<PAGE>
Pursuant to Rule No. 424(b)2
Registration No. 333-20711
333-20711-01
PROSPECTUS SUPPLEMENT
dated May 9, 1997 to Prospectus dated April 29, 1997
1,800,000 TRUST PREFERRED SECURITIES
[LOGO OF COMMMERCIAL CFC PREFERRED TRUST
FEDERAL CORPORATION
APPEARS HERE]
9.375% Cumulative Trust Preferred Securities (Liquidation Amount $25 per Trust
Preferred Security) Fully and Unconditionally Guaranteed, as Described Herein,
by
COMMERCIAL FEDERAL CORPORATION
The 9.375% Cumulative Trust Preferred Securities (the "Capital Securities")
offered hereby represent undivided beneficial ownership interests in the
assets of CFC Preferred Trust, a trust created under the laws of the State of
Delaware (the "Issuer"). Commercial Federal Corporation, a Nebraska
corporation (the "Company"), will be the owner of all the beneficial ownership
interests represented by common securities of the Issuer (the "Common
Securities" and, collectively with the Capital Securities, the "Trust
Securities"). Harris Trust and Savings Bank is the Property Trustee of the
Issuer. The Issuer exists for the sole purpose of issuing the Capital
Securities and the Common Securities and investing the proceeds thereof in
9.375% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures"), to be issued by the Company. The Junior
Subordinated Debentures will mature on May 15, 2027, which date may be
shortened to a date not earlier than May 15, 2002 if certain conditions are
met (including, in the case of a shortening of the Stated Maturity (as defined
herein), the Company having received prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve") to do so if then
required under applicable capital guidelines or policies). Although the
Company, as a savings and loan holding company, is not subject to the Federal
Reserve capital requirements for bank holding companies, it is possible that
in the future it could become subject to such requirements as a result of the
acquisition of a bank, a change in applicable regulations or the Company
otherwise becoming subject to Federal Reserve capital requirements.
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, ANY OTHER GOVERNMENTAL AGENCY OR
OTHERWISE.
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Commission (1) Issuer (2)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Capital Security................... $25.00 (2) $25.00
- --------------------------------------------------------------------------------
Total.................................. $45,000,000 (2) $45,000,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Issuer and the Company have each agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(2) In view of the fact that all of the proceeds of the sale of the Capital
Securities will be invested in the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriters as compensation for their
arranging the investment therein of such proceeds, $.7875 per Capital
Security or $1,417,500 in the aggregate. See "Underwriting."
(3) Expenses of the offering which are payable by the Company are estimated to
be approximately $275,000.
The Capital Securities offered hereby are offered by the Underwriters subject
to prior sale when, as and if delivered to and accepted by the Underwriters.
It is expected that the Capital Securities will be ready for delivery in book-
entry form only through the facilities of The Depository Trust Company in New
York, New York, on or about May 14, 1997, against payment therefor in
immediately available funds.
Piper Jaffray Inc. Dain Bosworth
INCORPORATED
<PAGE>
(continued from previous page)
The Capital Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption
or otherwise over the Common Securities. See "Description of Capital
Securities--Subordination of Common Securities" in the accompanying
Prospectus. Holders of Capital Securities will be entitled to receive
preferential cumulative cash distributions accruing from the date of original
issuance and payable quarterly in arrears on the last day of March, June,
September and December of each year, commencing September 30, 1997, at the
annual rate of 9.375% of the Liquidation Amount of $25 per Capital Security
("Distributions"). Provided that no Debenture Event of Default (as defined in
the accompanying Prospectus) has occurred and is continuing, 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
quarters 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. Upon the termination of any such Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the rate of 9.375%, compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extension
Period subject to the requirements set forth herein. If interest payments on
the 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 debt
securities that rank pari passu with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Capital Securities are entitled will accumulate) at the rate of
9.375% per annum, compounded quarterly from the relevant payment date for such
interest, and holders of Capital Securities will be required to accrue income
for United States federal income tax purposes. See "Certain Terms of Junior
Subordinated Debentures--Option to Defer Interest Payments" in this Prospectus
Supplement and "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount" in the accompanying Prospectus.
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Debt (as defined in the accompanying Prospectus). At March 31, 1997,
the aggregate amount of Senior Debt outstanding was $77.0 million. Because the
Company is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary, including Commercial Federal Bank, a
Federal Savings Bank (the "Bank"), upon the subsidiary's liquidation or
reorganization or otherwise, and thus the ability of holders of the Capital
Securities to benefit indirectly from such distributions, is subject to the
prior claims of creditors of the subsidiary, except to the extent that the
Company may itself be recognized as a creditor of the subsidiary. Accordingly,
the Junior Subordinated Debentures (and therefore the Capital Securities) will
be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders thereof should only look to the assets of
the Company for payments on the Junior Subordinated Debentures. See "Risk
Factors--Ranking of Subordinated Obligations Under the Guarantee and the
Junior Subordinated Debentures" and "Description of Junior Subordinated
Debentures--Subordination" in the accompanying Prospectus.
The Company has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement (each as defined herein), taken together, fully, irrevocably and
unconditionally guaranteed all of the Issuer's obligations under the Capital
Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee"
in the accompanying Prospectus. 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, as described herein. See "Description of Guarantee" in the
accompanying Prospectus. If the Company does not make interest payments on the
Junior Subordinated Debentures held by the Issuer, the Issuer will have
insufficient funds to pay Distributions. The Guarantee does not cover payment
of Distributions when the Issuer has insufficient funds to pay such
Distributions. In such event, a holder of Capital Securities may institute a
legal proceeding directly against the Company pursuant to the terms of the
Indenture to enforce payment of amounts equal to such Distributions to such
holders. See "Description of Junior Subordinated Debentures--Enforcement of
Certain Rights By Holders of Capital Securities" in the accompanying
Prospectus. The obligations of the Company under the Guarantee and the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Debt of the Company.
(continued on next page)
S-2
<PAGE>
(continued from previous page)
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Junior Subordinated Debentures at the Stated
Maturity or their earlier redemption. Subject to the Company having received
prior approval of the Federal Reserve to do so if then required under
applicable capital guidelines or policies of the Federal Reserve, the Junior
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (i) on or after May 15, 2002, in whole at any time or in part from
time to time, or (ii) at any time, in whole (but not in part), upon the
occurrence and continuation of a Tax Event or a Capital Treatment Event (each
as defined in the accompanying Prospectus). In any case the redemption price
for the Capital Securities will be the aggregate Liquidation Amount of such
Capital Security plus accumulated and unpaid Distributions thereon to the date
of redemption. See "Certain Terms of Capital Securities--Redemption."
The Company will have the right at any time to terminate the Issuer, subject
to the Company having received prior approval of the Federal Reserve to do so
if then required under applicable capital guidelines or policies of the
Federal Reserve. See "Certain Terms of Capital Securities--Liquidation of
Issuer and Distribution of Junior Subordinated Debentures to Holders." In the
event of the termination of the Issuer, after satisfaction of liabilities to
creditors of the Issuer as required by applicable law, the holders of the
Capital Securities will be entitled to receive a Liquidation Amount of $25 per
Capital Security plus accumulated and unpaid Distributions thereon to the date
of payment, which may be in the form of a distribution of a Like Amount (as
defined in the accompanying Prospectus) of Junior Subordinated Debentures,
subject to certain exceptions. See "Description of Capital Securities--
Liquidation Distribution Upon Termination" in the accompanying Prospectus.
The Capital Securities have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "CFBPr."
Trading of the Capital Securities on the New York Stock Exchange is expected
to commence within a 30-day period after the initial delivery of the Capital
Securities. See "Underwriting." If Junior Subordinated Debentures are
distributed to the holders of Capital Securities in exchange therefor upon the
liquidation of the Issuer, the Company will use its best efforts to list the
Junior Subordinated Debentures on the New York Stock Exchange or such other
stock exchanges or automated quotation systems, if any, on which the Capital
Securities are then listed or traded.
The Capital Securities will be represented by global certificates registered
in the name of The Depository Trust Company ("DTC") or its nominee. Beneficial
interests in the Capital Securities will be shown on, and transfers thereof
will only be effected through, records maintained by participants in DTC.
Except as described in the accompanying Prospectus, Capital Securities in
certificated form will not be issued in exchange for the global certificates.
See "Certain Terms of Capital Securities--Registration of Capital Securities."
The information in this Prospectus Supplement supplements, and should be read
in conjunction with, the information contained in the accompanying Prospectus.
As used herein, (i) the "Indenture" means the Indenture, as amended and
supplemented from time to time, between the Company and Harris Trust and
Savings Bank, as trustee (the "Debenture Trustee"), and (ii) the "Trust
Agreement" means the Trust Agreement relating to the Issuer among the Company,
as Depositor, Harris Trust and Savings Bank, as Property Trustee (the
"Property Trustee"), Wilmington Trust Company, as Delaware Trustee (the
"Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees"), (iii) the "Guarantee Agreement" means the Guarantee between the
Company and Harris Trust and Savings Bank, as trustee (the "Guarantee
Trustee"), and (iv) the "Expense Agreement" means the Expense Agreement
between the Company and the Issuer. Each of the other capitalized terms used
in this Prospectus Supplement and not otherwise defined in this Prospectus
Supplement has the meaning set forth in the accompanying Prospectus.
---------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL SECURITIES
OFFERED HEREBY. 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."
---------------
S-3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements of the Company, including the Notes thereto, appearing elsewhere in
this Prospectus Supplement, in the Prospectus or incorporated by reference
herein or therein. Information included or incorporated by reference in this
Prospectus Supplement or in the accompanying Prospectus includes "forward
looking statements," which can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipated," "estimate" or
"continue," or the negative thereof or other variations thereon or comparable
terminology. The statements in "Risk Factors" beginning on page 5 of the
accompanying Prospectus and other statements and disclaimers in this Prospectus
Supplement and the accompanying Prospectus constitute cautionary statements
identifying important factors, including certain risks and uncertainties, with
respect to such forward-looking statements that could cause actual results to
differ materially from those reflected in such forward-looking statements.
THE COMPANY
The Company is a holding company for the Bank, which is the largest
depository institution headquartered in Nebraska. At December 31, 1996, the
Company had assets of $6.9 billion and stockholders' equity of $394.7 million.
Based upon total assets at that date, the Company was the 19th largest publicly
held thrift holding company in the United States. The Bank is a consumer-
oriented financial institution that emphasizes single-family residential real
estate lending, consumer lending, retail deposit activities, including demand
deposit accounts, and mortgage banking. At December 31, 1996, the Bank operated
34 branch offices in Nebraska, 20 branch offices in greater metropolitan
Denver, Colorado, 19 branch offices in Oklahoma, 25 branch offices in Kansas
and seven branch offices in Iowa. Throughout its 109 year history, the Bank has
emphasized customer service. To serve its customers, the Bank conducts loan
origination activities through its 105 branch office network, loan offices of
its wholly-owned mortgage banking subsidiary and a nationwide correspondent
network consisting of approximately 375 mortgage loan originators. The Bank
also provides insurance and securities brokerage and other retail financial
services.
The Company's strategy for growth emphasizes both internal and external
growth. Operations focus on increasing deposits, including demand accounts,
making loans (primarily single-family mortgage and consumer loans) and
providing customers with a full array of financial products and a high level of
customer service. As part of its long-term strategic plan, the Company intends
to expand its operations within its market areas either through direct
marketing efforts aimed at increasing market share, branch expansions, or
opening additional branches. The Company's retail strategy will continue to be
centered on attracting new customers and selling both new and existing
customers multiple products and services. Additionally, the Company will
continue to build and leverage an infrastructure designed to increase fee and
other income.
Complementing its strategy of internal growth, the Company will continue to
grow its five-state franchise through an ongoing program of selective
acquisitions of other financial institutions. Acquisition candidates will be
selected based on the extent to which the candidates can enhance the Company's
retail presence in new or underserved markets and complement the Company's
existing retail network.
The Company's principal executive offices are located at 2120 South 72nd
Street, Omaha, Nebraska 68124, and its telephone number is (402) 554-9200.
CFC PREFERRED TRUST
The Issuer is a statutory business trust created under Delaware law pursuant
to (i) a trust agreement (the "Trust Agreement") executed by the Company, as
Depositor, the Property Trustee, the Delaware Trustee and two Administrative
Trustees (as defined herein) and (ii) the filing of a certificate of trust with
the Delaware Secretary of State on January 30, 1997. The Trust Agreement will
be qualified as an indenture under the Trust
S-4
<PAGE>
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Issuer
exists for the exclusive purposes of (i) issuing and selling its Trust
Securities, (ii) using the proceeds from the sale of such Trust Securities to
acquire Junior Subordinated Debentures issued by the Company, and (iii)
engaging in only those other activities necessary, convenient or incidental
thereto (such as registering the transfer of the Capital Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Issuer, and payments under the Junior Subordinated Debentures and the Expense
Agreement will be the sole revenue of the Issuer.
All of the Common Securities of the Issuer will be owned by the Company. The
Common Securities of the Issuer will rank pari passu, and payments will be made
thereon pro rata, with the Capital Securities of the Issuer, except that upon
the occurrence and continuance of an event of default under the Trust Agreement
resulting from a Debenture Event of Default, the rights of the Company as
holder of the Common Securities to payment in respect of Distributions and
payments upon liquidation or redemption will be subordinated to the rights of
the holders of the Capital Securities of the Issuer. See "Description of
Capital Securities--Subordination of Common Securities" in the accompanying
Prospectus. The Company will acquire Common Securities in an aggregate
Liquidation Amount equal to not less than 3% of the total capital of the
Issuer. The Issuer has a term of 31 years but may be terminated earlier as
provided in the Trust Agreement.
The principal executive office of the Issuer is 2120 South 72nd Street,
Omaha, Nebraska 68124 and its telephone number is (402) 554-9200.
THE OFFERING
Capital Securities issuer..... CFC Preferred Trust
Securities offered............ 1,800,000 Capital Securities. The Capital
Securities represent undivided beneficial
interests in the Issuer's assets, which will
consist solely of the Junior Subordinated
Debentures and payments thereunder.
Distributions................. The Distributions payable on each Capital
Security will be fixed at a rate per annum of
9.375% of the Liquidation Amount of $25 per
Capital Security, will be cumulative, will
accrue from and including the date of issuance
of the Capital Securities, and will be payable
quarterly in arrears on the last day of March,
June, September and December of each year,
commencing on September 30, 1997 (subject to
possible deferral as described below.) The
amount of each Distribution due with respect to
the Capital Securities will include amounts
accrued to but excluding the date the
Distribution is due. See "Description of
Capital Securities--Distributions" in the
accompanying Prospectus.
Extension periods............. So long as no Debenture Event of Default has
occurred and is continuing, the Company will
have the right, at any time, to defer payments
of interest on the Junior Subordinated
Debentures by extending the interest payment
period thereon for a period not exceeding 20
consecutive quarters 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. If interest payments
are so deferred, Distributions on the Capital
Securities will be deferred and the Company
will not be permitted, subject to certain
exceptions
S-5
<PAGE>
described herein, to declare or pay any cash
distributions with respect to the Company's
capital stock or debt securities that rank pari
passu with or junior to the Junior Subordinated
Debentures. During an Extension Period,
Distributions will continue to accrue with
income thereon compounded quarterly. Because
interest would continue to accrue and compound
on the Junior Subordinated Debentures, to the
extent permitted by applicable law, holders of
the Capital Securities will be required to
accrue income for United States federal income
tax purposes. See "Description of Junior
Subordinated Debentures--Option to Defer
Interest Payments" and "Certain Federal Income
Tax Consequences--Interest Income and Original
Issue Discount" in the accompanying Prospectus.
Maturity...................... The Junior Subordinated Debentures will mature
on May 15, 2027, which date may be shortened
(such date, as it may be shortened, the "Stated
Maturity") to a date not earlier than May 15,
2002 if certain conditions are met (including
the Company having received prior approval of
the Federal Reserve to do so if then required
under applicable capital guidelines or policies
of the Federal Reserve).
