit to its subsidiaries. Pending such use,
the net proceeds may be temporarily invested. 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.
Generally, the proceeds from the sale of the Capital Securities are
expected to qualify as Tier 1 or core capital with respect to the Company under
the risk-based capital guidelines established by the Federal Reserve. However,
capital received from the proceeds of the sale of trust preferred securities
cannot constitute more than 25% of the total Tier 1 capital of the Company (the
"25% Capital Limitation"). Amounts in excess of the 25% Capital Limitation will
constitute Tier 2 or supplementary capital of the Company. Because of the 25%
Capital Limitation, only approximately 24% or $12 million of the proceeds from
the Capital Securities will immediately qualify as Tier 1 or core capital, with
the remaining 76% or $38 million of the proceeds qualifying for Tier 2 capital
treatment under the risk-based capital guidelines of the Federal Reserve.
However, it is anticipated that upon the consummation of the merger with
Horizon, the remaining $38 million of the proceeds will qualify for Tier 1
capital.
23
<PAGE>
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following unaudited tables present the consolidated ratios of earnings
to fixed charges of the Company along with that of Horizon and on a combined
basis. 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 on deposits). Interest expense (other than on deposits)
includes interest on borrowed funds, federal funds purchased and securities
sold under agreements to repurchase, trust preferred securities outstanding,
and other funds borrowed. The first table presents the consolidated ratios of
earnings to fixed charges on a historical basis for the Company. The second
table presents the consolidated ratios of earnings to fixed charges for the
Company and Horizon on a combined basis, along with the pro forma effect
assuming the Capital Securities were outstanding for the six months ended June
30, 1998 and the year ended December 31, 1997.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------------------- -----------------------------------------------------------------
1998 1997
PRO PRO
1998 FORMA(1) 1997 1997 FORMA(1) 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings to Fixed
Charges-City Holding
(Historical)
Including interest on
deposits ............ 1.38x 1.27x 1.45x 1.44x 1.30x 1.40x 1.38x 1.46x 1.49x
Excluding interest on
deposits ............ 2.46 1.85 2.98 2.68 1.93 2.57 3.01 6.10 13.07
</TABLE>
- ---------
(1) Gives pro forma effect assuming the Capital Securities were outstanding
during the periods indicated.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
--------------------------------------
1998
1998 PRO 1997
COMBINED(1) FORMA(2) COMBINED(1)
------------- ---------- -------------
<S> <C> <C> <C>
Earnings to Fixed
Charges-City Holding
and Horizon Combined
Including interest on
deposits ............ 1.48x 1.41x 1.56x
Excluding interest on
deposits ............ 3.66 2.85 4.80
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997
1997 PRO 1996 1995 1994 1993
COMBINED(1) FORMA(2) COMBINED(1) COMBINED(1) COMBINED(1) COMBINED(1)
------------- ---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings to Fixed
Charges-City Holding
and Horizon Combined
Including interest on
deposits ............ 1.54x 1.45x 1.48x 1.50x 1.57x 1.54x
Excluding interest on
deposits ............ 4.15 3.07 4.07 5.24 10.11 18.13
</TABLE>
- ---------
(1) Includes the Company and Horizon combined as though the merger was in
effect during the periods presented.
(2) Gives pro forma effect assuming the Capital Securities were outstanding
during the periods indicated.
24
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of June 30, 1998, and 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. See "Available Information," "Incorporation
of Certain Documents by Reference," "Selected Consolidated Financial Data and
Other Information" and "Index to Financial Information."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
(UNAUDITED)
---------------------------------------------------
AS ADJUSTED FOR
THE HORIZON
AS ADJUSTED FOR ACQUISITION AND
CAPITAL CAPITAL
SECURITIES SECURITIES
ACTUAL ISSUANCE ISSUANCE
------------ ----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings ....................................... $111,974 $111,974 $155,678
Long-term borrowings ........................................ 81,295 81,295 87,267
Corporation-obligated mandatory redeemable capital securities
of subsidiary trust holding solely junior subordinated
debentures of the corporation(l) ........................... 30,000 80,000 80,000
-------- -------- --------
Total borrowings ........................................... 223,269 273,269 322,945
-------- -------- --------
Stockholders' equity:
Common stock, $2.50 par value, 20,000,000 authorized,
6,749,785 issued and outstanding, including 17,055
shares in treasury ....................................... 16,874 16,874 42,738
Capital surplus ............................................ 63,734 63,734 61,944
Retained earnings .......................................... 44,280 44,280 134,896
Accumulated other comprehensive income ..................... 1,811 1,811 3,033
Cost of common stock in treasury ........................... (591) (591) (591)
-------- -------- --------
Total stockholders' equity ................................. 126,108 126,108 242,020
-------- -------- --------
Total capitalization ....................................... $349,377 $399,377 $564,965
======== ======== ========
Capital ratios:
Tier 1 risk-based capital ratio ............................. 9.37% 10.23% 13.92%
Total risk-based capital ratio .............................. 10.05 13.87 14.80
Leverage ratio .............................................. 8.55 9.35 11.32
</TABLE>
- ---------
(1) Reflects the capital securities issued by City Holding Capital Trust on
March 31, 1998 and the Capital Securities. The Issuer Trust is a subsidiary
of the Company and holds the Junior Subordinated Debentures as its sole
asset. See also "Accounting Treatment."
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
The following table sets forth selected consolidated financial information
for the Company for the five years ended December 31, 1997, and the six-month
periods ended June 30, 1998 and 1997. The selected consolidated financial data
as of and for each of the years in the five-year period ended December 31, 1997
have been derived from the Company's consolidated financial statements which
have been audited by Ernst & Young, LLP, independent auditors. The data should
be read in conjunction with the consolidated financial statements and related
notes incorporated by reference herein. The information presented as of and for
the six-month periods ended June 30, 1998 and 1997 is derived from the
Company's unaudited consolidated financial statements for those periods. Those
unaudited consolidated financial statements, which are incorporated by
reference elsewhere in this Prospectus, include all adjustments, consisting
only of normal recurring accruals, which management considers necessary for a
fair presentation of the financial condition and results of operations for such
interim periods. Results for the six-month period ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year or any other
interim period. See also "Incorporation of Certain Documents by Reference,"
"Experts" and "Index to Financial Information."
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Summary of Operations
Total interest income ...................... $ 54,726 $ 46,052
Total interest expense ..................... 26,258 20,582
Net interest income ........................ 28,468 25,470
Provision for loan losses .................. 1,201 828
Total other income ......................... 31,996 9,899
Total other expenses ....................... 49,201 25,192
Income before income taxes ................. 10,062 9,349
Net income ................................. 6,412 6,004
Per Share Data
Net income (basic) ......................... 0.97 0.99
Net income (diluted) ....................... 0.96 0.99
Cash dividends declared (1) ................ 0.38 0.36
Book value per share ....................... 18.73 14.41
Average Balance Sheet Summary
Total loans ................................ 841,367 739,362
Securities ................................. 162,074 179,447
Deposits ................................... 1,010,554 876,887
Long-term debt ............................. 88,313 37,504
Stockholders' equity ....................... 115,229 85,172
Total assets ............................... 1,371,538 1,147,712
At Period End
Net loans .................................. 920,592 752,539
Securities ................................. 166,994 182,393
Deposits ................................... 1,131,709 901,087
Long-term debt ............................. 81,295 39,400
Stockholders' equity ....................... 126,108 87,483
Total assets ............................... 1,501,500 1,147,684
Selected Ratios
Return on average assets ................... 0.94% 1.05%
Return on average stockholders' equity ..... 11.13 14.10
Average equity to assets ................... 8.40 7.42
Dividend payout ratio (1) .................. 39.18 36.36
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Total interest income ...................... $ 96,796 $ 86,069 $ 75,125 $ 62,762 $ 55,301
Total interest expense ..................... 44,691 39,064 33,580 25,168 22,425
Net interest income ........................ 52,105 47,005 41,545 37,594 32,876
Provision for loan losses .................. 1,662 1,678 1,104 1,040 1,434
Total other income ......................... 26,716 11,123 6,346 5,249 3,862
Total other expenses ....................... 57,670 40,982 33,887 30,116 24,292
Income before income taxes ................. 19,489 15,468 12,900 11,687 11,012
Net income ................................. 12,464 10,130 8,718 8,141 7,645
Per Share Data
Net income (basic) ......................... 2.03 1.81 1.55 1.44 1.35
Net income (diluted) ....................... 2.02 1.81 1.55 1.44 1.35
Cash dividends declared (1) ................ 0.73 0.63 0.56 0.49 0.46
Book value per share ....................... 16.56 14.21 13.09 11.66 11.56
Average Balance Sheet Summary
Total loans ................................ 757,803 665,641 608,551 504,795 413,645
Securities ................................. 179,590 166,667 221,743 264,976 262,742
Deposits ................................... 892,865 812,655 771,303 736,115 639,480
Long-term debt ............................. 46,129 24,666 8,204 6,252 4,387
Stockholders' equity ....................... 92,317 76,130 69,463 67,652 63,511
Total assets ............................... 1,213,261 1,079,540 957,048 864,690 739,804
At Period End
Net loans .................................. 772,689 690,701 650,195 547,809 462,424
Securities ................................. 162,912 163,922 194,368 239,882 283,833
Deposits ................................... 938,498 828,670 797,415 746,805 709,958
Long-term debt ............................. 68,400 34,250 20,000 6,875 5,875
Stockholders' equity ....................... 106,255 79,373 73,139 66,299 65,605
Total assets ............................... 1,266,143 1,048,810 1,040,969 895,785 816,225
Selected Ratios
Return on average assets ................... 1.03% 0.94% 0.91% 0.94% 1.03%
Return on average stockholders' equity ..... 13.50 13.31 12.55 12.03 12.04
Average equity to assets ................... 7.61 7.05 7.26 7.82 8.58
Dividend payout ratio (1) .................. 35.96 34.81 36.47 33.91 34.36
</TABLE>
- ---------
(1) Cash dividends and the related payout ratio are based on historical results
of the Company and do not include cash dividends of acquired subsidiaries
prior to the dates of consummation.
26
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
OF THE COMPANY AND HORIZON COMBINED
The following selected pro forma financial data gives effect to the
proposed merger of the Company with Horizon, to be accounted for as a pooling
of interests, based on an exchange ratio of 1.111 shares of the Company's
Common Stock for each share of common stock of Horizon. The pro forma data is
based upon the historical financial statements of the Company and Horizon and
may not be indicative of the results that actually would have occurred if the
combination had been in effect on the dates indicated. See also "Incorporation
of Certain Documents by Reference," "Experts" and "Index to Financial
Information."
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
--------------------------- --------------------------------------------
1998 1997 1997 1996 1995
------------- ------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
(UNAUDITED) INFORMATION)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Total interest income ...................... $ 95,754 $ 83,002 $ 173,166 $ 159,708 $ 145,743
Total interest expense ..................... 44,229 35,307 76,012 68,334 61,180
Net interest income ........................ 51,525 47,695 97,154 91,374 84,563
Provision for loan losses .................. 2,467 1,928 4,064 5,012 3,609
Total other income ......................... 35,335 12,661 32,613 16,473 11,343
Total other expense ........................ 63,167 38,645 84,899 70,066 61,908
Income before income taxes ................. 21,226 19,783 40,804 32,769 30,389
Net income ................................. 13,736 12,758 26,291 21,281 20,200
Per Share Data
Net income (basic) ......................... 0.82 0.78 1.60 1.34 1.26
Net income (diluted) ....................... 0.81 0.78 1.60 1.34 1.26
Cash dividends declared .................... 0.38 0.36 0.73 0.63 0.56
Book value per share ....................... 14.34 12.19 13.24 11.86 11.52
Average Balance Sheet Summary
Total loans ................................ 1,586,237 1,382,963 1,427,270 1,286,868 1,206,408
Securities ................................. 375,541 414,516 409,713 419,974 464,024
Deposits ................................... 1,870,118 1,669,961 1,698,699 1,616,479 1,559,106
Long-term debt ............................. 96,080 37,504 47,603 24,666 8,204
Stockholders' equity ....................... 229,968 195,504 204,118 181,923 168,353
Total assets ............................... 2,416,831 2,088,471 2,180,461 2,021,988 1,874,056
At Period End
Net loans .................................. 1,670,724 1,406,939 1,490,411 1,315,078 1,262,243
Securities ................................. 376,017 408,353 378,330 412,586 450,570
Deposits ................................... 1,993,215 1,702,442 1,779,805 1,626,666 1,602,996
Long-term debt ............................. 87,267 39,400 75,502 34,250 20,000
Stockholders' equity ....................... 242,020 199,365 220,277 188,784 177,522
Total assets ............................... 2,542,007 2,102,385 2,286,424 1,995,878 1,983,871
Selected Ratios
Return on average assets ................... 1.14% 1.22% 1.21% 1.05% 1.08%
Return on average stockholders' equity ..... 11.95 13.05 12.88 11.70 12.00
Dividend payout ratio ...................... 39.18 36.36 35.96 34.81 36.47
Average equity to assets ................... 9.52 9.36 9.36 9.00 8.98
</TABLE>
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF HORIZON
The following table sets forth selected consolidated financial information
for Horizon for the five years ended December 31, 1997, and the six-month
periods ended June 30, 1998 and 1997. The selected consolidated financial data
as of and for each of the years in the five-year period ended December 31, 1997
have been derived from Horizon's consolidated financial statements which have
been audited by Ernst & Young LLP, independent auditors, which as to 1995 are
based in part on the report of Diamond, Leftwich, Goheen & Dunn, P.L.L.C. The
data should be read in conjunction with the consolidated financial statements
and related notes incorporated by reference herein. The consolidated financial
statements as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, and the report thereon of Ernst &
Young, independent certified public accountants, are incorporated by reference
to this Prospectus. The information presented as of and for the six-month
periods ended June 30, 1998 and 1997 is derived from Horizon's unaudited
consolidated financial statements for those periods. Those unaudited
consolidated financial statements, which are incorporated by reference
elsewhere in this Prospectus, include all adjustments, consisting only of
normal recurring accruals, which management considers necessary for a fair
presentation of the financial condition and results of operations for such
interim periods. Results for the six-month period ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year or any other
interim period. See also "Incorporation of Certain Documents by Reference,"
"Experts" and "Index to Financial Information."