Redemption.................... The Capital Securities are subject to mandatory
redemption upon repayment of the Junior
Subordinated Debentures at the Stated Maturity
or their earlier redemption in an amount equal
to the amount of Junior Subordinated Debentures
maturing on or being redeemed at a redemption
price equal to the aggregate Liquidation Amount
of the Capital Securities plus accumulated and
unpaid Distributions thereon to the date of
redemption. Subject to Federal Reserve
approval, if then required under applicable
capital guidelines or policies of the Federal
Reserve, the Junior Subordinated Debentures are
redeemable prior to maturity at the option of
the Company (i) on or after May 15, 2002, in
whole at any time or in part from time to time,
or (ii) at any time, in whole (but not in
part), upon the occurrence and during the
continuance of a Tax Event or a Capital
Treatment Event, in each case at a redemption
price equal to 100% of the principal amount of
the Junior Subordinated Debentures so redeemed,
together with any accrued but unpaid interest
to the date fixed for redemption. See
"Description of Capital Securities--Redemption"
and "Description of Junior Subordinated
Debentures--Redemption" in the accompanying
Prospectus.
Distribution of Junior The Company has the right at any time to
Subordinated Debentures...... terminate the Issuer and cause the Junior
Subordinated Debentures to be distributed to
holders of Capital Securities in liquidation of
the Issuer, subject to the Company having
received prior approval of the Federal Reserve
to do so if then required under applicable
capital guidelines or policies of the Federal
Reserve. See "Description of Capital
Securities--Liquidation Distribution Upon
Dissolution" in the accompanying Prospectus.
S-6
<PAGE>
Guarantee..................... Taken together, the Company's obligations under
various documents described herein, including
the Guarantee Agreement, provide a full
guarantee of payments by the Issuer of
distributions and other amounts due on the
Capital Securities. Under the Guarantee
Agreement, the Company guarantees the payment
of Distributions by the Issuer and payments on
liquidation of or redemption of the Capital
Securities (subordinate to the right to payment
of Senior Debt of the Company) to the extent of
funds held by the Issuer. If the Issuer has
insufficient funds to pay Distributions on the
Capital Securities (i.e., if the Company has
failed to make required payments under the
Junior Subordinated Debentures), a holder of
the Capital Securities would have the right to
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 of Holders of Capital
Securities," "Description of Junior
Subordinated Debentures--Debenture Events of
Default" and "Description of Guarantee" in the
accompanying Prospectus.
Ranking....................... The Capital Securities will rank pari passu and
payments thereon will be made pro rata, with
the Common Securities of the Issuer held by the
Company except as described under "Description
of Capital Securities--Subordination of Common
Securities" in the accompanying Prospectus. The
obligations of the Company under the Guarantee,
the Junior Subordinated Debentures and other
documents described herein are unsecured and
rank subordinate and junior in right of payment
to all current and future Senior Debt, the
amount of which is unlimited. At March 31,
1997, the aggregate outstanding Senior Debt of
the Company was $77.0 million. In addition,
because the Company is a holding company, all
obligations of the Company relating to the
securities described herein will be effectively
subordinated to all existing and future
liabilities of the Company's subsidiaries,
including the Bank.
Voting rights................. The holders of the Capital Securities will
generally have limited voting rights relating
only to the modification of the Capital
Securities, the dissolution, winding-up or
termination of the Issuer and certain other
matters described herein. See "Description of
Capital Securities--Voting Rights; Amendment of
Trust Agreement" in the accompanying
Prospectus.
New York Stock Exchange
symbol....................... CFBPr
Use of proceeds............... All of the proceeds from the sale of the
Capital Securities will be invested by the
Issuer in Junior Subordinated Debentures. The
Company intends to use the proceeds from the
sale of the Junior Subordinated Debentures for
general corporate purposes, including, without
limitation, possible future acquisitions,
funding investments in, or extensions of credit
to, the Company's subsidiaries, repayment of
obligations and redemption of securities.
S-7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial data of the Company and its
subsidiaries as of and for the years ended June 30, 1996, 1995, 1994, 1993 and
1992 has been derived from the Company's audited Consolidated Financial
Statements. The following summary consolidated interim financial data for the
six months ended December 31, 1996 and 1995 has been derived from unaudited
consolidated interim financial statements which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation. The summary consolidated
financial data should be read in conjunction with the Company's audited
Consolidated Financial Statements and related Notes incorporated herein by
reference. The consolidated financial data for the six months ended December
31, 1996 is not necessarily indicative of the operating results to be expected
for the entire fiscal year.
On November 18, 1996, the Board of Directors of the Company authorized a
three-for-two stock split to be effected in the form of a 50 percent stock
dividend to stockholders of record on December 31, 1996. Par value of the
common stock remained at $.01 per share. The stock dividend, paid on January
14, 1997, totaled 7,163,476 shares of Company common stock. Fractional shares
resulting from the stock split were paid in cash totaling $17,792. All
references to the number of shares, per share amounts and stock prices below
and elsewhere in the Prospectus for all periods presented were adjusted on a
retroactive basis to reflect the effect of this stock split.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------- ----------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest income......... $ 250,533 $ 245,059 $ 491,092 $ 454,368 $ 393,854 $ 404,628 $ 447,883
Interest expense........ 167,944 168,335 328,317 304,526 256,102 276,584 352,527
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income..... 82,589 76,724 162,775 149,842 137,752 128,044 95,356
Provision for loan
losses................. (3,766) (3,091) (6,107) (6,408) (6,248) (6,185) (7,981)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 78,823 73,633 156,668 143,434 131,504 121,859 87,375
Non-interest income..... 28,345 23,194 49,646 45,066 44,693 34,442 77,817
General and
administrative
expenses............... 57,703 56,496 114,517 102,554 94,115 89,560 80,314
Federal deposit
insurance special
assessment............. 27,062 -- -- -- -- -- --
Amortization of goodwill
and core value of
deposits............... 5,125 4,400 9,529 10,262 14,131 10,544 11,389
Valuation adjustment and
accelerated
amortization of
goodwill............... -- -- -- 21,357 52,703 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes, extraordinary
items and cumulative
effects of changes in
accounting principles.. 17,278 35,931 82,268 54,327 15,248 56,197 73,489
Provision for income
taxes.................. 5,838 12,823 26,962 23,146 16,875 22,081 27,652
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary items and
cumulative effects of
changes in accounting
principles............. 11,440 23,108 55,306 31,181 (1,627) 34,116 45,837
Extraordinary items(1).. (583) -- -- -- -- -- (5,046)
Cumulative effects of
changes in accounting
principles(2).......... -- -- -- -- 6,597 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $ 10,857 $ 23,108 $ 55,306 $ 31,181 $ 4,970 $ 34,116 $ 40,791
========== ========== ========== ========== ========== ========== ==========
Earnings per common
share (fully
diluted)(3):
Income (loss) before
extraordinary items
and cumulative effects
of changes in
accounting
principles............ $ .52 $ 1.06 $ 2.48 $ 1.44 $ (.08) $ 1.62 $ 3.12
Extraordinary
items(1).............. (.03) -- -- -- -- -- (.34)
Cumulative effects of
changes in accounting
principles(2)......... -- -- -- -- .31 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ .49 $ 1.06 $ 2.48 $ 1.44 $ .23 $ 1.62 $ 2.78
========== ========== ========== ========== ========== ========== ==========
Dividends declared per
common share(3)........ $ .137 $ .133 $ .267 $ -- $ -- $ -- $ --
========== ========== ========== ========== ========== ========== ==========
Book value per common
share(3)............... $ 18.37 $ 16.85 $ 18.26 $ 15.77 $ 14.34 $ 14.19 $ 13.97
========== ========== ========== ========== ========== ========== ==========
Tangible book value per
common share(3)(4)..... $ 16.15 $ 15.33 $ 16.46 $ 14.03 $ 11.15 $ 10.00 $ 8.54
========== ========== ========== ========== ========== ========== ==========
Weighted average common
shares outstanding
(fully diluted)(3)..... 21,977,647 21,815,612 22,278,468 21,624,979 21,508,567 21,123,028 14,694,700
========== ========== ========== ========== ========== ========== ==========
</TABLE>
(Table continued on following page)
S-8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION, CONT.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------- ----------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL
CONDITION DATA (AT
PERIOD END):
Total assets............ $6,868,213 $6,593,880 $6,607,670 $6,569,579 $5,982,307 $5,262,336 $5,035,913
Investment
securities(5).......... 290,069 303,995 253,043 300,481 290,807 254,889 316,366
Mortgage-backed
securities(6).......... 1,137,165 1,316,465 1,180,046 1,364,907 1,350,402 952,539 779,969
Loans receivable,
net(7)................. 5,067,558 4,583,066 4,813,164 4,540,692 3,970,626 3,655,740 3,460,294
Goodwill and core value
of deposits............ 47,733 32,863 40,734 37,263 67,661 87,946 98,490
Deposits................ 4,421,433 4,046,499 4,304,576 4,011,323 3,675,825 2,731,127 2,660,489
Advances from Federal
Home Loan Bank......... 1,197,792 1,773,687 1,350,290 1,787,352 1,625,456 1,868,779 1,465,062
Other borrowings........ 758,344 255,951 439,301 273,676 224,072 231,828 499,790
Stockholders' equity.... 394,722 362,530 413,277 337,614 304,568 297,848 253,528
SELECTED OPERATING
RATIOS(8):
Return on average
assets(9).............. .32% .71% .84% .49% .09% .67% .79%
Return on average
equity(9).............. 5.54% 13.12% 14.74% 9.98% 1.54% 12.39% 20.12%
Net yield on interest-
earning assets......... 2.56% 2.43% 2.58% 2.46% 2.59% 2.65% 2.01%
Earnings to fixed
charges(10):
Excluding interest on
deposits............... 1.30x 1.58x 1.71x 1.43x 1.13x 1.41x 1.26x
Including interest on
deposits............... 1.10x 1.21x 1.25x 1.18x 1.06x 1.20x 1.13x
Dividend payout
ratio(11).............. 27.96% 12.58% 10.75% N/A N/A N/A N/A
General and
administrative expenses
divided by average
assets(12)............. 2.52% 1.73% 1.75% 1.62% 1.67% 1.75% 1.55%
SELECTED CAPITAL AND
ASSET QUALITY RATIOS:
Regulatory capital
ratios of the Bank:
Tangible capital........ 5.95% 5.51% 6.18% 5.16% 4.69% 4.62% 2.95%
Core capital............ 6.14% 5.78% 6.41% 5.47% 5.53% 5.93% 4.63%
Risk-based capital:
Tier 1 capital.......... 11.89% 12.57% 12.56% 12.02% 12.18% 11.93% 8.25%
Total capital........... 12.96% 13.70% 13.62% 13.12% 13.16% 12.81% 8.87%
Nonperforming assets to
total assets........... 1.02% .95% 1.01% .95% 1.27% 1.97% 3.00%
Nonperforming assets to
total loans and
nonperforming assets... 1.33% 1.31% 1.33% 1.32% 1.84% 2.71% 4.08%
Allowance for loan
losses to total loans.. .97% 1.03% .99% 1.04% 1.11% 1.26% 1.43%
Allowance for loan
losses to total
nonperforming assets... 71.77% 77.67% 74.05% 77.42% 59.04% 45.13% 33.58%
Net loans charged-off to
average loans
outstanding............ .14% .10% .10% .06% .11% .13% .31%
</TABLE>
- --------
(footnotes for preceding tables)
(1) For the six months ended December 31, 1996, represents the loss on early
retirement of debt, net of income tax benefits and, for fiscal year 1992,
represents the loss on early extinguishment of debt, net of income tax
benefits, less the effect of the utilization of net operating losses
carried forward.
(2) For fiscal year 1994, represents the cumulative effect of the change in
the method of accounting for income taxes less the cumulative effect of
the change in accounting for postretirement benefits, net of income tax
benefit.
(3) On November 18, 1996, the Board of Directors of the Company authorized a
three-for-two stock split to be effected in the form of a 50 percent stock
dividend to stockholders of record on December 31, 1996. Par value
remained at $.01 per share. The stock dividend was paid on January 14,
1997. Fractional shares resulting from the stock split were paid in cash.
All per share data and stock prices for all periods presented have been
adjusted on a retroactive basis to reflect the effect of a three-for-two
stock split.
(4) Calculated by dividing stockholders' equity, reduced by the amount of
goodwill and core value of deposits, by the number of shares of common
stock outstanding at the respective dates.
(5) Includes investment securities available for sale totaling $19.4 million,
$54.6 million, $9.9 million, $3.0 million, $5.4 million and $1.3 million
at December 31, 1996 and 1995, June 30, 1996, 1995, 1994 and 1993,
respectively. No investment securities were available for sale at June 30,
1992.
(6) Includes mortgage-backed securities available for sale totaling $256.6
million, $384.7 million, $263.2 million, $37.0 million, $45.0 million,
$41.3 million and $20.8 million at December 31, 1996 and 1995, June 30,
1996, 1995, 1994, 1993 and 1992, respectively.
S-9
<PAGE>
(7) Includes loans held for sale totaling $99.1 million, $79.2 million, $89.4
million, $113.4 million, $187.7 million, $171.8 million and $158.4 million
at December 31, 1996 and 1995, June 30, 1996, 1995, 1994, 1993 and 1992,
respectively.
(8) Ratios for the six months ended December 31, 1996 and 1995 are annualized.
Such annualized data includes nonrecurring items and is not necessarily
indicative of results for the entire fiscal years.
(9) Based on daily average balances during the six month periods ended
December 31, 1996 and 1995, fiscal years 1996, 1995 and 1994 and on
average monthly balances for fiscal years 1993 and 1992. Return on average
assets ("ROA") and return on average equity ("ROE") for the six months
ended December 31, 1996, are .90% and 15.48%, respectively, excluding the
after-tax effect of the nonrecurring expenses totaling $17.3 million, $1.5
million, $583,000 and $103,000, associated with the Savings Association
Insurance Fund ("SAIF") special assessment, the repurchase of 1,875,150
shares of the Company's common stock, the loss on early retirement of debt
and the change in income taxes for tax bad debt reserves, respectively.
ROA and ROE for the six months ended December 31, 1995, are .81% and
15.00%, respectively, excluding the after-tax effect of the nonrecurring
expenses totaling $2.7 million and $580,000 associated with the Railroad
merger and the Company's 1995 proxy contest, respectively. ROA and ROE for
fiscal year 1996 are .90% and 15.68%, respectively, excluding the after-
tax effect of the nonrecurring expenses totaling $2.9 million and $585,000
associated with the Railroad merger and the Company's 1995 proxy contest,
respectively. ROA and ROE for fiscal year 1995 are .83% and 16.82%,
respectively, excluding the accelerated amortization of goodwill totaling
$21.4 million. ROA and ROE for fiscal year 1994 are .75% and 13.11%,
respectively, excluding the after-tax effect of the intangible assets
valuation adjustment and the cumulative effects of changes in accounting
principles totaling $43.9 million and $6.6 million, respectively.
(10) The ratio of earnings to fixed charges has been computed by dividing
income before income taxes, extraordinary items and cumulative effects of
changes in accounting principles plus fixed charges by fixed charges.
Fixed charges represent all interest expense plus the portion of rental
payments under operating leases deemed to be interest.
(11) Represents dividends declared per share divided by net income per share.
The Company established a quarterly common stock cash dividend policy on
October 4, 1995, and declared dividends totaling $2.9 million ($.137 per
common share) and $2.9 million ($.133 per common share) during the six
months ended December 31, 1996 and 1995, and $5.9 million ($.267 per
common share) during the fiscal year ended June 30, 1996.
(12) General and administrative expenses ("G&A") divided by average assets for
the six months ended December 31, 1996, is 1.65% excluding the
nonrecurring expenses totaling $27.1 million and $2.3 million associated
with the SAIF special assessment and the repurchase of 1,875,150 shares of
the Company's common stock, respectively. G&A divided by average assets
for the six months ended December 31, 1995, is 1.60% excluding the
nonrecurring expenses totaling $3.3 million and $894,000 associated with
the Railroad merger and the Company's 1995 proxy contest, respectively,
and for fiscal year 1996 is 1.68% excluding the nonrecurring expenses
totaling $3.6 million and $901,000 associated with the Railroad merger and
the Company's 1995 proxy contest, respectively.