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Summary of Operations
Total Interest income ................ $ 41,028 $ 36,950
Total Interest expense ............... 17,971 14,725
Net interest income .................. 23,057 22,225
Provision for loan losses ............ 1,266 1,100
Total other income ................... 3,339 2,762
Total other expense .................. 13,966 13,453
Income before income taxes ........... 11,164 10,434
Net income ........................... 7,324 6,754
Per Share Data
Net income (basic) ................... 0.80 0.73
Net income (diluted) ................. 0.80 0.73
Cash dividends declared .............. 0.38 0.34
Book value per share ................. 12.69 12.08
Average Balance Sheet Summary
Total loans .......................... 744,870 643,601
Securities ........................... 213,467 235,069
Deposits ............................. 859,564 793,074
Long-term debt ....................... 7,767 0
Stockholders' equity ................. 114,739 110,332
Total assets ......................... 1,045,293 940,759
At Period End
Net loans ............................ 750,132 654,400
Securities ........................... 209,023 225,960
Deposits ............................. 861,506 801,355
Long-term debt ....................... 5,972 0
Stockholders' equity ................. 115,912 111,882
Total assets ......................... 1,040,507 954,701
Selected Ratios
Return on average assets ............. 1.40% 1.44%
Return on average stockholders' equity 12.77 12.24
Average equity to assets ............. 10.98 11.73
Dividend payout ratio ................ 47.50 46.58
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Total Interest income ................ $ 76,370 $ 73,639 $ 70,618 $ 62,231 $ 61,029
Total Interest expense ............... 31,321 29,270 27,600 21,689 23,189
Net interest income .................. 45,049 44,369 43,018 40,542 37,840
Provision for loan losses ............ 2,402 3,334 2,505 2,264 2,337
Total other income ................... 5,897 5,350 4,997 3,877 4,176
Total other expense .................. 27,229 29,084 28,021 27,161 25,838
Income before income taxes ........... 21,315 17,301 17,489 14,974 13,841
Net income ........................... 13,827 11,151 11,482 10,125 9,496
Per Share Data
Net income (basic) ................... 1.49 1.20 1.23 1.09 1.02
Net income (diluted) ................. 1.49 1.20 1.23 1.09 1.02
Cash dividends declared .............. 0.75 0.62 0.53 0.49 0.47
Book value per share ................. 12.38 11.76 11.23 9.98 9.56
Average Balance Sheet Summary
Total loans .......................... 669,467 621,227 597,857 552,202 509,008
Securities ........................... 230,123 253,307 242,281 252,023 275,019
Deposits ............................. 805,834 803,824 787,803 751,773 742,729
Long-term debt ....................... 1,474 0 0 0 0
Stockholders' equity ................. 111,801 105,793 98,890 90,873 85,966
Total assets ......................... 967,200 942,448 917,008 870,779 854,794
At Period End
Net loans ............................ 717,722 624,377 612,046 574,053 523,725
Securities ........................... 215,418 248,664 256,202 237,266 270,009
Deposits ............................. 841,307 797,996 805,581 762,619 748,798
Long-term debt ....................... 7,102 0 0 0 0
Stockholders' equity ................. 114,022 109,411 104,383 92,892 88,943
Total assets ......................... 1,020,281 947,068 942,902 882,606 864,017
Selected Ratios
Return on average assets ............. 1.43% 1.18% 1.25% 1.16% 1.11%
Return on average stockholders' equity 12.37 10.54 11.61 11.14 11.05
Average equity to assets ............. 11.56 11.23 10.78 10.44 10.06
Dividend payout ratio ................ 50.34 51.67 43.09 44.95 46.08
</TABLE>
28
<PAGE>
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Capital Securities
and the Common Securities. The Capital Securities will represent preferred
undivided beneficial interests in the assets of the Issuer Trust and the
holders thereof will be entitled to a preference in certain circumstances with
respect to Distributions and amounts payable on redemption or liquidation over
the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Capital Securities and the
Trust Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trust by contacting
the Issuer Trustees.
GENERAL
The Capital Securities will be limited to $50,000,000 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 Issuer 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 Issuer 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 Issuer Trust, and Distributions on each Capital Security
will be payable at an annual rate equal to 9.125% on the stated Liquidation
Amount of $25.00, payable quarterly in arrears on January 31, April 30, July 31
and October 31 of each year (each a "Distribution Date"), to the holders of the
Capital Securities at the close of business on the fifteenth day, (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 January 31, 1999. The amount of
Distributions payable for any period less than a full Distribution period will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. If any date on which Distributions are payable on the 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 20 consecutive quarterly periods with
respect to each Extension Period, during which Extension Periods the Company
shall have the right to make partial payments of interest on any Interest
Payment Date and at the end of which the Company shall pay all interest then
accrued and unpaid, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a day other
than a Distribution Date. As a consequence of any such deferral, quarterly
Distributions on the Capital Securities by the Issuer 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 equal to 9.125% per annum, compounded quarterly from the relevant payment
date for such Distributions, computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period.
Additional Distributions payable for each full Distribution period will be
computed by dividing the rate per annum by four. The term "Distributions" as
used herein shall include any such additional Distributions. During any such
Extension Period, the Company may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank PARI PASSU in all respects with or
junior in interest to the Junior Subordinated Debentures (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of
the Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or shareholder stock purchase plan or in connection with the issuance
29
<PAGE>
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 shareholders' rights plan, or the issuance of rights, stock or other
property under any shareholders' rights plan, or the redemption or repurchase
of rights pursuant thereto, or (e) any dividend in the form of stock, warrants,
options or other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same stock as that on
which the dividend is being paid or ranks PARI PASSU with or junior to such
stock). Prior to the termination of any such Extension Period, the Company may
further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin
a new Extension Period. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company must give the holders
of the Junior Subordinated Debentures and 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 Junior Subordinated
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 Issuer Trust available for distribution to holders of
the Capital Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Capital Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Capital Securities. The payment
of Distributions and other amounts payable on the Capital Securities (if and to
the extent the Issuer Trust has funds legally available for and cash sufficient
to make such payments) is guaranteed by the 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 Junior Subordinated Debentures -- Redemption." If less than
all the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption PRO RATA of the Capital Securities and the Common
Securities based on the relative Liquidation Amounts of such classes. 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 October 31, 2003, in whole at any time or in part from time to
time, or (ii) prior to October 31, 2003, 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.
30
<PAGE>
The Redemption Price, in the case of a redemption under (i) or (ii) above,
shall equal the Liquidation Amount, together with accumulated Distributions to
but excluding the date fixed for redemption.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York or the City of
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 Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25.00 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United 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 (including, without limitation, any of
the foregoing arising with respect to, or resulting from, any proposal,
proceeding or other action commencing on or before such date of issuance),
there is more than an insubstantial risk that (i) the Issuer Trust is, or will
be within 90 days of the delivery of such opinion, subject to United States
federal income tax with respect to income received or accrued on the Junior
Subordinated Debentures, (ii) interest payable by the Company on the Junior
Subordinated Debentures is not, or within 90 days of the delivery of such
opinion, will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes or (iii) the Issuer Trust is, or will
be within 90 days of the delivery of such opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority, there is more than an
insubstantial risk that the Issuer Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change or prospective change becomes effective or would
become effective, as the case may be, on or after the date of the issuance of
the 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 the allowable amount (subject to current interpretation of
the Federal Reserve as of the date of this Prospectus) of 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 Issuer Trust is the holder of all the Junior Subordinated Debentures, the
Company will pay Additional Sums (as defined below), if any, on the Junior
Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer Trust
on the outstanding Capital Securities and Common Securities of the Issuer Trust
will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result
of a Tax Event.
31
<PAGE>
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also " -- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of 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 such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive
the Redemption Price, and any distribution payable in respect of the Capital
Securities, but without interest on such Redemption Price, and such Capital
Securities will cease to be outstanding. If any date fixed for redemption of
Capital Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day which is a
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day. In the event
that payment of the Redemption Price in respect of Capital Securities called
for redemption is improperly withheld or refused and not paid either by the
Issuer Trust or by the 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 Issuer Trust for such Capital Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the 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 Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Capital Securities or portions thereof) called for
redemption.
32
<PAGE>
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 Junior
Subordinated Debentures -- Debenture Events of Default." Until all such Events
of Default under the Trust Agreement with respect to the Capital Securities
have been so cured, waived or otherwise eliminated, the Property Trustee will
act solely on behalf of the holders of the Capital Securities and not on behalf
of the holders of the Common Securities, and only the holders of the Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any
liquidation of the Issuer Trust is $25.00 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 Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption
should consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a
like amount of a similar or higher quality capital instrument and the Federal
Reserve considers the organization's capital position to be fully adequate
after the redemption).
In the event the Company, while a holder of Common Securities, dissolves
the Issuer Trust prior to the Stated Maturity of the Capital Securities and the
dissolution of the Issuer 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 Issuer Trust by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it obtain
the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of
the Company or the holder of the Common Securities; (ii) if the holders of
Common Securities have given written direction to the Property Trustee to
dissolve the Issuer Trust (which direction, subject to the foregoing
restrictions, is optional and wholly within the discretion of the holders of
Common Securities); (iii) the repayment of all the 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 Issuer
Trust by a court of competent jurisdiction.
33
<PAGE>
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer
Trust as provided by applicable law, to the holders of such Trust Securities a
Like Amount of the Junior Subordinated Debentures, unless such distribution is
not practical, in which event such holders will be entitled to receive out of
the assets of the Issuer Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to, in the case of holders of Capital
Securities, the aggregate of the Liquidation Amount plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Issuer Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer Trust on its Capital Securities shall be paid on a PRO RATA
basis. The 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."
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 Issuer Trust is not liquidated and the Junior
Subordinated Debentures are not distributed to holders of the Capital
Securities, the Capital Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures and the distribution of the Liquidation
Distribution to the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive
on dissolution and liquidation of the Issuer Trust, may trade at a discount to
the price that the investor paid to purchase the Capital Securities offered
hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Capital
Securities (whatever the reason for such Event of Default and whether it is
voluntary or involuntary or is effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures -- Debenture Events of Default");
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period
of 30 days;
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable;
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Company by the holders of at least 25% in aggregate Liquidation Amount
of the outstanding 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
34
<PAGE>
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually
with the Property Trustee a certificate as to whether or not they are in
compliance with all the conditions and covenants applicable to them under the
Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect
of the Capital Securities as described above. See " -- Subordination of Common
Securities," " -- Liquidation Distribution Upon Dissolution" and "Description
of Junior Subordinated Debentures -- Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding 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 Company. If an Issuer Trustee
resigns, the Company will appoint its successor. Within one year after the
appointment by the Company of the successor Issuer Trustee by the Company, an
Issuer Trustee who shall succeed the successor Issuer Trustee appointed by the
Company may be chosen by the holders of at least 25% in Liquidation Amount of
Capital Securities. If a successor has not been appointed by the Company or 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 is a party, or any entity succeeding to all or substantially all of the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities have
the same priority as the Capital Securities with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) a trustee of such
successor entity, possessing the same powers and duties as the Property Trustee,
is appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trust has
received an opinion from independent counsel experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect
35
<PAGE>
the rights, preferences and privileges of the holders of the Capital Securities
(including any Successor Securities) in any material respect and (b) following
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Issuer Trust nor such successor entity will be required to
register as an investment company under the Investment Company Act, and (vii)
the Company or any permitted successor or assignee owns all the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Capital Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to, any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Issuer Trust or the successor entity to be taxable other than
as a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under " -- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the 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 holder of Trust Securities, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as may be necessary to ensure that the Issuer Trust will not be taxable
other than as a grantor trust for United States federal income tax purposes at
any time that any Trust Securities are outstanding or to ensure that the Issuer
Trust will not be required to register as an "investment company" under the
Investment Company Act. 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 Issuer Trust's not being taxable other than as a
grantor trust for United States federal income tax purposes or the Issuer
Trust's exemption from status as an "investment company" under the Investment
Company Act, except that, without the consent of each holder of Trust
Securities affected thereby, the Trust Agreement may not be amended to (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 Property
Trustee on behalf of the Issuer Trust, the Property Trustee will not (i) direct
the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee, or execute any trust or power conferred on
the Property Trustee with respect to the Junior Subordinated Debentures, (ii)
waive any past default that is waivable under Section 5.13 of the Junior
Subordinated Indenture, (iii) exercise any right to rescind or annul a
declaration that the Junior Subordinated Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Junior
Subordinated Indenture or the Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of at least a majority in aggregate Liquidation Amount of the
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 written consent of each holder of the Capital
Securities. The Property Trustee may not revoke any action previously
authorized or approved by a vote of the holders of the Capital Securities
except by subsequent vote of the holders of the Capital Securities. The
Property Trustee will notify each holder of Capital Securities of any notice of
default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Capital Securities,
before taking any of the foregoing actions, the Property Trustee will obtain an
opinion of counsel experienced in such matters to the effect that the Issuer
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 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
36
<PAGE>
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
registered holder of Capital Securities in the manner set forth in the Trust
Agreement.
No vote or consent of the holders of Capital Securities will be required
to redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Capital Securities to be issued in the offering may be transferred or
exchanged in the manner and at the offices described below.
The Capital Securities to be issued in the offering initially will be
represented by one or more Capital Securities in registered, global form
(collectively, the "Global Capital Securities"). The Global Capital Securities
will be deposited upon issuance with the Property Trustee as custodian for DTC,
in New York, New York, and registered in the name of DTC or its nominee, in
each case for credit to an account of a direct or indirect participant in DTC,
as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Certificated Capital Securities except in
the limited circumstances described under " -- Exchange of Book-Entry Capital
Securities for Certificated Capital Securities" below. In addition, transfer of
beneficial interests in the Global Capital Securities will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants,
which may change from time to time.