S-10
<PAGE>
RECENT DEVELOPMENTS
Results of Operations and Selected Financial Condition Data for Quarter
Ended March 31, 1997. On April 24, 1997, the Company reported net income for
the three months ended March 31, 1997, of $16.2 million, or $.74 per share,
compared to net income of $16.4 million, or $.73 per share, for the three
months ended March 31, 1996. The Company's operations during such periods
reflect the acquisition of Conservative Savings Corporation, effective
February 1, 1996 and the acquisition of Heritage Financial, Ltd., effective
October 1, 1996. A summary of operations and selected financial condition data
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net interest income................................... $ 42,622 $ 42,561
Provision for loan losses............................. (2,355) (1,508)
---------- ----------
Net interest income after provision for loan losses... 40,267 41,053
Non-interest income................................... 14,743 12,745
General and administrative expenses................... 27,409 28,364
Amortization of goodwill and core value of deposits... 2,732 2,491
---------- ----------
Income before income taxes............................ 24,869 22,943
Provision for income taxes............................ 8,692 6,589
---------- ----------
Net income............................................ $ 16,177 $ 16,354
========== ==========
Earnings per fully diluted common share............... $ .74 $ .73
========== ==========
Weighted average common shares outstanding (fully di-
luted)............................................... 21,847,353 22,556,839
========== ==========
Total assets.......................................... $6,901,835 $6,617,488
Loans receivable, net................................. 5,113,458 4,792,918
Deposits.............................................. 4,419,171 4,334,125
Stockholders' equity.................................. 408,641 400,399
</TABLE>
Stock Split and Increase in Cash Dividend. Effective November 18, 1996, the
Board of Directors of the Company authorized a three-for-two stock split to be
effected in the form of a 50 percent stock dividend. Par value will remain at
$.01 per share. The Board also increased its quarterly cash dividend from
$.0667 per common share after adjusting for the three-for-two stock split to
$.07 per common share which represents an increase of five percent. The stock
dividend and the $.07 per share cash dividend, payable to stockholders of
record as of December 31, 1996, were paid on January 14, 1997. Fractional
shares resulting from the stock split were paid in cash. All references to the
number of shares, per share amounts and stock prices for all periods presented
elsewhere in this Prospectus Supplement and the accompanying Prospectus have
been adjusted on a retroactive basis to reflect the effect of the stock split.
SAIF Special Assessment. During the quarter ended September 30, 1996, the
Company incurred an after-tax charge of $17.3 million ($27.1 million pre-tax)
as a result of the imposition of a special assessment by the Federal Deposit
Insurance Corporation ("FDIC") to recapitalize the Savings Association
Insurance Fund ("SAIF"). The FDIC operates two deposit insurance funds: the
Bank Insurance Fund ("BIF") which generally insures the deposits of commercial
banks and the SAIF which generally insures the deposits of savings
associations such as the Bank. Because the reserves of the SAIF have been
below statutorily required minimums, institutions with SAIF-assessable
deposits, like the Bank, have been required to pay substantially higher
deposit insurance premiums than institutions with deposits insured by the BIF
since September 30, 1995. In order to
S-11
<PAGE>
recapitalize the SAIF and address this premium disparity, the Deposit
Insurance Funds Act of 1996, effective September 30, 1996, authorized the FDIC
to impose a one-time special assessment on institutions with SAIF-assessable
deposits based on the amount determined by the FDIC to be necessary to
increase the reserve levels of the SAIF to the designated reserve ratio of
1.25% of insured deposits as of October 1, 1996. Institutions were assessed at
the rate of .657% based on the amount of their SAIF-assessable deposits as of
March 31, 1995. This nonrecurring special assessment totaling $27.1 million
before taxes is recorded in the general and administrative expense section of
the Consolidated Statement of Operations under a separate line item captioned
"Federal deposit insurance special assessment." Such special assessment
reduced the Bank's tangible, core and risk-based capital at September 30,
1996, by $17.3 million. The Bank continues to exceed its minimum OTS
requirements and continues to meet the requirements to be classified as a
"well-capitalized" institution under applicable banking regulations.
The FDIC has adopted a new assessment schedule for SAIF deposit insurance
pursuant to which the assessment rate for well-capitalized institutions with
the highest supervisory ratings would be reduced to zero and institutions in
the lowest risk assessment classification will be assessed at the rate of
0.27% of insured deposits. Until December 31, 1999, however, SAIF-insured
institutions will be required to pay assessments to the FDIC at the rate of
.064% of insured deposits to help fund interest payments on certain bonds
issued by the Financing Corporation ("FICO"), an agency of the federal
government established to finance takeovers of insolvent thrifts. During this
period, BIF members will be assessed for FICO obligations at the rate of .013%
of insured deposits. After December 31, 1999, both BIF and SAIF members will
be assessed at the same rate for FICO payments. Based on the Company's level
of deposits as of September 30, 1996, such a reduction in rates from .23% of
insured deposits (adjusted to .18% of insured deposits for the quarter ended
December 31, 1996 pursuant to a premium insurance refund received totaling
$544,000) to .064% of insured deposits effective January 1, 1997, for SAIF
insurance premiums would result in an annual pre-tax increase in operating
earnings of approximately $7.0 million.
The Deposit Insurance Funds Act of 1996 provides that the BIF and the SAIF
will be merged into a single deposit insurance fund effective December 31,
1999, but only if there are no insured savings associations on that date. The
legislation directs the Department of Treasury to make recommendations to
Congress by March 31, 1997, for the establishment of a single charter for
banks and thrifts. Management of the Company cannot predict accurately at this
time what effect this legislation will have on the Company.
Repurchase of Common Stock. On August 21, 1996, the Company consummated the
repurchase of 1,875,150 shares (8.3% of the outstanding shares of Common Stock
prior to the repurchase) of Common Stock from CAI Company ("CAI"), a Dallas-
based investment company, for an aggregate purchase price of $48.9 million
excluding $414,000 in transaction costs incurred as of December 31, 1996. Such
purchase price consisted of cash of approximately $28.2 million and the
surrender of a warrant (valued at $20.7 million) which would have enabled the
Company to purchase 99 shares of non-voting common stock of CAI. The Company
also reimbursed CAI for certain expenses totaling $2.2 million and paid CAI
cash totaling $62,500 in lieu of the pro rata portion of any dividend CAI
otherwise would have been entitled to receive for the quarter ended September
30, 1996. The cash portion of the repurchase was financed in part by a $28.0
million short-term variable rate secured promissory note due January 31, 1997,
from a financial institution. On December 13, 1996, the Company refinanced
this loan on a long-term basis now due December 31, 2001. See "--Refinance of
Corporate Debt." Concurrent with the close of the repurchase, two directors of
the Company who also serve as executive officers of CAI, resigned from the
Board of Directors.
Refinance of Corporate Debt. On December 2, 1996, the Company completed the
issuance of $50.0 million of 7.95% fixed-rate subordinated extendible notes
due December 1, 2006 (the "Notes"). Such offering resulted in the Company
receiving $48.5 million, net of an underwriting discount of $1.5 million. With
the proceeds from the issuance of the Notes the Company redeemed on December
27, 1996, its $40.25 million 10.25% subordinated debt due December 15, 1999,
and its $6.9 million 10.0% senior notes due January 31, 1999. Total expenses
associated with this offering approximated $1.9 million which are deferred and
will be amortized over the life of the Notes resulting in an effective
interest rate of 8.52%.
S-12
<PAGE>
On December 13, 1996, the Company refinanced the $28.0 million short-term
promissory note due January 31, 1997, (obtained to help finance the repurchase
of 1,875,150 shares of common stock on August 21, 1996--see "--Repurchase of
Common Stock"), with a new five-year term note for $28.0 million due December
31, 2001. This note bears a monthly adjustable interest rate which was 7.75%
at December 31, 1996, and is priced at 50 basis points below the quoted
national base prime rate. This note has a seven year amortization with
scheduled principal payments of $1.0 million quarterly and a balloon of $8.0
million due December 31, 2001, and with interest payable quarterly. The note
is unsecured but subject to certain covenants. In addition, the Company also
has a $2.0 million line of credit with the same financial institution. This
revolving credit promissory note is due in a single payment on December 31,
1997, with interest rates, interest payments and covenants the same as the
$28.0 million term note. Both the term note and the revolving credit
promissory note may be prepaid, in whole or in part, without penalty, provided
that proper written notice is given prior to the prepayment.
As a result of the redemption of its $40.25 million 10.25% subordinated
notes and $6.9 million 10.0% senior notes, and the refinancing of $28.0
million short-term promissory note due January 31, 1997, the Company
recognized in December 1996 an extraordinary loss of $583,000 (net of income
tax benefit totaling $316,000), or $.03 loss per share. Such loss was recorded
in the Company's consolidated statement of operations as an extraordinary
item.
Recent Acquisition. On May 1, 1997, the Company acquired Investors Federal
Savings ("Investors"), headquartered in Kinsley, Kansas, through a merger of
Investors with and into the Bank. The Company acquired all 232,465 of the
outstanding shares of Investors' common stock for $23.00 in cash for a total
consideration of approximately $5.3 million. As of December 31, 1996,
Investors had assets of approximately $32.1 million, deposits of approximately
$27.0 million and stockholders' equity of approximately $4.7 million.
Investors operates three branches in southwest Kansas. The acquisition will be
accounted for as a purchase. Expenses and costs associated with this
acquisition are estimated to approximate $350,000.
S-13
<PAGE>
CAPITALIZATION
The following table presents the consolidated capitalization of the Company
at December 31, 1996, and as adjusted to give effect to the sale of the
Capital Securities in this Offering and the application of the net proceeds as
described herein. In addition, at December 31, 1996, the Company had other
funding liabilities consisting of deposits ($4.4 billion), Federal Home Loan
Bank ("FHLB") advances ($1.2 billion) and other borrowings ($680.3 million)
incurred in the ordinary course of business.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt:
Variable Rate Unsecured Promissory Note due December
31, 2001.............................................. $ 28,000 $ 28,000
7.95% Subordinated Extendible Notes due 2006........... 50,000 50,000
-------- --------
Total long-term debt................................. 78,000 78,000
-------- --------
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures(1)(2)........................... -- 45,000
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued............................... -- --
Common stock, $.01 par value; 25,000,000 shares
authorized, 14,326,973 issued and outstanding......... 143 143
Common stock dividend distributable, $.01 par value,
7,163,476 shares...................................... 72 72
Additional paid-in capital............................. 146,734 146,734
Retained earnings(3)................................... 248,229 248,229
Unrealized holding loss on securities available for
sale, net............................................. (456) (456)
-------- --------
Total stockholders' equity........................... 394,722 394,722
-------- --------
Total capitalization............................... $472,722 $517,722
======== ========
</TABLE>
- --------
(1) The subsidiary trust is the Issuer, a wholly owned subsidiary of the
Company that will hold the Junior Subordinated Debentures as its sole
asset. The Capital Securities are issued by the Issuer. The sole assets of
the Issuer consist of approximately $46.4 million principal amount of
Junior Subordinated Debentures issued by the Company to the Issuer. The
Junior Subordinated Debentures will bear interest at the rate of 9.375%
per annum and will mature on May 15, 2027, which date may be shortened to
a date not earlier than May 15, 2002 if certain conditions are met. The
Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company, subject to any required prior approval of the
Federal Reserve, (i) on or after May 15, 2002, in whole at any time or in
part from time to time, or (ii) at any time, in whole (but not in part),
upon the occurrence and continuation of a Tax Event or a Capital Treatment
Event (each as defined herein). See "Description of Junior Subordinated
Debentures--Redemption" in the accompanying Prospectus. The Company owns
all of the Common Securities of the Issuer.
(2) For financial reporting purposes, the Issuer will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer
will be included in the consolidated financial statements of the Company.
The Capital Securities will be presented as a separate line item in the
consolidated statement of financial condition of the Company under the
caption "Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures," and
appropriate disclosures about the Capital Securities, the Guarantee and
the Junior Subordinated Debentures will be included in the notes to
consolidated financial statements. For financial reporting purposes, the
Company will record Distributions payable on the Capital Securities as an
expense in the consolidated statements of operations.
(3) The retained earnings of the Company are subject to certain restrictions.
See Notes 16 and 18 to Notes to the Company's Consolidated Financial
Statements, which are incorporated herein by reference.
S-14
<PAGE>
USE OF PROCEEDS
All of the proceeds from the sale of the Capital Securities will be invested
by the Issuer in Junior Subordinated Debentures. The Company intends to use
the net proceeds for general corporate purposes, which may include, without
limitation, possible future acquisitions, funding investments in, or
extensions of credit to, the Company's subsidiaries, repayment of obligations
and redemption of securities. The Company routinely solicits and reviews
acquisition opportunities and, at any given time, may have bids outstanding or
may be involved in discussions with the owners of financial institutions or
other parties relative to a particular financial institution. Pending their
application, the net proceeds may be invested in short-term investment grade
financial instruments.
Although the Company, as a savings and loan holding company, is not subject
to the Federal Reserve capital requirements for bank holding companies, it is
possible that in the future it could become subject to such requirements as a
result of the acquisition of a bank, a change in applicable regulations or the
Company otherwise becoming subject to Federal Reserve capital requirements. On
October 21, 1996, the Federal Reserve announced that cumulative preferred
securities having the characteristics of the Capital Securities could be
included as Tier 1 capital for bank holding companies. Such Tier 1 capital
treatment, together with the Company's ability to deduct, for income tax
purposes, interest payable on the Junior Subordinated Debentures, will provide
the Company with a more cost-effective means of obtaining capital for
regulatory purposes than if the Company were to issue preferred stock.
CERTAIN TERMS OF CAPITAL SECURITIES
GENERAL
The following summary of certain terms and provisions of the Capital
Securities supplements the description of the terms and provisions of the
Capital Securities set forth in the accompanying Prospectus under the heading
"Description of Capital Securities," to which description reference is hereby
made. This summary of certain terms and provisions of the Capital Securities,
which describes the material provisions thereof, does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Agreement, to which reference is hereby made. The form of the Trust
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and accompanying Prospectus form a part.
DISTRIBUTIONS
Payment of Distributions. The Capital Securities represent undivided
beneficial interests in the assets of the Issuer, and Distributions on each
Capital Security will be payable at the annual rate of 9.375% of the stated
Liquidation Amount of $25, payable quarterly in arrears on the last day of
March, June, September and December of each year, to the holders of the
Capital Securities on the relevant record dates. The record dates for the
Capital Securities will be, for so long as the Capital Securities remain in
book-entry form, one Business Day (as defined in the accompanying Prospectus)
prior to the relevant Distribution payment date and, in the event the Capital
Securities are not in book-entry form, the 15th day of the month in which the
relevant Distribution payment date occurs. Distributions will accumulate from
and including the date of original issuance, and the amount of each
Distribution due will include amounts accumulated to but excluding the date
the Distribution payment is due. The first Distribution payment date for the
Capital Securities will be September 30, 1997. The amount of Distributions
payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months. In the event that 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 (and without any additional Distributions or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable. See
"Description of Capital Securities--Distributions" in the accompanying
Prospectus.
S-15
<PAGE>
Extension Period. So long as no Debenture Event of Default has occurred and
is continuing, the Company has the right under the Indenture to defer payment
of interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral of interest payments by the Company, quarterly Distributions on
the Capital Securities by the Issuer will also be deferred during any such
Extension Period. Distributions to which holders of the Capital Securities are
entitled will accumulate additional Distributions thereon at the rate per
annum of 9.375% thereof, compounded quarterly from the relevant payment date
for such Distributions. See "Description of Junior Subordinated Debentures--
Option to Defer Interest Payments" in the accompanying Prospectus. The term
"Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company will be
prohibited from making certain payments and distributions with respect to the
Company's capital stock (including dividends on or redemptions of common or
preferred stock) and from making certain payments with respect to any debt
securities of the Company that rank pari passu with or junior in interest to
the Junior Subordinated Debentures, with certain exceptions. See "Description
of Junior Subordinated Debentures--Restrictions on Certain Payments" in the
accompanying Prospectus. Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest on the Junior
Subordinated Debentures, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all interest then due, the Company may elect to begin a new
Extension Period. There is no limitation on the number of times that the
Company may elect to begin an Extension Period. See "Certain Terms of Junior
Subordinated Debentures--Option to Defer Interest Payments" in this Prospectus
Supplement and "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount" in the accompanying Prospectus.