DEPOSITARY PROCEDURES
DTC has advised the Issuer Trust and the Company that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and the Indirect Participants.
DTC has also advised the Issuer Trust and the Company that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital
Securities, DTC will credit the accounts of Participants on behalf of
purchasers of the Capital Securities with portions of the Liquidation Amount of
the Global Capital Securities and (ii) ownership of such interests in the
Global Capital Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Investors in the Global Capital Securities may hold their interests
therein directly through DTC if they are Participants in such system, or
indirectly through organizations which are Participants in such system. All
interests in a Global Security may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in certificated form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Capital
Security to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Capital Security to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests. For certain other restrictions on the
transferability of the Capital Securities, see " -- Exchange of Book-Entry
Capital Securities for Certificated Capital Securities."
37
<PAGE>
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will not
receive physical delivery of Certificated Capital Securities and will not be
considered the registered owners or holders thereof under the Trust Agreement
for any purpose.
Payments in respect of the Global Capital Securities registered in the
name of DTC or its nominee will be payable by the Property Trustee to DTC in
its capacity as the registered holder under the Trust Agreement. Under the
terms of the Trust Agreement, the Property Trustee will treat the persons in
whose names the Capital Securities, including the Global Capital Securities,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Capital Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Issuer Trust and the Company that its current practice, upon
receipt of any payment in respect of securities such as the Capital Securities,
is to credit the account of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
Liquidation Amount of beneficial interests in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Capital Securities will be governed by
standing instructions and customary practices and will be the responsibility of
the Participants or the Indirect Participants and will not be the
responsibility of DTC, the Property Trustee, the Issuer Trust or the Company.
Neither the Issuer Trust nor the Company or the Property Trustee will be liable
for any delay by DTC or any of its Participants in identifying the beneficial
owners of the Capital Securities, and the Issuer Trust or the Company and the
Property Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
DTC has advised the Issuer Trust and the Company that it will take any
action permitted to be taken by a holder of Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in
the Global Capital Securities are credited and only in respect of such portion
of the Liquidation Amount of the Capital Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Trust Agreement, DTC reserves the right to
exchange the Global Capital Securities for Certificated Capital Securities and
to distribute such Capital Securities to its Participants.
The information in this section concerning DTC and book-entry systems has
been obtained from sources that the Issuer Trust and the Company believe to be
reliable, but neither the Issuer Trust nor the Company takes responsibility for
the accuracy thereof.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES
A Global Capital Security is exchangeable for Certificated Capital
Securities if (i) DTC (x) notifies the Company and the Property Trustee in
writing that it is unwilling or unable to properly discharge its
responsibilities as depositary for the Global Capital Security and the Company
is unable to locate a qualified successor, or (y) has ceased to be a clearing
agency registered under the Exchange Act and the Company thereupon is unable to
locate a qualified successor, (ii) the Issuer Trust at its option advises DTC
in writing that it elects to terminate the book-entry system through DTC, or
(iii) there shall have occurred and be continuing an Event of Default or any
event which after notice or lapse of time or both would be an Event of Default
under the Trust Agreement. 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).
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 Issuer Trust (including costs and expenses relating to the
organization of the Issuer Trust, the fees and expenses of the Issuer Trustees
and the costs and expenses relating to the operation of the Issuer Trust) and
to pay any and all taxes and all costs and expenses with respect thereto (other
than withholding taxes) to which the Issuer 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, costs, expenses and taxes are
38
<PAGE>
owed (a "Creditor") whether or not such Creditor has received notice thereof.
Any such Creditor may enforce such obligations of the Company directly against
the Company, and the Company has irrevocably waived any right or remedy to
require that any such Creditor take any action against the Issuer Trust or any
other person before proceeding against the Company.
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 Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Capital Securities after the Capital Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision, the
Property Trustee is under no obligation to exercise any of the powers vested in
it by the Trust Agreement at the request of any holder of Capital Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationships between The Chase Manhattan
Bank, the Property Trustee, and the Company, see "Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable 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 for
United States federal income tax purposes. In this connection, the Property
Trustee and the holders of Common Securities are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Issuer
Trust or the Trust Agreement, that the Property Trustee and the holders of
Common Securities determine in their discretion to be necessary or desirable
for such purposes, as long as such action does not materially adversely affect
the interests of the holders of the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer 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.
39
<PAGE>
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which The Chase Manhattan Bank is acting as
Debenture Trustee. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Junior Subordinated Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Junior Subordinated Indenture, including the
definitions therein of certain terms. Whenever particular defined terms of the
Junior Subordinated Indenture (as amended or supplemented from time to time)
are referred to herein, such defined terms are incorporated herein by
reference. A copy of the form of Junior Subordinated Indenture is available
from the Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Capital Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures issued
by the Company. The Junior Subordinated Debentures will bear interest, accruing
from the date of original issuance, at a rate equal to 9.125% per annum on the
principal amount thereof, payable quarterly in arrears on January 31, April 30,
July 31 and October 31 of each year (each, an "Interest Payment Date"),
commencing January 31, 1999, to the person in whose name each Junior
Subordinated Debenture is registered at the close of business on the fifteenth
day, (whether or not a Business Day) next preceding such Interest Payment Date.
It is anticipated that, until the liquidation of the Issuer Trust, each Junior
Subordinated Debenture will be registered in the name of the Issuer Trust and
held by the Property Trustee in trust for the benefit of the holders of the
Trust Securities. The amount of interest payable for any period less than a
full interest period will be computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period.
The amount of interest payable for any full interest period will be computed by
dividing the rate per annum by four. If any date on which interest is payable
on the Junior Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day that
is a Business Day (without any interest or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at a rate equal to 9.125% per annum, compounded
quarterly and computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. The term "interest" as used herein
includes quarterly interest payments, interest on quarterly interest payments
not paid on the applicable Interest Payment Date and Additional Sums (as
defined below), as applicable.
The Junior Subordinated Debentures will mature on October 31, 2028.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund 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."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, during which Extension Periods the Company
shall have the right to make partial payments of interest on any Interest
Payment Date, and at the end of which, the Company shall pay all interest then
accrued and unpaid, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a date other
than an Interest Payment Date. At the end of such Extension Period, the Company
must pay all interest then accrued and unpaid (together with interest thereon
at a rate equal to 9.125% per annum, compounded quarterly and computed on the
basis of a 360-day year of twelve 30-day months and the actual days elapsed in
a partial month in such period, to the extent permitted by applicable law). The
amount of additional interest payable for any full interest period will be
computed by dividing the rate per annum by four. During an Extension Period,
interest will continue to accrue and holders of Junior Subordinated Debentures
(or holders of 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."
40
<PAGE>
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 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period subject to the above
conditions. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the holders of the Junior
Subordinated Debentures and 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.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after October 31, 2003, in whole at any time or
in part from time to time, or (ii) prior to October 31, 2003, 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 Capital Securities --
Redemption"), in each case at the redemption price described below. The
proceeds of any such redemption will be used by the Issuer Trust to redeem 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) or (ii) above shall equal their principal amount, together
with accrued interest to but excluding the date fixed for redemption.
41
<PAGE>
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Issuer Trust is the holder of all Junior
Subordinated Debentures and (ii) the Issuer Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay as additional sums on the Junior Subordinated
Debentures such amounts as may be required so that the Distributions payable by
the Issuer Trust will not be reduced as a result of any such additional taxes,
duties or other governmental charges. See "Description of Capital Securities --
Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the
name of the Issuer Trust. If the Junior Subordinated Debentures are distributed
to holders of Capital Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "Description of
Capital Securities -- Form, Denomination, Book-Entry Procedures and Transfer."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede, the nominee for DTC, as the registered holder of
the Junior Subordinated Debentures, as described under "Description of Capital
Securities -- Form, Denomination, Book-Entry Procedures and Transfer." If
Junior Subordinated Debentures are issued in certificated form, principal and
interest will be payable, the transfer of the Junior Subordinated Debentures
will be registrable and Junior Subordinated Debentures will be exchangeable for
Junior Subordinated Debentures of other authorized denominations of a like
aggregate principal amount, at the corporate trust office of the Debenture
Trustee in New York, New York or at the offices of any Paying Agent or transfer
agent appointed by the Company, provided that payment of interest may be made
at the option of the Company by check mailed to the address of the persons
entitled thereto. However, a holder of $1 million or more in aggregate
principal amount of Junior Subordinated Debentures may receive payments of
interest (other than interest payable at the Stated Maturity) by wire transfer
of immediately available funds upon written request to the Debenture Trustee
not later than 15 calendar days prior to the date on which the interest is
payable.
The Junior Subordinated Debentures will be issuable only in registered
form without coupons in integral multiples of $25.00. Junior Subordinated
Debentures will be exchangeable for other Junior Subordinated Debentures of
like tenor, of any authorized denominations, and of a like aggregate principal
amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated 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 Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) to register the
transfer or exchange of any Junior Subordinated Debentures so selected for
redemption in whole or in part, except, in the case of any Junior Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
42
<PAGE>
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 Issuer
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, wind up or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Capital Securities in liquidation of the Issuer Trust or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms
and provisions of the Trust Agreement, to cause the Issuer Trust to continue
not to be taxable 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 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
43
<PAGE>
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);
(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;
(iii) failure to observe or perform 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 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 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, and the holders of
a majority in aggregate Liquidation Amount of the Capital Securities issued by
the Issuer 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.
44
<PAGE>
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
direct action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the 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 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 (as
defined in the Junior Subordinated Indenture) or conveys or transfers its
properties and assets substantially as an entirety to any Person, the successor
Person is organized under the laws of the United States or any state or the
District of Columbia, and such successor Person expressly assumes the Company's
obligations in respect of the Junior Subordinated Debentures; (ii) immediately
after giving effect thereto, no Debenture Event of Default, and no event which,
after notice or lapse of time or both, would constitute a Debenture Event of
Default, has occurred and is continuing; and (iii) certain other conditions as
prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable (ii) will become due
and payable at the Stated Maturity within one year, (iii) or are to be called
for redemption within one year under arrangements satisfactory to the Debenture
Trustee 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 upon the Company's request be satisfied and discharged and cease to be of
further effect (except as to any surviving rights of registration of transfer
or exchange, certain obligations of the Company to the Debenture Trustee and
the obligations of the Debenture Trustee to apply money deposited by the
Company in payment of the Junior Subordinated Debentures).
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, upon written notice of such default
to the Company, by the holders of Senior Indebtedness, 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
45
<PAGE>
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.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors
or (iv) any other marshalling of the assets of the Company, all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be made on
account of the Junior Subordinated Debentures. In such event, any payment or
distribution on account of the Junior Subordinated Debentures, whether in cash,
securities or other property, that would otherwise (but for the subordination
provisions) be payable or deliverable in respect of the Junior Subordinated
Debentures will be paid or delivered directly to the holders of Senior
Indebtedness in accordance with the priorities then existing among such holders
until all Senior Indebtedness (including any interest thereon accruing after
the commencement of any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be
paid from the remaining assets of the Company the amounts at the time due and
owing on the Junior Subordinated Debentures and such other obligations before
any payment or other distribution, whether in cash, property or otherwise, will
be made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention
of any of the terms hereof and before all the Senior Indebtedness has been paid
in full, such payment or distribution or security will be received in trust for
the benefit of, and must be paid over or delivered and transferred to, the
holders of the Senior Indebtedness at the time outstanding in accordance with
the priorities then existing among such holders for application to the payment
of all Senior Indebtedness remaining unpaid to the extent necessary to pay all
such Senior Indebtedness in full. By reason of such subordination, in the event
of the insolvency of the Company, holders of Senior Indebtedness may receive
more, ratably, and holders of the Junior Subordinated Debentures may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
46
<PAGE>
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a Debenture Event of Default, undertakes to perform only such duties as are
specifically set forth in the Junior Subordinated Indenture, is under no
obligation to exercise any of the powers vested in it by the Junior
Subordinated Indenture, and, after such Debenture Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. The Debenture Trustee 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.
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.
47
<PAGE>
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Capital Securities by the Issuer Trust for the benefit of
the holders from time to time of the Capital Securities. The Chase Manhattan
Bank will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Capital Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of the Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust may have or
assert other than the defense of payment. The following payments with respect
to the Capital Securities, to the extent not paid or made by or on behalf of
the Issuer Trust (the "Guarantee Payments"), will be subject to the Guarantee:
(i) any accumulated and unpaid Distributions required to be paid on such
Capital Securities, to the extent that the Issuer Trust has funds on hand
available therefor at such time; (ii) the Redemption Price with respect to any
Capital Securities called for redemption, to the extent that the Issuer Trust
has funds on hand available therefor at such time; and (iii) upon a voluntary
or involuntary dissolution, winding up or liquidation of the Issuer Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Capital Securities), the lesser of (a) the aggregate of the Liquidation Amount
and all accumulated and unpaid Distributions to the date of payment, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Capital Securities on liquidation of the Issuer
Trust. The 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
Capital Securities or by causing the Issuer Trust to pay such amounts to such
holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Capital Securities, but will apply
only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
any amounts payable in respect of the 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 Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the 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
Issuer Trust's obligations in respect of the Capital Securities. See
"Relationship Among the Capital Securities, the Junior Subordinated Debentures
and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distributed to the holders of the Capital Securities of the Junior
Subordinated Debentures.
48
<PAGE>
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Capital Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the Capital Securities. The manner of obtaining any such approval will be as
set forth under "Description of Capital Securities -- Voting Rights; Amendment
of Trust Agreement." All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the Company and shall inure to the benefit of the holders of the Capital
Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
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 Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer
Trust, the Guarantee Trustee or any other person or entity.