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.
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at Stated Maturity or upon earlier redemption
as provided in the Indenture, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
in the accompanying Prospectus) of the Trust Securities, upon not less than 30
nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price, with respect to the Capital Securities (the
"Redemption Price"), equal to the aggregate Liquidation Amount of such Capital
Securities plus accumulated and unpaid Distributions thereon to the date of
redemption (the "Redemption Date"). See "Description of Capital Securities--
Redemption" in the accompanying Prospectus. For a description of the Stated
Maturity and redemption provisions of the Junior Subordinated Debentures, see
"Certain Terms of Junior Subordinated Debentures--General" and "--Redemption."
LIQUIDATION OF ISSUER AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO
HOLDERS
The Company will have the right at any time to liquidate the Issuer and
cause the Junior Subordinated Debentures to be distributed to the holders of
the Capital Securities. Such right is subject to the Company having received
prior approval of the Federal Reserve if then required under applicable
capital guidelines or policies of the Federal Reserve.
Under current United States federal income tax law and interpretations and
assuming, as expected, the Issuer is treated as a grantor trust, a
distribution of Junior Subordinated Debentures should not be a taxable event
to holders of the Capital Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however,
the distribution could be a taxable event to holders of the Capital
Securities. See "Certain Federal Income Tax Consequences--Distribution of
Junior Subordinated Debentures to Holders of Capital Securities" in the
accompanying Prospectus. If the Company elects neither to redeem the Junior
Subordinated Debentures prior to maturity nor to liquidate the Issuer and
distribute the Junior Subordinated
S-16
<PAGE>
Debentures to holders of the Capital Securities, the Capital Securities will
remain outstanding until the Stated Maturity of the Junior Subordinated
Debentures.
If the Company elects to liquidate the Issuer and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Capital Securities
in exchange therefor upon liquidation of the Issuer, the Company shall
continue to have the right to shorten the maturity of the Junior Subordinated
Debentures, subject to certain conditions as described under "Certain Terms of
Junior Subordinated Debentures--General."
LIQUIDATION VALUE
The amount payable on the Capital Securities in the event of any liquidation
of the Issuer is $25 per Capital Security plus accumulated and unpaid
Distributions, which amount may be paid in the form of a distribution of a
Like Amount of Junior Subordinated Debentures, subject to certain exceptions.
See "Description of Capital Securities--Liquidation Distribution Upon
Termination" in the accompanying Prospectus.
REGISTRATION OF CAPITAL SECURITIES
The Capital Securities will be represented by global certificates registered
in the name of DTC or its nominee. Beneficial interests in the Capital
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in DTC. Except as described in the
accompanying Prospectus, Capital Securities in certificated form will not be
issued in exchange for the global certificates. See "Description of Capital
Securities--Global Capital Securities" and "Book-Entry Issuance" in the
accompanying Prospectus.
CERTAIN TERMS OF JUNIOR SUBORDINATED DEBENTURES
GENERAL
The following summary of certain terms and provisions of the Junior
Subordinated Debentures supplements the description of the terms and
provisions of the Junior Subordinated Debentures set forth in the accompanying
Prospectus under the heading "Description of Junior Subordinated Debentures"
to which description reference is hereby made. The summary of certain terms
and provisions of the Junior Subordinated Debentures set forth below, which
describes the material provisions thereof, does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the
Indenture, to which reference is hereby made. The form of Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and accompanying Prospectus form a part.
Concurrently with the issuance of the Capital Securities, the Issuer will
invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest
at the annual rate of 9.375% of the principal amount thereof, payable
quarterly in arrears on the last day of March, June, September and December of
each year (each, an "Interest Payment Date"), commencing September 30, 1997,
to the person in whose name each Junior Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the Business Day
next preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Issuer, each Junior Subordinated Debenture will be
held in the name of the Property Trustee in trust for the benefit of the
holders of the Capital Securities. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that 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 (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date such payment
was originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of 9.375% thereof,
compounded quarterly from the relevant
S-17
<PAGE>
Interest Payment Date. The term "interest" as used herein shall include
quarterly interest payments, interest on quarterly interest payments not paid
on the applicable Interest Payment Date and Additional Sums (as defined in the
accompanying Prospectus), as applicable.
The Junior Subordinated Debentures will mature on May 15, 2027. Such date
may be shortened at any time by the Company to any date not earlier than May
15, 2002, subject to the Company having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies of
the Federal Reserve. In the event that the Company elects to shorten the
maturity of the Junior Subordinated Debentures, it shall give notice to the
Debenture Trustee, and the Debenture Trustee shall give notice of such
shortening to the holders of the Junior Subordinated Debentures no more than
60 and no less than 30 days prior to the effectiveness thereof.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt of the Company. See
"Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus. Because the Company is a holding company, the right
of the Company to participate in any distribution of assets of any subsidiary,
including the Bank, upon such subsidiary's liquidation or reorganization or
otherwise, is subject to the prior claims of creditors of that subsidiary,
except to the extent that the Company may itself be recognized as a creditor
of that subsidiary. Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders of Junior Subordinated Debentures should
look only to the assets of the Company for payments on the Junior Subordinated
Debentures. See "Risk Factors--Ranking of Subordinated Obligations Under the
Guarantee and the Junior Subordinated Debentures" and "Description of Junior
Subordinated Debentures--Subordination" in the accompanying Prospectus.
OPTION TO DEFER INTEREST PAYMENTS
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture at any time or from time to time
during the term of the Junior Subordinated Debentures to defer payment of
interest on the Junior Subordinated Debentures for a period not exceeding 20
consecutive quarters with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. At the end of such Extension Period, the Company must
pay all interest then due (together with interest thereon at an annual rate of
9.375% compounded quarterly, to the extent permitted by law). During an
Extension Period, interest will accrue and holders of Junior Subordinated
Debentures (or holders of Capital Securities, as the case may be) will be
required to accrue income for United States federal income tax purposes. See
"Description of Junior Subordinated Debentures--Option to Defer Interest
Payments" and "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount" in the accompanying Prospectus.
REDEMPTION
Subject to the Company having received prior approval of the Federal Reserve
if then required under applicable capital guidelines or policies of the
Federal Reserve, the Junior Subordinated Debentures are redeemable prior to
maturity at the option of the Company (i) on or after May 15, 2002, in whole
at any time or in part from time to time or (ii) at any time in whole (but not
in part) upon the occurrence and continuation of a Tax Event or Capital
Treatment Event, in either case at a redemption price equal to the accrued and
unpaid interest on the Junior Subordinated Debentures so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof. See
"Description of Junior Subordinated Debentures--Redemption" in the
accompanying Prospectus.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
As described under "Certain Terms of Capital Securities--Liquidation of
Issuer and Distribution of Junior Subordinated Debentures to Holders," under
certain circumstances involving the termination of the Issuer, Junior
S-18
<PAGE>
Subordinated Debentures may be distributed to the holders of the Capital
Securities in exchange therefor upon liquidation of the Issuer after
satisfaction of liabilities to creditors of the Issuer as provided by
applicable law. If distributed to holders of Capital Securities, the Junior
Subordinated Debentures will initially be issued in the form of one or more
global securities and DTC, or any successor depository for the Capital
Securities, will act as depository for the Junior Subordinated Debentures. It
is anticipated that the depository arrangements for the Junior Subordinated
Debentures would be substantially identical to those in effect for the Capital
Securities. If Junior Subordinated Debentures are distributed to the holders
of Capital Securities in exchange therefor upon the liquidation of the Issuer,
the Company will use its best efforts to list the Junior Subordinated
Debentures on the New York Stock Exchange or such other stock exchanges or
automated quotation system, if any, on which the Capital Securities are then
listed or quoted. There can be no assurance as to the market price of any
Junior Subordinated Debentures that may be distributed to the holders of
Capital Securities.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will be represented by global
certificates registered in the name of DTC or its nominee. Beneficial
interests in the Junior Subordinated Debentures will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described in the accompanying Prospectus,
Junior Subordinated Debentures in certificated form will not be issued in
exchange for the global certificates. See "Description of Junior Subordinated
Debentures--Global Junior Subordinated Debentures" and "Book-Entry Issuance"
in the accompanying Prospectus.
Payments on Junior Subordinated Debentures represented by a global security
will be made to DTC, as the depository for the Junior Subordinated Debentures.
In the event 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
denominations of a like aggregate principal amount, at the corporate office of
the Debenture Trustee in Chicago, Illinois, 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 or by wire transfer. In addition, if
the Junior Subordinated Debentures are issued in certificated form, the record
dates for payment of interest will be the 15th day of the last month of each
calendar quarter. For a description of DTC and the terms of the depository
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Book-Entry Issuance" in the accompanying
Prospectus.
CERTAIN TERMS OF GUARANTEE
The following summary of certain terms and provisions of the Guarantee
Agreement supplements the description of the terms and provisions of the
Guarantee set forth in the accompanying Prospectus under the heading
"Description of Guarantee," to which description reference is hereby made.
This summary of certain terms and provisions of the Guarantee does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, the Guarantee Agreement. The form of the Guarantee Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and accompanying Prospectus form a part.
The Guarantee irrevocably guarantees on a subordinated basis to the holders
of the Capital Securities the following payments, to the extent not paid by
the Issuer: (i) any accumulated and unpaid Distributions required to be paid
on the Capital Securities, to the extent that the Issuer has funds on hand
available therefor at such time, (ii) the redemption price with respect to any
Capital Securities called for redemption, to the extent that the Issuer has
funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Issuer (unless the
Junior Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Distribution
(as defined in the accompanying Prospectus) and (b) the amount of assets of
the Issuer remaining available for distribution to
S-19
<PAGE>
holders of the Capital Securities after satisfaction of liabilities to
creditors of the Issuer as required by applicable law. The Guarantee will be
qualified as an indenture under the Trust Indenture Act. Harris Trust and
Savings Bank will act as the Guarantee Trustee for the purposes of compliance
with the Trust Indenture Act and will hold the Guarantee for the benefit of
the holders of the Capital Securities.
The holders of not less than a majority in aggregate liquidation amount of
the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity. If the Company were to default on its obligation to pay amounts
payable under the Junior Subordinated Debentures, the Issuer would lack funds
for the payment of Distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in such event, holders of the Capital
Securities would not be able to rely upon the Guarantee for payment of such
amounts. See "Description of Guarantee" in the accompanying Prospectus.
UNDERWRITING
The Company and the Issuer have entered into a Purchase Agreement (the
"Purchase Agreement") with the underwriters listed in the table below (the
"Underwriters"). Subject to the terms and conditions contained in the Purchase
Agreement, the Issuer has agreed to sell to each of the Underwriters and each
of the Underwriters has severally agreed to purchase from the Issuer the
respective number of Capital Securities set forth opposite their names in the
table below.
<TABLE>
<CAPTION>
NUMBER OF
CAPITAL
UNDERWRITER SECURITIES
----------- ----------
<S> <C>
Piper Jaffray Inc.............................................. 1,080,000
Dain Bosworth Incorporated..................................... 720,000
---------
Total........................................................ 1,800,000
=========
</TABLE>
The Underwriters have advised the Company and the Issuer that they propose
to offer the Capital Securities directly to the public initially at the public
offering price set forth on the cover page of this Prospectus Supplement and
to certain dealers at such price less a concession not in excess of $.50 per
Capital Security. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $.25 per Capital Security to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed by the Underwriters.
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 Purchase Agreement provides that the Company will pay as
compensation for the Underwriters arranging the investment therein of such
proceeds an amount of $.7875 per Capital Security for the accounts of the
several Underwriters.
The Capital Securities have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. Trading of the Capital
Securities on the New York Stock Exchange is expected to commence within a 30-
day period after the initial delivery of the Capital Securities. Although each
Underwriter has indicated an intention to make a market in the Capital
Securities, neither Underwriter is obligated to make a market in the Capital
Securities and any market making may be discontinued at any time at the sole
discretion of such Underwriter. No assurance can be given as to the liquidity
of the trading market for the Capital Securities. See "Risk Factors--Trading
Characteristics of Capital Securities" in the accompanying Prospectus.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Capital
Securities. Specifically, the Underwriters may overallot the offering,
S-20
<PAGE>
creating a syndicate short position. Underwriters may bid for and purchase
Capital Securities in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase Capital Securities in the
open market to stabilize the price of the Capital Securities. These activities
may stabilize or maintain the market price of the Capital Securities above
independent market levels. The Underwriters are not required to engage in
these activities, and may end these activities at any time.
The Company and the Issuer have agreed to indemnify the Underwriters and
their controlling persons against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or contribute to payments that
the Underwriters may be required to make in respect thereof.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment banking services to the
Company and its affiliates, for which such Underwriters or their affiliates
have received or will receive customary fees and commissions.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the formation of the
Issuer will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to the Company and the Issuer. The validity of the Junior
Subordinated Debentures will be passed upon for the Company by Housley
Kantarian & Bronstein, P.C., Washington, D.C. The validity of the Guarantee
will be passed upon for the Company by Fitzgerald, Schorr, Barmettler &
Brennan, P.C., Omaha, Nebraska. The validity of the Junior Subordinated
Debentures and the Guarantee will be passed upon for the Underwriters by
Dorsey & Whitney LLP. Housley Kantarian & Bronstein, P.C., Fitzgerald, Schorr,
Barmettler & Brennan and Dorsey & Whitney LLP will rely on the opinion of
Richards, Layton & Finger, P.A. as to matters of Delaware law. Certain matters
relating to United States federal income tax considerations described in the
accompanying Prospectus will be passed upon for the Company by Deloitte &
Touche, LLP.
S-21
<PAGE>
Prospectus
dated April 29, 1997
1,800,000 TRUST PREFERRED SECURITIES
CFC PREFERRED TRUST
Cumulative Trust Preferred Securities
(Liquidation Amount $25 per Trust Preferred Security)
Fully and Unconditionally Guaranteed, as Described Herein, by
[LOGO OF COMMERCIAL COMMERCIAL FEDERAL CORPORATION
FEDERAL CORPORATION
APPEARS HERE]
CFC Preferred Trust, a trust created under the laws of the State of Delaware
(the "Issuer"), may offer, from time to time, preferred securities (the
"Capital Securities") representing beneficial ownership interests in the
Issuer. Commercial Federal Corporation, a Nebraska corporation (the "Company")
will be the owner of the common securities (the "Common Securities" and,
together with the Capital Securities, the "Trust Securities") representing
common beneficial ownership interests in the Issuer. The Capital Securities
will have a preference under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise over
the Common Securities. See "Description of Capital Securities--Subordination
of Common Securities."
Concurrently with the issuance by the Issuer of its Capital Securities, the
Issuer will invest the proceeds thereof and of contributions received in
respect of the Common Securities in the Company's junior subordinated
deferrable interest debentures (the "Junior Subordinated Debentures") with
terms generally corresponding to the terms of the Issuer's Capital Securities.
Accordingly, if, as provided in an accompanying Prospectus Supplement, the
Company has the right to defer the payment of interest on the Junior
Subordinated Debentures, then, if interest payments are so deferred,
Distributions (as defined herein) on the Capital Securities would also be
deferred, but would continue to accumulate at the rate per annum set forth in
the related Prospectus Supplement. See "Description of Capital Securities--
Distributions."
The Junior Subordinated Debentures will be unsecured and subordinate and
junior in right of payment to Senior Debt (as defined in "Description of
Junior Subordinated Debentures--Subordination") of the Company. Unless
otherwise specified in the applicable Prospectus Supplement, the Company will
have the right to defer payments of interest on the Junior Subordinated
Debentures by extending the interest payment period thereon at any time or
from time to time for up to such number of consecutive interest payment
periods (which shall not extend beyond the Stated Maturity (as defined herein)
of the Junior Subordinated Debentures) with respect to each deferral period as
may be specified in such Prospectus Supplement (each, an "Extension Period").