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 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 Junior Subordinated Debentures -- Information Concerning the
Debenture Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities, upon full
payment of the amounts payable with respect to the Capital Securities upon
liquidation of the Issuer Trust, upon distribution of Junior Subordinated
Debentures to the holders of the Capital Securities and under certain
instances, upon the exchange of the Guarantee pursuant to an exchange offer for
the Capital Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Capital
Securities must restore payment of any sums paid under the Capital Securities
or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
49
<PAGE>
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee." Taken together, the Company's obligations under the
Junior Subordinated Debentures, the Junior Subordinated Indenture, the Trust
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the 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 Issuer Trust's
obligations in respect of the Capital Securities. If and to the extent that the
Company does not make payments on the Junior Subordinated Debentures, the
Issuer Trust will not have sufficient funds to pay Distributions or other
amounts due on the Capital Securities. The Guarantee does not cover payment of
amounts payable with respect to the Capital Securities when the Issuer Trust
does not have sufficient funds to pay such amounts. In such event, the remedy
of a holder of the Capital Securities is to institute a legal proceeding
directly against the Company for enforcement of payment of the Company's
obligations under Junior Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Capital Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures
and the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Capital Securities, primarily because: (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Capital Securities
and Common Securities; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Capital Securities; (iii)
the Company will pay for all and any costs, expenses and liabilities of the
Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited
purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the 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 CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Capital
Securities. However, in the event of payment defaults under, or acceleration
of, Senior Indebtedness of the Company, the subordination provisions of the
Junior Subordinated Indenture provide that no payments may be made in respect
of the Junior Subordinated Debentures until such Senior Indebtedness has been
paid in full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures -- Subordination."
LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Capital Securities and Common 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
Issuer Trust (or from the Company under the Guarantee) only if and to the
extent the Issuer Trust has funds available for the payment of such
Distributions.
50
<PAGE>
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer Trust
as required by applicable law, the holders of the Capital Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
Distribution in cash. See "Description of Capital Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation
or bankruptcy of the Company, the Issuer Trust, as registered holder of the
Junior Subordinated Debentures, would be a subordinated creditor of the
Company, subordinated and junior in right of payment to all Senior Indebtedness
as set forth in the Junior Subordinated Indenture, but entitled to receive
payment in full of all amounts payable with respect to the Junior Subordinated
Debentures before any 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 Issuer Trust (other than the Issuer Trust's obligations
to the holders of the Trust Securities), the positions of a holder of the
Capital Securities and a holder of such Junior Subordinated Debentures relative
to other creditors and to shareholders of the Company in the event of
liquidation or bankruptcy of the Company are expected to be substantially the
same.
51
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of Capital
Securities. The statements of law and legal conclusions set forth in this
summary regarding the tax consequences to the beneficial owners of Capital
Securities (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 income tax law, such as banks, insurance companies, thrift
institutions, regulated investment companies, real estate investment trusts,
tax-exempt organizations and dealers in securities or currencies, (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.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS
IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES,
AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF 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, that 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 Issuer 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 Issuer Trust, the relevant facts involved in that case
appear to differ significantly from those relating to the Junior Subordinated
Debentures and the Issuer Trust. The remainder of this summary assumes that the
Junior Subordinated Debentures will be classified as indebtedness for United
States federal income tax purposes.
CLASSIFICATION OF THE ISSUER TRUST
In the opinion of Hunton & Williams, under current law and assuming
compliance with the terms of the Trust Agreement, the Issuer 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,
including any original issue discount ("OID"), 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
52
<PAGE>
with 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 will not be considered to be issued with OID at the
time of their original issuance and, accordingly, a Securityholder should
include in gross income such Securityholder's allocable share of interest on
the Junior Subordinated Debentures (other than any portion 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 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 Issuer
Trust of the Junior Subordinated Debentures as described under the caption
"Description of Capital Securities -- Liquidation Distribution Upon
Dissolution," would not be a 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 Issuer Trust, with a holding
period and aggregate tax basis equal to the holding period and aggregate tax
basis such Securityholder had in its Capital Securities before such
distribution; and a Securityholder would account for interest, market discount
and amortizable premium in respect of Junior Subordinated Debentures received
from the Issuer Trust in the manner 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 Issuer 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.
53
<PAGE>
SALE 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
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 its initial
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 with respect to the
Capital Securities to Securityholders (other than corporations and other exempt
Securityholders) will be reported to the IRS. It is expected that such income
on the Capital Securities 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, non-resident alien
individual, foreign partnership, 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 Issuer 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 the Capital Securities certifies to the
Issuer 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 ordinary course of its trade or business
(a "Financial Institution") and holds the Capital Securities in such
capacity certifies to the Issuer 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 Issuer Trust or its agent with a copy thereof; and
54
<PAGE>
(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 and OID on instruments with features
similar to those of the Junior Subordinated Debentures when issued under
arrangements similar to the Issuer 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 Capital
Securities -- Redemption."
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the 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 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 (also "Plans"), 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 Issuer Trust would not be deemed to be "plan assets" of investing
Plans if, immediately after the most recent acquisition of any equity interest
in the Issuer Trust, less than 25% of the value of each class of equity
interests in the Issuer Trust were held by Plans, other employee benefit plans
not subject to ERISA or Section 4975 of the Code (such as governmental, church
and foreign plans), 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 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
Capital Securities qualify as "publicly offered securities" under the Plan
Assets Regulation, the assets of the Issuer Trust would not be deemed to be
"plan assets" by reason of a Plan's acquisition or holding of such securities.
The 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 be satisfied. The
Capital Securities have been registered under the Exchange Act, and the Capital
Securities are being offered pursuant to an effective Registration Statement.
If none of the exceptions set forth in the Plan Assets Regulation apply to
the purchase of Capital Securities offered hereby, an investing Plan's assets
could be considered to include an undivided interest in the Junior Subordinated
Deben-
55
<PAGE>
tures held by the Issuer Trust. In the event that assets of the Issuer 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 Issuer 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 City National or other subsidiaries), extensions of
credit between the Company and the Issuer Trust (as represented by the Junior
Subordinated Debentures and the Guarantee) would likely be prohibited by
Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code.
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 Issuer Trust were deemed to be "plan assets" of
Plans investing in the Issuer 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 Issuer 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.
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 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.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Issuer Trust have agreed that the Issuer Trust
will sell 2,000,000 Capital Securities to Wheat First Union, a division of
Wheat First Securities, Inc., and Friedman, Billings, Ramsey & Co., Inc. (the
"Underwriters"), and the Underwriters have agreed to purchase that number of
Capital Securities from the Issuer Trust.
Under the terms and conditions set forth in the Underwriting Agreement,
the Underwriters are committed to take and pay for all such Capital Securities
offered hereby, if any are taken.
The Underwriters propose to offer the Capital Securities in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price less
a concession of $0.50 per Capital Security. After the Capital Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters. The Underwriters may allow,
and such dealers may re-allow, a concession not to exceed $0.45 per Capital
Security to certain brokers or dealers.