In such circumstance, however, the Company would not be permitted, subject to
certain exceptions set forth herein, to declare or pay any dividends,
distributions or other payments with respect to, or repay, repurchase, redeem
or otherwise acquire, the Company's capital stock or debt securities that rank
pari passu with or junior to such Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures--Option to Defer Interest
Payments" and "--Restrictions on Certain Payments."
(continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, ANY OTHER GOVERNMENTAL AGENCY OR
OTHERWISE.
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.
<PAGE>
(continued from previous page)
The Company has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement (each as defined herein), taken together, fully, irrevocably and
unconditionally guaranteed all of the Issuer's obligations under the Capital
Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the 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, as described herein. See "Description of Guarantee."
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Issuer, the Issuer will have insufficient funds to pay
Distributions. The Guarantee does not cover payment of Distributions when the
Issuer has insufficient funds to pay such Distributions. In such event, a
holder of Capital Securities may institute a legal proceeding directly against
the Company pursuant to the terms of the Indenture to enforce payment of
amounts equal to such Distributions to such holder. See "Description of Junior
Subordinated Debentures--Enforcement of Certain Rights by Holders of Capital
Securities." The obligations of the Company under the Guarantee and the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Debt of the Company.
The Junior Subordinated Debentures will be the sole assets of the Issuer, and
payments under the Junior Subordinated Debentures and the related Expense
Agreement will be the only revenue of the Issuer. Unless otherwise specified
in the applicable Prospectus Supplement, the Company may, upon receipt of
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve") (if such approval is then required under the applicable capital
guidelines or policies of the Federal Reserve), redeem the Junior Subordinated
Debentures (and thereby cause the redemption of the Trust Securities) or may
terminate the Issuer and, after satisfaction of liabilities to the creditors
of the Issuer as required by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of Capital Securities in exchange
therefor upon liquidation of their interests in the Issuer. See "Description
of Capital Securities--Liquidation Distribution Upon Termination."
The Capital Securities and the Junior Subordinated Debentures may be offered
in amounts, at prices and on terms to be determined at the time of offering;
provided, however, the aggregate initial public offering price of all the
Capital Securities and the Junior Subordinated Debentures issued pursuant to
the Registration Statement of which this Prospectus forms a part shall not
exceed $45,000,000. Certain specific terms of the Capital Securities and the
Junior Subordinated Debentures in respect of which this Prospectus is being
delivered will be described in the applicable Prospectus Supplement, including
without limitation and where applicable and to the extent not set forth
herein, (a) in the case of the Capital Securities, specific title, aggregate
stated liquidation amount (the "Liquidation Amount"), number of securities,
the rate or method of calculating the rate of cumulative cash distributions
which accrue with respect to such Capital Securities (the "Distributions"),
Distribution payment dates, applicable Distribution deferral terms, if any,
place or places where Distributions will be payable, any terms of redemption,
exchange, initial offering or purchase price, methods of distribution and any
other special terms, and (b) in the case of the Junior Subordinated
Debentures, the specific designation, aggregate principal amount,
denominations, Stated Maturity (including any provisions for the shortening
thereof), interest payment dates, interest rate (which may be fixed or
variable) or method of calculating interest, if any, applicable Extension
Period or interest deferral terms, if any, place or places where principal,
premium, if any, and interest, if any, will be payable, any terms of
redemption, any sinking fund provisions, terms for any conversion or exchange
into other securities, initial offering or purchase price, methods of
distribution and any other special terms.
The Capital Securities and the Junior Subordinated Debentures may be sold to
or through underwriters, through dealers, remarketing firms or agents or
directly to purchasers. See "Plan of Distribution." The names of any
underwriters, dealers, remarketing firms or agents involved in the sale of the
Capital Securities or the Junior Subordinated Debentures in respect of which
this Prospectus is being delivered and any applicable fee, commission or
discount arrangements with them will be set forth in a Prospectus Supplement.
The Prospectus Supplement will state whether the Capital Securities or the
Junior Subordinated Debentures will be listed on any national securities
exchange or automated quotation system. If the Capital Securities or the
Junior Subordinated Debentures are not listed on any national securities
exchange or automated quotation system, there can be no assurance that there
will be a secondary market for the Capital Securities or the Junior
Subordinated Debentures.
This Prospectus may not be used to consummate sales of the Capital Securities
or the Junior Subordinated Debentures unless accompanied by a Prospectus
Supplement.
2
<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 and other information with the Securities and
Exchange Commission (the "Commission"). Copies of reports, proxy statements
and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Citicorp
Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661; and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
also can be obtained at prescribed rates from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Reports,
proxy statements and other information that have been filed electronically
with the Commission may also be obtained from the Commission's Website, the
address of which is http://www.sec.gov. In addition, the Company's common
stock is listed and traded on the New York Stock Exchange. Reports, proxy
statements and other information may be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
No separate financial statements of the Issuer have been included herein.
The Company and the Issuer do not consider that such financial statements
would be material to holders of the Capital Securities because the Issuer is a
newly formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any
activity other than holding as trust assets the Junior Subordinated Debentures
of the Company and issuing the Trust Securities. See "The Issuer,"
"Description of Capital Securities," "Description of Junior Subordinated
Debentures" and "Description of Guarantee."
The Company and the Issuer have filed with the Commission a combined
registration statement on Form S-3 (herein, together with all exhibits and
amendments thereto, called the "Registration Statement") under the Securities
Act of 1933, as amended, with respect to the Capital Securities, the Guarantee
and the Junior Subordinated Debentures. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement. Copies of the Registration Statement, including any amendments and
exhibits thereto, can be inspected and copied at the offices of the Commission
as set forth above. Statements contained in this Prospectus as to the contents
of any contract or any other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been previously filed with
the Commission are hereby incorporated by reference in this Prospectus:
(a) the Company's Annual Report on Form 10-K for the Fiscal Year Ended
June 30, 1996;
(b) the Company's Quarterly Report on Form 10-Q and Quarterly Report on
Form 10-Q/A for the Quarter Ended September 30, 1996 and the
Company's Quarterly Report on Form 10-Q for the Quarter Ended
December 31, 1996; and
(c) the Company's Current Reports on Form 8-K dated August 21, 1996 and
November 18, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of any offering of securities made by this Prospectus shall
be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the respective dates of filing such documents. Any statement
contained herein or in a document all or part of which is incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded
3
<PAGE>
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated by reference (other
than exhibits to such documents which are not specifically incorporated by
reference in such documents). Requests for such copies should be directed to
Commercial Federal Corporation, Corporate Secretary, 2120 South 72nd Street,
Omaha, Nebraska 68124, telephone number (402) 554-9200.
4
<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. In addition, because holders of Capital
Securities may receive Junior Subordinated Debentures in exchange therefor
upon liquidation of the Issuer, prospective purchasers of Capital Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the
Junior Subordinated Debentures contained herein.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
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 unsecured and rank subordinate and junior in right
of payment to all Senior Debt (which term includes substantially all current
and future indebtedness of the Company). At December 31, 1996, the aggregate
amount of Senior Debt of the Company outstanding was $78.0 million. Because
the Company is a holding company, the right of the Company to participate in
any distribution of the assets of any subsidiary, including Commercial Federal
Bank, a Federal Savings Bank (the "Bank"), upon such subsidiary's liquidation
or reorganization or otherwise, and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution, is subject to the
prior claims of creditors of that subsidiary, except to the extent that the
Company may itself be recognized as a creditor of that subsidiary.
Accordingly, the Junior Subordinated Debentures and all obligations of the
Company relating to the Capital Securities will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and holders
of Junior Subordinated Debentures should look only to the assets of the
Company for payments on the Junior Subordinated Debentures. None of the
Indenture, the Guarantee Agreement or the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior Debt,
that may be incurred by the Company. See "Description of Guarantee--Status of
the Guarantee" and "Description of Junior Subordinated Debentures--
Subordination."
SOURCES OF PAYMENT FOR AMOUNTS DUE ON CAPITAL SECURITIES
The ability of the Issuer to pay amounts due on the Capital Securities is
solely dependent upon the Company making payments on the Junior Subordinated
Debentures as and when required. The Company's principal asset is its
investment in the capital stock of the Bank. Because it does not generate any
significant revenues independent of the Bank, the Company relies primarily on
interest and dividends from the Bank to meet its obligations for payment of
principal and interest on its outstanding debt obligations and corporate
expenses. If the Company were denied access to the earnings of the Bank,
whether by regulatory restriction, inadequate earnings or deterioration in the
Bank's financial condition, the Company's ability to make debt service
payments on the Junior Subordinated Debentures would be significantly
impaired.
OPTION TO DEFER INTEREST PAYMENT; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES
Unless otherwise specified in the applicable Prospectus Supplement, so long
as no Debenture Event of Default (as defined herein) has occurred and is
continuing, the Company will have the right under the Indenture 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 quarters with respect
to each Extension Period, provided that no Extension Period may extend beyond
the Stated Maturity of the Junior Subordinated Debentures. As a consequence of
any such deferral, quarterly Distributions on the Capital Securities by the
Issuer will also be deferred (and the amount of Distributions to which holders
of the Capital Securities are entitled will accumulate additional
Distributions thereon at the rate set forth in the applicable Prospectus
Supplement, compounded quarterly from the relevant payment date for such
Distributions) during any such Extension Period. During any such Extension
Period, the Company will be prohibited from making certain payments and
distributions with respect to the Company's capital stock (including dividends
on or redemptions of common or preferred stock) and from making certain
payments with respect to any debt securities of the Company that rank pari
passu with or junior in interest to the
5
<PAGE>
Junior Subordinated Debentures, with certain exceptions. See "Description of
Junior Subordinated Debentures--Restrictions on Certain Payments." Prior to
the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity. Upon the
termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the annual rate set
forth in the applicable Prospectus Supplement, compounded quarterly from the
interest payment date for such interest, to the extent permitted by applicable
law), the Company may elect to begin a new Extension Period subject to the
above requirements. 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 Defer Interest Payments."
Should an Extension Period occur, a holder of Capital Securities will be
required to recognize income (in the form of original issue discount) in
respect of its pro rata share of the Junior Subordinated Debentures held by
the Issuer for United States federal income tax purposes. As a result, a
holder of Capital Securities will be required to include such income in gross
taxable income for United States federal income tax (and possibly other)
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 if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount" and "--Sales or Redemption of Capital
Securities."
The Company has no current intention of exercising its right to defer
payments of interest 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.
TAX EVENT OR CAPITAL TREATMENT EVENT--REDEMPTION
Upon the occurrence and continuation of a Tax Event or Capital Treatment
Event (whether occurring before or after the date that is five years after
issuance) the Company has the right, if certain conditions are met, to redeem
the Junior Subordinated Debentures in whole (but not in part) within 90 days
following the occurrence of such Tax Event or Capital Treatment Event and
thereby cause a mandatory redemption of the Capital Securities. The exercise
of such right is subject to the Company having received prior approval of the
Federal Reserve to do so if then required under applicable capital guidelines
or policies. As of the date of this Prospectus, the Company, as a savings and
loan holding company, is not subject to the Federal Reserve capital
requirements for bank holding companies. See "Description of Capital
Securities--Redemption."
A "Tax Event" means the receipt by the Company and the Issuer of an opinion
of its tax advisors (which shall be its independent public accountants or
counsel 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 administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after
the date of issuance of the Capital Securities under the Trust Agreement,
there is more than an insubstantial risk that (i) the Issuer is, or will be
within 90 days of the date of such opinion, subject to 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 date 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 is, or will be within 90 days
of the date of the opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of any amendment to, or change (including any
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative
6
<PAGE>
pronouncement or action or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
prospective change, pronouncement or decision is announced on or after the
date of issuance of the Capital Securities under the Trust Agreement, there is
more than an insubstantial risk of impairment of the Company's ability to
treat an amount equal to the Liquidation Amount of the Capital Securities (or
a substantial portion thereof) as "Tier I Capital" (or the then equivalent
thereof) for purposes of the capital adequacy guidelines of the Federal
Reserve, as then in effect and applicable to the Company.
See "--Possible Tax Law Changes Affecting the Capital Securities" for a
discussion of certain legislative proposals that, if adopted, could give rise
to a Tax Event, which may permit the Company to cause a redemption of the
Capital Securities prior to the Stated Maturity as it may be shortened by the
Company.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, the Clinton Administration submitted revenue proposals
to the 105th Congress (the "Proposal"). If enacted, the Proposal would
generally deny interest deductions for interest on an instrument issued by a
publicly traded corporation (a) that has a maximum weighted average maturity
of more than 40 years or (b) has a maximum term of more than 15 years and that
is not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument that
is not shown as indebtedness on the issuer's consolidated balance sheet. For
purposes of determining the weighted average maturity or the term of an
instrument, any right to extend would be treated as exercised. The above-
described provisions state that the Proposal will be effective generally for
instruments issued on or after the date of first Congressional committee
action on the Proposal. If either provision were to apply to the Junior
Subordinated Debentures, the Company would not be able to deduct interest on
the Junior Subordinated Debentures. If the proposed legislation is introduced
and ultimately enacted and if the effective date provision contained in the
Proposal is followed, such legislation would not apply to the Junior
Subordinated Debentures. There can be no assurance, however, that current or
future legislative proposals or final legislation will not adversely affect
the ability of the Company to deduct interest on the Junior Subordinated
Debentures or otherwise affect the tax treatment of the transaction described
herein. Such a change could give rise to a Tax Event, which would 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. See "Description of Capital Securities--
Redemption--Tax Event or Capital Treatment Event Redemption" and "Description
of Junior Subordinated Debentures--Redemption." See also "Certain Federal
Income Tax Consequences--Possible Tax Law Changes."
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL
SECURITIES
The Company will have the right at any time to terminate the Issuer and,
after satisfaction of liabilities to creditors of the Issuer as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Capital Securities in exchange therefor upon liquidation of
the Issuer. The exercise of such right is subject to the Company having
received prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies. See "Description of Capital
Securities--Redemption--Distribution of Junior Subordinated Debentures."
Under current United States federal income tax law and interpretations and
assuming, as expected, the Issuer is classified as a grantor trust for such
purposes, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer should not be a taxable event to holders of the
Capital Securities. However, if a Tax Event were to occur which would cause
the Issuer 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 could be a
taxable event to the Issuer and the holders of the Capital Securities. See
"Certain Federal Income Tax Consequences--Distribution of the Junior
Subordinated Debentures to Holders of Capital Securities."
7
<PAGE>
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than five years from the
date of issuance and thereby cause the Capital Securities to be redeemed on
such earlier date. The exercise of such right is subject to the Company having
received prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve.
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
Junior Subordinated Debentures that may be distributed in exchange for Capital
Securities upon liquidation of the Issuer. Accordingly, the Capital Securities
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Junior Subordinated Debentures that a holder of
Capital Securities may receive on liquidation of the Issuer, may trade at a
discount to the price that the investor paid to purchase the Capital
Securities offered hereby. 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 beneficial interests in the Issuer) may be more volatile
than the market prices of other debt securities that are not subject to such
optional deferrals. In addition, because the Company has the right to shorten
the Stated Maturity of the Junior Subordinated Debentures (subject to prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve), there can be no assurance that
the Company will not exercise its option to change the maturity of the Junior
Subordinated Debentures as permitted by the terms thereof and of the
Indenture. Because holders of Capital Securities may receive Junior
Subordinated Debentures on liquidation of the Issuer, 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 and
in the applicable Prospectus Supplement.
RIGHTS UNDER THE GUARANTEE; DIRECT ACTION
The Guarantee guarantees to the holders of the Capital Securities the
following payments, to the extent not paid by the Issuer: (i) any accumulated
and unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Issuer has funds on hand available therefor at such time, (ii)
the redemption price with respect to any Capital Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding-
up or liquidation of the Issuer (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 has funds
on hand available therefor at such time, and (b) the amount of assets of the
Issuer remaining available for distribution to holders of the Capital
Securities after payment of creditors of the Issuer as required by applicable
law. The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Harris Trust and Savings
Bank will act as the Guarantee Trustee for the purpose of compliance with the
Trust Indenture Act and will hold the Guarantee for the benefit of the holders
of the Capital Securities. Harris Trust and Savings Bank will also act as
Debenture Trustee for the Junior Subordinated Debentures and as Property
Trustee and Wilmington Trust Company will act as Delaware Trustee under the
Trust Agreement.
The holders of not less than a majority in aggregate Liquidation Amount of
the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity. If the Company were to default on its obligation to pay amounts
payable under the Junior Subordinated Debentures, the Issuer would lack funds
for the payment of Distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in
8
<PAGE>
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 shall have occurred and be continuing and such event is attributable
to the failure of the Company to pay interest on or principal of the Junior
Subordinated Debentures on the applicable payment date, then a holder of
Capital Securities may institute a legal proceeding directly against the
Company pursuant to the terms of the Indenture for enforcement of payment to
such holder of the principal of or interest on such Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Capital Securities of such holder (a "Direct Action"). In connection
with such Direct Action, the Company will have a right of set-off under the
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 Indenture.
UNCERTAINTY OF DEDUCTIBILITY OF INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES
The Company's ability to deduct the interest paid on the Junior Subordinated
Debentures depends upon whether the Junior Subordinated Debentures are
characterized as debt instruments for federal income tax purposes, taking all
the relevant facts and circumstances into account. The Company believes that
the Junior Subordinated Debentures are debt instruments for federal income tax
purposes and that interest on the Junior Subordinated Debentures will,
therefore, be deductible by the Company. There is no clear authority on the
appropriate characterization for federal income tax purposes of instruments
such as the Junior Subordinated Debentures when they are issued in connection
with an offering of securities such as the Capital Securities. If the interest
on the Junior Subordinated Debentures is not deductible by the Company, the
Company would have significant additional income tax liabilities.
LIMITED COVENANTS
The covenants in the Indenture are limited and there are no covenants in the
Trust Agreement. As a result, neither the Indenture nor the Trust Agreement
protects holders of Junior Subordinated Debentures, or Capital Securities,
respectively, in the event of material adverse change in the Company's
financial condition or results of operations or limits the ability of the
Company or any subsidiary to incur additional indebtedness. Therefore, the
provisions of these governing instruments should not be considered a
significant factor in evaluating whether the Company will be able to comply
with its obligations under the Junior Subordinated Debentures or the
Guarantee.
LIMITED VOTING RIGHTS
Holders of Capital Securities generally will have limited voting rights
relating only to the modification of the Capital Securities and the exercise
of the Issuer's rights as holder of Junior Subordinated Debentures and the
Guarantee. Holders of Capital Securities will not be entitled to vote to
appoint, remove or replace the Property Trustee, the Delaware Trustee or any
Administrative Trustee, and such voting rights are vested exclusively in the
holder of the Common Securities except, with respect to the Property Trustee
and the Delaware Trustee, upon the occurrence of certain events described
under "Description of Capital Securities--Voting Rights; Amendment of Trust
Agreement." The Property Trustee, the Administrative Trustees and the Company
may amend the Trust Agreement without the consent of holders of Capital
Securities to ensure that the Issuer will be classified for United States
federal income tax purposes as a grantor trust or to ensure that the Issuer's
exemption from status as an "investment company" under the Investment Company
Act is preserved even if such action adversely affects the interests of such
holders. See "Description of Capital Securities--Voting Rights; Amendment of
the Trust Agreement" and "--Removal of Issuer Trustees."
9
<PAGE>
TRADING CHARACTERISTICS OF CAPITAL SECURITIES
Application has been made to list the Capital Securities on the New York
Stock Exchange. The Capital Securities may trade at prices that do not fully
reflect the value of accrued and unpaid interest with respect to the
underlying Junior Subordinated Debentures. A holder of Capital Securities that
disposes of such holder's Capital Securities between record dates for payments
of Distributions (and consequently does not receive a Distribution from the
Issuer for the period prior to such disposition) will nevertheless be required
to include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income and to add such
amount to its adjusted tax basis in the Capital Securities disposed. In
general, such holder will recognize a capital loss to the extent the selling
price (which may not fully reflect the value of accrued but unpaid interest)
is less than its adjusted tax basis (which will include accrued but unpaid
interest). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount" and "--Sales or Redemption of Capital Securities" for
a discussion of the United States federal income tax consequences that may
result from a taxable disposition of the Capital Securities.
As indicated above, application has been made to list the Capital Securities
on the New York Stock Exchange. If the Capital Securities are not listed on a
national securities exchange or the Nasdaq National Market and the
underwriters do not make a market for the securities, the liquidity of the
Capital Securities could be adversely affected.
POTENTIALLY ADVERSE IMPACT OF INTEREST RATES AND ECONOMIC AND INDUSTRY
CONDITIONS
The savings institution industry is affected by fluctuations in market
interest rates. Like most savings institution holding companies, the Company's
net interest income is affected by general economic and other factors that
influence market interest rates and the Company's ability to respond to
changes in such rates. General economic conditions also affect the credit
quality of the Company's assets. Adverse economic conditions may affect the
ability of the Bank's borrowers to repay loans, particularly in the areas of
commercial real estate and consumer lending. To the extent that changes in
interest rates and economic conditions adversely affect the Company's
financial condition and results of operations, the Company's ability to make
debt service payments on the Junior Subordinated Debentures may be impaired.
Significant and rapid changes have occurred in the savings institution
industry in recent years, and the future of the industry is subject to various
uncertainties. The traditional role of savings institutions as the nation's
primary housing lenders is diminishing and savings institutions are subject to
increasing competition from commercial banks and mortgage bankers. The savings
institution industry also faces a volatile and uncertain regulatory
environment in which applicable laws, regulations and enforcement policies are
subject to significant change. There can be no assurance that changes in the
savings institution industry, regulatory and otherwise, will not adversely
affect the financial condition and results of operations of the Company and,
as a result, impair its ability to make debt service payments on the Junior
Subordinated Debentures.
10
<PAGE>
THE COMPANY
The Company is a holding company for the Bank, which is the largest
depository institution headquartered in Nebraska. At December 31, 1996, the
Company had assets of $6.9 billion and stockholders' equity of $394.7 million.
Based upon total assets at that date, the Company was the 19th largest
publicly held thrift holding company in the United States. The Bank is a
consumer-oriented financial institution that emphasizes single-family
residential real estate lending, consumer lending, retail deposit activities,
including demand deposit accounts, and mortgage banking. At December 31, 1996,
the Bank operated 34 branch offices in Nebraska, 20 branch offices in greater
metropolitan Denver, Colorado, 19 branch offices in Oklahoma, 25 branch
offices in Kansas and 7 branch offices in Iowa. Throughout its 109 year
history, the Bank has emphasized customer service. To serve its customers, the
Bank conducts loan origination activities through its 105 branch office
network, loan offices of its wholly-owned mortgage banking subsidiary and a
nationwide correspondent network consisting of approximately 375 mortgage loan
originators. The Bank also provides insurance and securities brokerage and
other retail financial services.
The Company's strategy for growth emphasizes both internal and external
growth. Operations focus on increasing deposits, including demand accounts,
making loans (primarily single-family mortgage and consumer loans) and
providing customers with a full array of financial products and a high level
of customer service. As part of its long-term strategic plan, the Company
intends to expand its operations within its market areas either through direct
marketing efforts aimed at increasing market share, branch expansions, or
opening additional branches. The Company's retail strategy will continue to be
centered on attracting new customers and selling both new and existing
customers multiple products and services. Additionally, the Company will
continue to build and leverage an infrastructure designed to increase fee and
other income.
Complementing its strategy of internal growth, the Company will continue to
grow its five-state franchise through an ongoing program of selective
acquisitions of other financial institutions. Acquisition candidates will be
selected based on the extent to which the candidates can enhance the Company's
retail presence in new or underserved markets and complement the Company's
existing retail network.
The Company's principal executive offices are located at 2120 South 72nd
Street, Omaha, Nebraska 68124, and its telephone number is (402) 554-9200.
THE ISSUER
The Issuer is a statutory business trust created under Delaware law pursuant
to (i) the Trust Agreement executed by the Company, as Depositor, Wilmington
Trust Company, as Delaware Trustee, Harris Trust and Savings Bank, as Property
Trustee, and the Administrative Trustees, as named therein, of the Issuer and
(ii) the filing of a certificate of trust with the Delaware Secretary of State
on January 30, 1997. The Trust Agreement will be qualified as an indenture
under the Trust Indenture Act. The Issuer exists for the exclusive purposes of
(i) issuing and selling its Trust Securities, (ii) using the proceeds from the
sale of such Trust Securities to acquire Junior Subordinated Debentures issued
by the Company, and (iii) engaging in only those other activities necessary,
convenient or incidental thereto (such as registering the transfer of the
Capital Securities). Accordingly, the Junior Subordinated Debentures will be
the sole assets of the Issuer, and payments under the Junior Subordinated
Debentures and the Expense Agreement will be the sole revenue of the Issuer.
All of the Common Securities of the Issuer will be owned by the Company. The
Common Securities of the Issuer will rank pari passu, and payments will be
made thereon pro rata, with the Capital Securities, except that upon the
occurrence and continuance of an event of default under the Trust Agreement
resulting from an event of default under the Indenture, the rights of the
Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation or redemption 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 not less
than 3% of the total capital of the Issuer.
11
<PAGE>
Unless otherwise specified in the Prospectus Supplement, the Issuer has a
term of approximately 31 years, but may terminate earlier as provided in the
Trust Agreement. The Issuer's business and affairs are conducted by its
trustees, each appointed by the Company as holder of the Common Securities.
Harris Trust and Savings Bank, as Property Trustee, will act as sole trustee
under the Trust Agreement for purposes of compliance with the Trust Indenture
Act. Harris Trust and Savings Bank will also act as trustee under the
Guarantee and the Indenture. See "Description of Guarantee" and "Description
of Junior Subordinated Debentures." The holder of the Common Securities of the
Issuer, or the holders of a majority in Liquidation Amount of the Capital
Securities if an event of default under the Trust Agreement has occurred and
is continuing, will be entitled to appoint, remove or replace the Property
Trustee and/or the Delaware Trustee. In no event will the holders of the
Capital Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights are vested exclusively in the
holder of the Common Securities. The duties and obligations of the Issuer
Trustee are governed by the Trust Agreement. Pursuant to the Expense
Agreement, the Company will pay all fees and expenses related to the Issuer
and the offering of the Capital Securities and will pay, directly or
indirectly, all ongoing costs, expenses and liabilities of the Issuer.
The principal executive office of the Issuer is 2120 South 72nd Street,
Omaha, Nebraska 68124 and its telephone number is (402) 554-9200.
USE OF PROCEEDS
All of the proceeds from the sale of the Capital Securities will be invested
by the Issuer in Junior Subordinated Debentures. The Company intends that the
proceeds from the sale of the Junior Subordinated Debentures will be used for
general corporate purposes including, without limitation, possible future
acquisitions, funding investments in, or extensions of credit to, the
Company's subsidiaries, repayment of obligations and redemption of securities.
Although the Company, as a savings and loan holding company, is not subject
to the Federal Reserve capital requirements for bank holding companies, it is
possible that in the future it could become subject to such requirements as a
result of the acquisition of a bank or change in regulations. On October 21,
1996, the Federal Reserve announced that cumulative preferred securities
having the characteristics of the Capital Securities could be included as Tier
1 capital for bank holding companies. Such Tier 1 capital treatment, together
with the Company's ability to deduct, for income tax purposes, interest
payable on the Junior Subordinated Debentures, will provide the Company with a
more cost-effective means of obtaining capital for regulatory purposes than if
the Company were to issue preferred stock.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer will be treated as a subsidiary
of the Company and, accordingly, the accounts of the Issuer will be included
in the consolidated financial statements of the Company. The Capital
Securities will be presented as a separate line item in the consolidated
statement of financial condition of the Company before the Stockholders'
Equity section under the separate caption "Company Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures" 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. For financial
reporting purposes, the Company will record Distributions payable on the
Capital Securities as minority interest expense, net of related tax benefit,
in the consolidated statement of operations.
The Company has agreed that future financial reports of the Company will:
(i) include, in an audited footnote to the audited financial statements,
disclosure that (a) the Trust is wholly owned, (b) the sole assets of the
Trust are the Junior Subordinated Debentures (specifying the principal amount,
interest rate and maturity date of the Junior Subordinated Debentures held),
and (c) the obligations of the Company under the documents, in the aggregate,
constitute a full and unconditional guarantee by the Company of the
obligations of the Issuer under the Capital Securities.
12
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges has been computed by dividing income
before income taxes, extraordinary items and cumulative effects of changes in
accounting principles plus fixed charges by fixed charges. Fixed charges
represent all interest expense plus the portion of rental payments under
operating leases deemed to be interest.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
----------------- -----------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Excluding interest on depos-
its.......................... 1.30x 1.58x 1.71x 1.43x 1.13x 1.41x 1.26x
Including interest on depos-
its.......................... 1.10x 1.21x 1.25x 1.18x 1.06x 1.20x 1.13x
</TABLE>
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer Trustees on behalf
of the Issuer will issue the Capital Securities and the Common Securities. The
Trust Agreement will be qualified as an indenture under the Trust Indenture
Act. Initially, Wilmington Trust Company will be the Delaware Trustee and
Harris Trust and Savings Bank will be the Property Trustee and will act as
trustee for the purpose of complying with the Trust Indenture Act. The terms
of the Capital Securities will include those stated in the Trust Agreement and
those made part of the Trust Agreement by the Trust Indenture Act. This
summary of certain provisions of the Capital Securities and the Trust
Agreement, which summarizes the material terms thereof, does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein
of certain terms, and the Trust Indenture Act, to each of which reference is
hereby made. Wherever particular defined terms of the Trust Agreement (as
amended or supplemented from time to time) are referred to herein or in a
Prospectus Supplement, such defined terms are incorporated herein or therein
by reference. The form of the Trust Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
GENERAL
The Capital Securities will represent beneficial ownership interests in the
Issuer and the holders thereof will be entitled to a preference in certain
circumstances with respect to Distributions and amounts payable on redemption
or liquidation over the Common Securities of such Issuer, as well as other
benefits as described in the Trust Agreement. See "--Subordination of Common
Securities." The Capital Securities of the Issuer will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities of the
Issuer except as described under "--Subordination of Common Securities." Legal
title to the Junior Subordinated Debentures will be held by the Property
Trustee in trust for the benefit of the holders of the Capital Securities and
Common Securities. The Guarantee Agreement executed by the Company for the
benefit of the holders of the Capital 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 does not have funds
on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Distributions on the Capital Securities will be cumulative, will accumulate
from the date of original issuance and will be payable on such dates as
specified in the Prospectus Supplement. In the event that any date on which
Distributions are payable on the Capital Securities is not a Business Day (as
defined below), payment of the Distribution payable on such date will be made
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect to any such delay) except that, if such Business Day
is in the next succeeding calendar year, payment of such Distribution shall be
made on the immediately preceding Business Day, in either case with the same
force and effect as if made on such date (each date on which Distributions are
payable in accordance with the foregoing, a "Distribution Date"). A "Business
Day" shall mean any day other than a Saturday or a Sunday, or a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Debenture Trustee is closed for
business.
13
<PAGE>
The Capital Securities represent beneficial ownership interests in the
Issuer, and the Distributions on each Capital Security will be payable at a
rate specified in the Prospectus Supplement for such Capital Securities. The
amount of Distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months unless otherwise specified in the
Prospectus Supplement. Distributions to which holders of Capital Securities
are entitled will accumulate additional Distributions at the rate per annum if
and as specified in the Prospectus Supplement. The term "Distributions" as
used herein includes any such additional Distributions unless otherwise
stated.
Unless otherwise provided in the Prospectus Supplement and so long as no
Debenture Event of Default has occurred and is continuing, the Company has the
right under the Indenture, pursuant to which it will issue the Junior
Subordinated Debentures, to defer the payment of interest at any time or from
time to time on the Junior Subordinated Debentures for up to 20 consecutive
interest payment periods (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. As a consequence of any such deferral, Distributions
on the Capital Securities would be deferred (but would continue to accumulate
additional Distributions thereon at the rate per annum set forth in the
Prospectus Supplement for such Capital Securities) by the Issuer during any
such Extension Period. During such Extension Period, the Company may not, and
may not permit any subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock), (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in interest to
the Junior Subordinated Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Company of debt securities of any subsidiary
of the Company if such guarantee ranks pari passu with or junior in interest
to the Junior Subordinated Debentures (other than (a) dividends or
distributions in capital stock of the Company (which includes common and
preferred stock), (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, the redemption or repurchase of
any such rights pursuant thereto, (c) payments under the Guarantee with
respect to the Capital Securities and (d) purchases of common stock related to
the issuance of common stock or rights under any of the Company's benefit
plans for its directors, officers or employees or related to the issuance of
common stock (or securities convertible into or exchangeable for common stock)
as consideration in an acquisition transaction).