56
<PAGE>
The Company and the Issuer Trust have granted to the Underwriters an
option, exercisable at any time (but not more than once) within 30 days after
the first date that any of the Capital Securities are released by the
Underwriters for sale to the public, to purchase up to an additional $7,500,000
aggregate Liquidation Amount of Capital Securities (300,000 Capital Securities)
at the public offering price, less the underwriting discounts and commissions
set forth on the cover page of this Prospectus, plus accumulated distributions,
if any, from October 27, 1998. To the extent that the Underwriters exercise
such option, the Issuer Trust will be obligated, pursuant to the option, to
sell such additional Capital Securities to the Underwriters. The Underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of Capital Securities offered hereby. If purchased, the Underwriters
will offer such additional Capital Securities on the same terms as those on
which the $50,000,000 aggregate Liquidation Amount of the Capital Securities
are being offered.
In connection with the offering of the Capital Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Commission's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the Capital Securities. Such transactions may include
over-allotment transactions in which the Underwriters create a short position
for their own accounts by selling more Capital Securities than they are
committed to purchase from the Issuer Trust. In such a case, to cover all or
part of the short position, the Underwriters may exercise any over-allotment
option or may purchase Capital Securities in the open market following
completion of the initial offering of Capital Securities. The Underwriters also
may engage in stabilizing transactions in which they bid for, and purchase,
shares of the Capital Securities at a level above that which might otherwise
prevail in the open market for the purpose of preventing or retarding a decline
in the market price of the Capital Securities. The Underwriters also may
reclaim any selling concessions allowed to a dealer if the Underwriters
repurchase shares distributed by that dealer. Any of the foregoing transactions
may result in the maintenance of a price for the Capital Securities at a level
above that which might otherwise prevail in the open market. Neither the
Company nor the Underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Capital Securities. The Underwriters are not required
to engage in any of the foregoing transactions and, if commenced, such
transactions may be discontinued at any time without notice.
In view of the fact that the proceeds from the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures issued
by the Company, the Underwriting Agreement provides that the Company will pay
as Underwriters' compensation for the Underwriters arranging the investment
therein of such proceeds an amount of $0.9375 per Capital Security for the
accounts of the Underwriters.
The Company and the Issuer Trust have agreed that, during the period
beginning from the date of the Underwriting Agreement and continuing to and
including 180 days following the Closing Date, they will not offer, sell,
contract to sell or otherwise dispose of any additional securities of the
Issuer Trust or the Company substantially similar to the Capital Securities or
any securities convertible into or exchangeable for or that represent the right
to receive any such similar securities, without the consent of the Underwriter,
which consent shall not be unreasonably withheld.
Prior to this offering, there has been no public market for the Capital
Securities. The Capital Securities have been approved for quotation on the
Nasdaq NMS, subject to notice of issuance, under the symbol "CHCOP." However,
no assurance can be given as to the liquidity of or the existence of the
trading market for the Capital Securities.
The Company and the Issuer Trust have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Underwriters or their affiliates have provided from time to time, and
expect to provide in the future, investment or commercial banking services to
the Company and its affiliates, for which the Underwriters or their affiliates
have received or will receive customary fees and commissions.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to the Company and the Issuer Trust. The validity of the
Guarantee and the Junior Subordinated Debentures will be passed upon for the
Company by Hunton & Williams, counsel to the Company, and for the Underwriters
by Alston & Bird LLP, Washington, D.C., counsel to the Underwriters. Hunton &
Williams and Alston & Bird LLP will rely as to certain matters of Delaware law
on the opinion of Richards, Layton & Finger, P.A. and Alston & Bird LLP will
rely as to certain matters of West Virginia law on the opinion of Hunton &
Williams.
57
<PAGE>
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 and included in the Company's Current Report on Form 8-K filed on
September 14, 1998, have been audited by Ernst & Young, LLP, independent
auditors, as set forth in their report thereon, included therein and
incorporated herein by reference, which as to 1995 are based in part on the
report of Diamond, Leftwich, Goheen & Dunn, P.L.L.C. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of said firms as experts in accounting and
auditing.
58
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
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
</TABLE>
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 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 in effect on the dates indicated. 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 in effect on the dates indicated.
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.
On March 31, 1998, the Company sold $30,000,000 of Corporation-obligated
Manditorily Redeemable Capital Securities of a subsidiary trust that holds only
subordinated debentures of the Company ("Trust Preferred Securities"). Pro
forma amounts, assuming that the Trust Preferred Securities had been
outstanding during all periods presented herein and the Company had incurred
the expense of and realized the income from the proceeds of such securities,
would not be materially different from those presented herein.
F-2
<PAGE>
PRO FORMA BALANCE SHEET - CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
AS OF JUNE 30, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
CITY HOLDING HORIZON BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
--------------- ----------------- ------------------------ ---------------
<S> <C> <C> <C> <C> <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
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
Other liabilities ................................. 20,414 13,413 33,827
----------- ----------- ---------- ----------- -----------
TOTAL LIABILITIES ................................. 1,375,392 924,595 2,299,987
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>
PRO FORMA
CITY HOLDING HORIZON BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
--------------- ----------------- ------------------------ ---------------
<S> <C> <C> <C> <C> <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>
PRO FORMA
CITY HOLDING HORIZON BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
-------------- ----------------- ------------------------ ---------------
<S> <C> <C> <C> <C> <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>
PRO FORMA
CITY HOLDING HORIZON BANCORP ADJUSTMENTS AND PRO FORMA
AS REPORTED AS REPORTED ELIMINATIONS COMBINED
-------------- ----------------- ------------------------ ---------------
<S> <C> <C> <C> <C> <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> <C> <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 (losses) ................ 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 mo rtgages ...... 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> <C> <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 (losses) ............ 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> <C> <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> <C> <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> <C> <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
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE ISSUER TRUST SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR 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 TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information .................................. 4
Incorporation of Certain Documents
by Reference ........................................ 4
Summary ................................................ 6
Risk Factors ........................................... 12
City Holding Company ................................... 20
City Holding Capital Trust II .......................... 23
Accounting Treatment ................................... 23
Use of Proceeds ........................................ 23
Consolidated Ratios of Earnings
to Fixed Charges .................................... 24
Capitalization ......................................... 25
Selected Consolidated Financial Data and Other
Information ......................................... 26
Selected Pro Forma Financial Data of the
Company and Horizon Combined ........................ 27
Selected Historical Financial Data of Horizon .......... 28
Description of Capital Securities ...................... 29
Description of Junior Subordinated Debentures .......... 40
Description of Guarantee ............................... 48
Relationship Among the Capital Securities, the
Junior Subordinated Debentures and the
Guarantee ........................................... 50
Certain Federal Income Tax Consequences ................ 52
Certain ERISA Considerations ........................... 55
Underwriting ........................................... 56
Legal Matters .......................................... 57
Experts ................................................ 58
Index to Financial Information ......................... F-1
</TABLE>
$50,000,000
CAPITAL SECURITIES
CITY HOLDING CAPITAL TRUST II
9.125% CAPITAL SECURITIES FULLY AND
UNCONDITIONALLY GUARANTEED, TO THE
EXTENT DESCRIBED HEREIN, BY
[CITY HOLDING COMPANY LOGO]
--------------------------
PROSPECTUS
--------------------------
WHEAT FIRST UNION
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.
OCTOBER 22, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