The revenue of the Issuer available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Issuer will invest the proceeds from the issuance and
sale of its Trust Securities. If the Company does not make interest payments
on such Junior Subordinated Debentures, the Property Trustee will not have
funds available to pay Distributions on the Capital Securities. The payment of
Distributions (if and to the extent the Issuer has funds legally available for
the payment of such Distributions and cash sufficient to make such payments)
is guaranteed by the Company on the basis set forth herein under "Description
of Guarantee."
Distributions on the Capital Securities will be payable to the holders
thereof as they appear on the register of the Issuer on the relevant record
dates, which, as long as the Capital Securities remain in book-entry form,
will be one Business Day prior to the relevant Distribution Date. Subject to
any applicable laws and regulations and the provisions of the Trust Agreement,
each such payment will be made as described under "Book-Entry Issuance." In
the event any Capital Securities are not in book-entry form, the relevant
record date for such Capital Securities shall be the date at least 15 days
prior to the relevant Distribution Date, as specified in the Prospectus
Supplement.
REDEMPTION
Mandatory Redemption. Upon the repayment or redemption, in whole or in part,
of any Junior Subordinated Debentures, whether at Stated Maturity or upon
earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Capital Securities, upon not less than
30 nor more than 60 days notice, at a
14
<PAGE>
redemption price (the "Redemption Price") equal to the aggregate Liquidation
Amount of such Capital Securities plus accumulated but unpaid Distributions
thereon to the date of redemption (the "Redemption Date") and the related
amount of the premium, if any, paid by the Company upon the concurrent
redemption of such Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures--Redemption." If less than all of any Junior
Subordinated Debentures are to be repaid or redeemed on a Redemption Date,
then the proceeds from such repayment or redemption shall be allocated to the
redemption pro rata of the Capital Securities and the Common Securities. The
amount of premium, if any, paid by the Company upon the redemption of all or
any part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Capital
Securities and the Common Securities.
The Company will have the right to redeem any Junior Subordinated Debentures
(i) on or after such date as may be specified in the Prospectus Supplement, in
whole at any time or in part from time to time, or (ii) at any time, in whole
(but not in part), upon the occurrence of a Tax Event or Capital Treatment
Event, in either case subject to receipt of prior approval by the Federal
Reserve if then required under applicable capital guidelines or policies of
the Federal Reserve.
Tax Event or Capital Treatment Event Redemption. If a Tax Event or Capital
Treatment Event shall occur and be continuing, the Company has the right to
redeem the Junior Subordinated Debentures in whole (but not in part) and
thereby cause a mandatory redemption of such Capital Securities and Common
Securities in whole (but not in part) at the Redemption Price within 90 days
following the occurrence of such Tax Event or Capital Treatment Event. In the
event a Tax Event or Capital Treatment Event has occurred and is continuing
and the Company does not elect to redeem the Junior Subordinated Debentures
and thereby cause a mandatory redemption of such Capital Securities and Common
Securities or to liquidate the Issuer and cause the Junior Subordinated
Debentures to be distributed to holders of such Capital Securities and Common
Securities in exchange therefor upon liquidation of the Issuer as described
above, such Capital Securities will remain outstanding and Additional Sums may
be payable 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 on the
outstanding Capital Securities and Common Securities of the Issuer shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which the Issuer has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of any 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 Indenture,
allocated to the Common Securities and to the Capital Securities pro rata
based upon the relative Liquidation Amounts of such classes and the proceeds
of which will be used to pay the Redemption Price of such Trust Securities,
and (ii) with respect to a distribution of Junior Subordinated Debentures to
holders of any Trust Securities in exchange therefor in connection with a
dissolution or liquidation of the related Issuer, 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
would be distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures for Capital Securities (i) such Capital Securities will no longer
be deemed to be outstanding, (ii) the Depository or its nominee, as the record
holder of such Capital Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution and (iii) any certificates representing
such Capital Securities not held by the Depository 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 accrued and
unpaid Distributions on such Capital Securities until such certificates are
presented to the Administrative Trustees or their agent for transfer or
reissuance.
15
<PAGE>
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 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, may trade at a discount to the
price that the investor paid to purchase the Capital Securities offered
hereby.
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 has funds on hand available
for the payment of such Redemption Price. See also "--Subordination of Common
Securities."
If the Issuer gives a notice of redemption of Capital Securities, then, by
12:00 noon, New York City time, on the Redemption Date, to the extent funds
are available, the Property Trustee will deposit irrevocably with the
Depository funds sufficient to pay the applicable Redemption Price and will
give the Depository irrevocable instructions and authority to pay the
Redemption Price to the holders of the Capital Securities. See "Book-Entry
Issuance." If such Capital Securities are no longer in book-entry form, the
Property Trustee, to the extent funds are available, will irrevocably deposit
with the paying agent for such 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 such 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 such Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive
the Redemption Price, but without interest on such Redemption Price, and such
Capital Securities will cease to be outstanding. In the event that any date
fixed for redemption of Capital Securities is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Capital Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer or by the Company pursuant to the
Guarantee as described under "Description of Guarantee," Distributions on such
Capital Securities will continue to accrue at the then applicable rate, from
the Redemption Date originally established by the Issuer for such Capital
Securities to the date such Redemption Price is actually paid, in which case
the actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Capital Securities and any
distribution of Junior Subordinated Debentures to holders of Capital
Securities shall be made to the applicable recordholders thereof as they
appear on the register for such Capital Securities on the relevant record
date, which shall be one Business Day prior to the relevant Redemption Date or
liquidation date, as applicable; provided, however, that in the event that any
Capital Securities are not in book-entry form, the relevant record date for
such Capital Securities shall be a date at least 15 days prior to the
Redemption Date or liquidation date, as applicable, as specified in the
Prospectus Supplement.
If less than all of the Capital Securities and Common Securities issued by
the Issuer are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Capital Securities and Common Securities
16
<PAGE>
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, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof) of the
Liquidation Amount of Capital Securities of a denomination larger than $25.
The Property Trustee shall promptly notify the trust registrar in writing of
the Capital Securities selected for redemption and, in the case of any Capital
Securities selected for partial redemption, the Liquidation Amount thereof to
be redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Capital
Securities 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 holder of Trust Securities to be
redeemed at its registered address.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of Capital Securities
and Common Securities, shall be made pro rata based on the Liquidation Amount
of such Capital Securities and Common Securities; provided, however, that if
on any Distribution Date or Redemption Date a Debenture Event of Default shall
have occurred and be continuing, no payment of any Distribution on, or
Redemption Price of, any of the Issuer's Common Securities, and no other
payment on account of the redemption, liquidation or other acquisition of such
Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the Issuer's outstanding
Capital Securities for all Distribution periods terminating on or prior
thereto, or in the case of payment of the Redemption Price the full amount of
such Redemption Price on all of the Issuer's outstanding Capital Securities
then called for redemption, shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment
in full in cash of all Distributions on, or Redemption Price of, the Issuer's
Capital Securities then due and payable.
In the case of any event of default under the Trust Agreement resulting from
a Debenture Event of Default, the Company as holder of the Issuer's Common
Securities will be deemed to have waived any right to act with respect to any
such event of default under the applicable Trust Agreement until the effect of
all such events of default with respect to such Capital Securities have been
cured, waived or otherwise eliminated. Until all events of default under the
Trust Agreement with respect to the Capital Securities have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of such Capital Securities and not on behalf of the
Company as holder of the Issuer's Common Securities, and only the holders of
such Capital Securities will have the right to direct the Property Trustee to
act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Issuer shall automatically dissolve
upon expiration of its term and shall dissolve on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount of the Junior Subordinated Debentures to the
holders of its Trust Securities, if the Company, as Depositor, has given
written direction to the Property Trustee to liquidate the Issuer (subject to
the Company having received prior approval of the Federal Reserve if so
required under applicable capital guidelines or policies of the Federal
Reserve); (iii) redemption of all of the Issuer's Capital Securities as
described under"--Redemption--Mandatory Redemption"; and (iv) the entry of an
order for the dissolution of the Issuer by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer shall be liquidated by the Issuer Trustees as expeditiously
as the Issuer Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors as provided by applicable law, to the
holders of such Trust Securities in
17
<PAGE>
exchange therefor a Like Amount of the Junior Subordinated Debentures, unless
such distribution is determined by the Property Trustee not to be practical,
in which event such holders will be entitled to receive out of the assets of
the Issuer available for distribution to holders, after satisfaction of
liabilities to creditors of the Issuer as provided by applicable law, an
amount equal to, in the case of holders of Capital Securities, the aggregate
of the Liquidation Amount plus accrued and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Issuer has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer on its Capital
Securities shall be paid on a pro rata basis. The holder(s) of the Issuer's
Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of its Capital Securities, except that
if a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a priority over the Common Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement with respect to the Capital Securities (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees (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 defaulting Issuer Trustee or Trustees by the
holders of at least 25% in aggregate Liquidation Amount of the outstanding
Capital Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under such Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Company, as Depositor, unless such Event of
Default shall have been cured or waived. The Company, as Depositor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described
above. See "--Subordination of Common Securities" and "--Liquidation
Distribution Upon Termination." The existence of an Event of Default does not
entitle the holders of Capital Securities to accelerate the maturity thereof.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital
18
<PAGE>
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Common Securities. No resignation or removal of
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.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or from time to time, for the purpose of meeting the legal requirements
of the Trust Indenture Act or of any jurisdiction in which any part of the
Trust Property may at the time be located, the Company, as the holder of the
Common Securities, and the Administrative Trustees shall have power to appoint
one or more persons either to act as a co-trustee, jointly with the Property
Trustee, of all or any part of such Trust Property, or to act as separate
trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of the Trust Agreement. In case a
Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any Person succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under
the Trust Agreement, provided such Person shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER
The Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. The Issuer may, at the request of the Company, with the
consent of the Administrative Trustees and without the consent of the holders
of the Capital Securities, merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, a trust organized as such under the laws of
any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Issuer with respect to the Capital
Securities or (b) substitutes for the Capital Securities other securities
having substantially the same terms as the Capital Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Capital
Securities in priority with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Junior Subordinated Debentures, (iii)
the Successor Securities are listed, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
other organization on which the Capital Securities are then listed, if any,
(iv) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Capital Securities to be downgraded by
any nationally recognized statistical rating organization which gives ratings
on the Capital Securities, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Capital Securities
(including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose identical to that of the Issuer, (vii) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Company has received an opinion from independent counsel to the
Issuer experienced in such matters to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Capital Securities (including any Successor Securities) in any material
respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Issuer nor such
successor entity will be required to register as an investment company under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and (viii) the Company or any permitted successor or assignee owns all of the
Common Securities of such successor entity and guarantees the obligations of
such
19
<PAGE>
successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Issuer shall
not, except with the consent of holders of 100% in Liquidation Amount of the
Capital Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Issuer or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Capital Securities (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters
or questions arising under the Trust Agreement, which shall not be
inconsistent with the other provisions of the Trust Agreement, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Issuer will be classified for
United States federal income tax purposes as a grantor trust at all times that
any Trust Securities are outstanding or to ensure that the Issuer will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (i) such action shall not
adversely affect in any material respect the interests of any holder of
Capital Securities, and any amendments of the Trust Agreement shall become
effective when notice thereof is given to the holders of Trust Securities. The
Trust Agreement may be amended by the Issuer Trustees and the Company with (i)
the consent of holders representing not less than a majority (based upon
Liquidation Amounts) of the outstanding Trust Securities, and (ii) receipt by
the Issuer Trustees of an opinion of its tax advisors 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's status as a
grantor trust for United States federal income tax purposes or an opinion of
counsel that such amendment will not affect the Issuer's exemption from status
as an "investment company" under the Investment Company Act, provided that
without the consent of each holder of Trust Securities, such Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution on
the Trust Securities or otherwise adversely affect the amount of any
Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture
Trustee, or executing any trust or power conferred on the Property Trustee
with respect to such Junior Subordinated Debentures, (ii) waive any past
default that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or such Junior
Subordinated Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate Liquidation Amount of all outstanding Capital Securities; provided,
however, that where a consent under the Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior consent of
each holder of the corresponding Capital Securities. The Issuer Trustees shall
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 shall 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, prior to taking any of the foregoing
actions, the Issuer Trustees shall obtain an opinion of its tax advisors to
the effect that such action would not cause the Issuer to be classified as
other than a grantor trust for United States federal income tax purposes.
20
<PAGE>
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
given to each holder of record of Capital Securities in the manner set forth
in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required for
the Issuer to redeem and cancel its 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, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
GLOBAL CAPITAL SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Capital Securities will be issued in whole or in part in the form of one or
more global certificates ("Global Capital Securities") registered in the name
of and deposited with, or on behalf of, the Depository Trust Company as
depository (the "Depository"). Global Capital Securities may be issued only in
fully registered form and in either temporary or permanent form. Beneficial
interests in the Capital Securities will be shown on, and transfers thereof
will be effected only through, records maintained by Depository. Except as
described below, Capital Securities in certificated form will not be issued in
exchange for the global certificates. See "Book-Entry Issuance."
Unless and until it is exchanged in whole or in part for the individual
Capital Securities represented thereby, a Global Capital Security may not be
transferred except as a whole by the Depository for such Global Capital
Security to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by the Depository or
any nominee to a successor Depository or any nominee of such successor.
A global security shall be exchangeable for Capital Securities registered in
the names of persons other than the Depository or its nominee only if (i) the
Depository notifies the Issuer that it is unwilling or unable to continue as a
depository for such global security and no successor depository shall have
been appointed, or if at any time the Depository ceases to be a clearing
agency registered under the Exchange Act at a time when the Depository is
required to be so registered to act as such depository, (ii) the Company in
its sole discretion determines that such global security shall be so
exchangeable or (iii) there shall have occurred and be continuing a Debenture
Event of Default. Any global security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates
registered in such names as the Depository shall direct. It is expected that
such instructions will be based upon directions received by the Depository
from its Participants (as defined in the accompanying Prospectus) with respect
to ownership of beneficial interests in such global security. In the event
that Capital Securities are issued in definitive form, such Capital Securities
will be in denominations of $25 and integral multiples thereof and may be
transferred or exchanged at the offices described below.
Payments on Capital Securities represented by a global security will be made
to the Depository, as the depository for the Capital Securities. In the event
Capital Securities are issued in certificated form, the Liquidation Amount and
Distributions will be payable, the transfer of the Capital Securities will be
registrable, and Capital Securities will be exchangeable for Capital
Securities of other denominations of a like aggregate Liquidation Amount, at
the corporate office of the Property Trustee in Chicago, Illinois, or at the
offices of any paying agent or transfer agent appointed by the Administrative
Trustees, provided that payment of any Distribution may be made at the option
of the Administrative Trustees by check mailed to the address of the persons
entitled thereto or by wire transfer. In addition, if the Capital Securities
are issued in certificated form, the record dates for payment of Distributions
will be the 15th day of the month in which the relevant Distribution payment
is scheduled to be paid.
21
<PAGE>
Upon the issuance of a Global Capital Security, and the deposit of such
Global Capital Security with or on behalf of the Depository, the Depository
for such Global Capital Security or its nominee will credit, on its book-entry
registration and transfer system, the respective aggregate Liquidation Amounts
of the individual Capital Securities represented by such Global Capital
Securities to the accounts of Participants. Such accounts shall be designated
by the dealers, underwriters or agents with respect to such Capital Securities
or by the Company if such Capital Securities are offered and sold directly by
the Company. Ownership of beneficial interests in a Global Capital Security
will be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Capital
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the applicable Depository or its nominee
(with respect to interests of Participants) and the records of Participants
(with respect to interests of persons who hold through Participants). The laws
of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Capital
Security.
So long as the Depository for a Global Capital Security, or its nominee, is
the registered owner of such Global Capital Security, such Depository or such
nominee, as the case may be, will be considered the sole owner or holder of
the Capital Securities represented by such Global Capital Security for all
purposes under the Indenture governing such Capital Securities. Except as
provided below, owners of beneficial interests in a Global Capital Security
will not be entitled to have any of the individual Capital Securities
represented by such Global Capital Security registered in their names, will
not receive or be entitled to receive physical delivery of any such Capital
Securities in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Capital Securities represented by a Global Capital Security registered in the
name of a Depository or its nominee will be made to the Depository or its
nominee, as the case may be, as the registered owner of the Global Capital
Security representing such Capital Securities. None of the Company, the
Property Trustee, any Paying Agent, or the Securities Registrar for such
Capital Securities will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of the Global Capital Security representing such Capital Securities
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that the Depository or its nominee, upon receipt of any
payment of Liquidation Amount, Redemption Price, premium or Distributions in
respect of a permanent Global Capital Security representing any of such
Capital Securities, immediately will credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interest in
the aggregate Liquidation Amount of such Global Capital Security for such
Capital Securities as shown on the records of such Depository or its nominee.
The Company also expects that payments by Participants to owners of beneficial
interests in such Global Capital Security held through such Participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name." Such payments will be the responsibility of such
Participants.
Unless otherwise specified in the Prospectus Supplement, if the Depository
is at any time unwilling, unable or ineligible to continue as depository and a
successor depository is not appointed by the Issuer within 90 days, the Issuer
will issue individual Capital Securities in exchange for the Global Capital
Security. In addition, the Issuer may at any time and in its sole discretion,
subject to any limitations described in the Prospectus Supplement, determine
not to have any Capital Securities represented by one or more Global Capital
Securities and, in such event, will issue individual Capital Securities in
exchange for the Global Capital Security or Securities representing such
Capital Securities. Further, if the Issuer so specifies with respect to the
Capital Securities, an owner of a beneficial interest in a Global Capital
Security representing Capital Securities may, on terms acceptable to the
Issuer, the Property Trustee and the Depository for such Global Capital
Security, receive individual Capital Securities in exchange for such
beneficial interests, subject to any limitations described in the Prospectus
Supplement relating to such Capital Securities. In any such instance, an owner
of a beneficial interest in a Global Capital Security will be entitled to
physical delivery of individual Capital Securities represented by such Global
Capital Security equal in principal amount to such beneficial interest and to
have such Capital
22
<PAGE>
Securities registered in its name. Individual Capital Securities so issued
will be issued in denominations, unless otherwise specified by the Issuer, of
$25 and integral multiples thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities shall be made to the
Depository, which shall credit the relevant accounts at the Depository on the
applicable Distribution Dates or, if the Issuer's Capital Securities are not
held by the Depository, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. Unless otherwise specified in the Prospectus Supplement, the paying
agent (the "Paying Agent") shall initially be the Property Trustee and any co-
paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Company. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days' written notice to the Property Trustee
and the Company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which
shall be a bank or trust company acceptable to the Administrative Trustees and
the Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the Prospectus Supplement, 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, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuer will not be required to register or cause to be
registered the transfer of its Capital Securities after such Capital
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Agreement at the request of any holder of Capital
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of Capital
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee shall take such action as is directed by the Company and if not so
directed, shall take such action as it deems advisable and in the best
interests of the holders of the Trust Securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that it will not be deemed
to be an "investment company" required to be registered under the Investment
Company Act or classified as other than a grantor trust for 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 Company and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Issuer or the Trust Agreement, that the
Company and the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Capital
Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer may not borrow money or issue debt or mortgage or pledge any of
its assets.
23
<PAGE>
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued in one or more series
under the Indenture between the Company and Harris Trust and Savings Bank, as
Debenture Trustee. The following summary of certain terms and provisions of
the Junior Subordinated Debentures and the Indenture, which summarizes the
material provisions thereof, does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the Indenture, the form
of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and to the Trust Indenture Act, to each of which
reference is hereby made. The Indenture is qualified under the Trust Indenture
Act. Whenever particular defined terms of the Indenture are referred to herein
or in a Prospectus Supplement, such defined terms are incorporated herein or
therein by reference.
Concurrently with the issuance of the Capital Securities, the Issuer will
invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in a series of Junior Subordinated
Debentures issued by the Company. The Junior Subordinated Debentures will be
issued as unsecured debt under the Indenture.
GENERAL
Each series of the Junior Subordinated Debentures will rank pari passu with
all other series of Junior Subordinated Debentures and will be unsecured and
subordinate and junior in right of payment to the extent and in the manner set
forth in the Indenture to all Senior Debt (as defined below) of the Company.
See "--Subordination." Because the Company is a holding company, the right of
the Company to participate in any distribution of assets of any subsidiary,
including the Bank, upon such subsidiary's liquidation or reorganization or
otherwise (and thus the ability of holders of the Capital Securities to
benefit indirectly from such distribution), is subject to the prior claims of
creditors of the subsidiary, except to the extent the Company may itself be
recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. Except as otherwise provided
in the Prospectus Supplement, the Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Debt, whether under the Indenture, any other existing indenture or any other
indenture that the Company may enter into in the future or otherwise. See
"Risk Factors--Ranking of Subordinated Obligations Under the Guarantee and the
Junior Subordinated Debentures" and "--Subordination" and the Prospectus
Supplement relating to any offering of Capital Securities or Junior
Subordinated Debentures.
The Junior Subordinated Debentures will be issuable in one or more series
pursuant to an indenture supplemental to the Indenture or pursuant to a
resolution of the Company's Board of Directors or a committee thereof. The
Prospectus Supplement will describe the following terms of the Junior
Subordinated Debentures: (1) the title of the Junior Subordinated Debentures;
(2) any limit upon the aggregate principal amount of the Junior Subordinated
Debentures; (3) the date on which the principal of the Junior Subordinated
Debentures is payable (the "Stated Maturity") or the method of determination
thereof; (4) the rate at which the Junior Subordinated Debentures shall bear
interest, the dates on which any such interest shall be payable (the "Interest
Payment Dates"), the right, if any, of the Company to defer or extend an
Interest Payment Date, and the record dates for any interest payable on any
Interest Payment Date (the "Regular Record Dates") or the method by which any
of the foregoing shall be determined; (5) the place where, subject to the
terms of the Indenture as described below under "--Payment and Paying Agents,"
the principal of and premium, if any, and interest on the Junior Subordinated
Debentures will be payable and where, subject to the terms of the Indenture as
described below under "--Denominations, Registration and Transfer," the Junior
Subordinated Debentures may be presented for registration of transfer or
exchange and the place where notices and demands to or upon the Company in
respect of the Junior Subordinated Debentures and the Indenture may be made
("Place of Payment"); (6) any period within which, or date on which, the price
at which and the terms and conditions upon which Junior Subordinated
Debentures may be redeemed, in whole or in part, at the option of the Company
or a holder thereof; (7) the obligation or the right, if any, of the Company
or a holder thereof to redeem, purchase or
24
<PAGE>
repay the Junior Subordinated Debentures and the period within which, the
price at which, the currency (including currency units) in which and the other
terms and conditions upon which the Junior Subordinated Debentures shall be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation; (8) the denominations in which any Junior Subordinated Debentures
shall be issuable if other than denominations of $25 and any integral multiple
thereof; (9) if other than in U.S. Dollars, the currency or currencies
(including currency unit or units) in which the principal of (and premium, if
any) and interest, if any, on the Junior Subordinated Debentures shall be
payable, or in which the Junior Subordinated Debentures shall be denominated;
(10) any additions, modifications or deletions in the events of default under
the Indenture or covenants of the Company specified in the Indenture with
respect to the Junior Subordinated Debentures; (11) if other than the
principal amount thereof, the portion of the principal amount of Junior
Subordinated Debentures that shall be payable upon declaration of acceleration
of the maturity thereof; (12) any additions or changes to the Indenture with
respect to the Junior Subordinated Debentures as shall be necessary to permit
or facilitate their issuance in bearer form, registrable or not registrable as
to principal, and with or without interest coupons; (13) any index or indices
used to determine the amount of payments of principal of and premium, if any,
on the Junior Subordinated Debentures and the manner in which such amounts
will be determined; (14) the terms and conditions relating to the issuance of
a temporary Global Security representing all of the Junior Subordinated
Debentures and the exchange of such temporary Global Security for definitive
Junior Subordinated Debentures; (15) subject to the terms described herein
under "--Global Junior Subordinated Debentures," whether the Junior
Subordinated Debentures shall be issued in whole or in part in the form of one
or more Global Securities and, in such case, the depository for such Global
Securities, which depository shall be a clearing agency registered under the
Exchange Act; (16) the appointment of any paying agent or agents; (17) the
terms and conditions of any obligation or right of the Company or a holder to
convert or exchange the Junior Subordinated Debentures into any other
securities or property of the Company and the additions or changes to the
Indenture to facilitate such conversion or exchange; (18) the form of the
Trust Agreement and Guarantee Agreement, if applicable; (19) the relative
degree, if any, to which such Junior Subordinated Debentures shall be senior
to or be subordinated to other indebtedness of the Company in right of
payment, whether such other indebtedness are outstanding or not; and (20) any
other terms of the Junior Subordinated Debentures not inconsistent with the
provisions of the Indenture.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on the Junior Subordinated Debentures, special
United States federal income tax, accounting and other considerations
applicable thereto will be described in the Prospectus Supplement.
OPTION TO DEFER INTEREST PAYMENTS
Unless otherwise specified in the Prospectus Supplement and so long as no
Debenture Event of Default has occurred and is continuing, the Company will
have the right at any time and from time to time during the term of any series
of Junior Subordinated Debenture to defer payment of interest for up to such
number of consecutive interest payment periods as may be specified in the
Prospectus Supplement (each, an "Extension Period"), provided that such
Extension Period may not extend beyond the Stated Maturity of such Junior
Subordinated Debentures. During any such Extension Period, the Company may
not, and may not permit any subsidiary of the Company to, (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock), (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior
in interest to the Junior Subordinated Debentures or (iii) make any guarantee
payments with respect to any guarantee by the Company of the debt securities
of any subsidiary of the Company if such guarantee ranks pari passu with or
junior in interest to the Junior Subordinated Debentures (other than (a)
dividends or distributions in capital stock of the Company (which includes
common and preferred stock), (b) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan or the issuance of
stock under any such plan in the future, or the redemption or repurchase of
any such rights pursuant thereto, (c) payments under the Guarantee, and (d)
purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans for its directors, officers or
employees). Prior to the termination of any such Extension Period, the
25
<PAGE>
Company may further defer the payment of interest on the Junior Subordinated
Debentures, provided that no Extension Period may exceed 20 consecutive
quarters or extend beyond the Stated Maturity of the Junior Subordinated
Debentures. Upon the termination of any such Extension Period and the payment
of all interest then accrued and unpaid (together with interest thereon at the
rate specified in the applicable Prospectus Supplement, compounded quarterly,
to the extent permitted by applicable law), the Company may elect to begin a
new Extension Period subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election to begin such Extension Period at
least one Business Day prior to the earlier of (i) the date interest on the
Junior Subordinated Debentures would have been payable except for the election
to begin such Extension Period, (ii) the date the Administrative Trustees are
required to give notice to the New York Stock Exchange, the Nasdaq National
Market or other applicable stock exchange or automated quotation system on
which the Capital Securities are then listed or quoted or to holders of
Capital Securities of the record date or (iii) the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Debenture Trustee shall give notice of the Company's election to
begin a new Extension Period to the holders of the Junior Subordinated
Debentures. There is no limitation on the number of times that the Company may
elect to begin an Extension Period.
Distributions on the Capital Securities will be deferred by the Issuer
during any such Extension Period. See "Description of Capital Securities--
Distributions."
See "Certain Federal Income Tax Consequences" for a description of certain
federal income tax consequences and special considerations applicable to any
such Junior Subordinated Debentures.
ADDITIONAL SUMS
If the Issuer 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 amounts on the Junior Subordinated Debentures such amounts as shall
be required so that the Distributions payable by the Issuer shall not be
reduced as a result of any such additional taxes, duties or other governmental
charges.
REDEMPTION
Unless otherwise specified in the Prospectus Supplement, Junior Subordinated
Debentures will not be subject to any sinking fund.
Unless otherwise specified in the Prospectus Supplement, the Company may, at
its option and subject to receipt of prior approval by the Federal Reserve if
then required under applicable capital guidelines or policies of the Federal
Reserve, redeem the Junior Subordinated Debentures of any series in whole at
any time or in part from time to time on or after the date that is five years
from the date of issuance. If the Junior Subordinated Debentures are so
redeemable only upon the satisfaction of additional conditions, the Prospectus
Supplement will describe such conditions. Junior Subordinated Debentures in
denominations larger than $25 may be redeemed in part but only in integral
multiples of $25. Except as otherwise specified in the Prospectus Supplement,
the redemption price for any Junior Subordinated Debenture so redeemed shall
equal any accrued and unpaid interest thereon to the redemption date, plus
100% of the principal amount thereof.
Except as otherwise specified in the Prospectus Supplement, if a Tax Event
or a Capital Treatment Event shall occur and be continuing, the Company may,
at its option and subject to receipt of prior approval by the Federal Reserve
if then required under applicable capital guidelines or policies of the
Federal Reserve, redeem such Junior Subordinated Debentures in whole (but not
in part) at any time within 90 days following of the occurrence of such Tax
Event or Capital Treatment Event, at a redemption price equal to 100% of the
principal amount of such Junior Subordinated Debentures then outstanding plus
accrued and unpaid interest to the date fixed for redemption except as
otherwise specified in the Prospectus Supplement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the
26
<PAGE>
Company defaults in payment of the redemption price, on and after the
redemption date interest ceases to accrue on such Junior Subordinated
Debentures or portions thereof called for redemption.
If the Issuer is required to pay additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums
(as defined herein).
DISTRIBUTION UPON LIQUIDATION
As described under "Description of Capital Securities--Liquidation
Distribution Upon Termination," under certain circumstances involving the
termination of the Issuer, the Junior Subordinated Debentures may be
distributed to the holders of the Capital Securities in the liquidation of the
Issuer after satisfaction of liabilities to creditors of the Issuer as
provided by applicable law. If distributed to holders of the Capital
Securities in liquidation, the Junior Subordinated Debentures will initially
be issued in the form of one or more global securities and the Depository, or
any successor depository for the Capital Securities, will act as depository
for the Junior Subordinated Debentures. It is anticipated that the depository
arrangements for the Junior Subordinated Debentures would be substantially
identical to those in effect for the Capital Securities. If the Junior
Subordinated Debentures are distributed to the holders of Capital Stock upon
the liquidation of the Issuer, there can be no assurance as to the market
price of any Junior Subordinated Debentures that may be distributed to the
holders of Capital Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant, as to each series of the Junior Subordinated
Debentures, that it will not, and will not permit any subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock (which includes common and preferred stock), (ii) make
any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem any debt securities of the Company that rank pari passu
in all respects with or junior in interest to the Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee
by the Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu in all respects with or junior in interest to the
Junior Subordinated Debentures (other than (a) dividends or distributions in
capital stock of the Company (which includes common and preferred stock), (b)
any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under any Guarantee with respect to the Capital
Securities and (d) purchases of common stock related to the issuance of common
stock or rights under any of the Company's benefit plans for its directors,
officers or employees, or related to the issuance of common stock (or
securities convertible into or exchangeable for common stock) as consideration
in an acquisition transaction) if at such time (i) there shall have occurred
any event of which the Company has actual knowledge (a) that with the giving
of notice or the lapse of time, or both, would constitute an "Event of
Default" under the Indenture with respect to the Junior Subordinated
Debentures and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (ii) if such Junior Subordinated Debentures are held
by the Issuer of Capital Securities, the Company shall be in default with
respect to its payment of any obligations under the Guarantee relating to such
Capital Securities or (iii) the Company shall have given notice of its
selection of an Extension Period as provided in the Indenture with respect to
the Junior Subordinated Debentures and shall not have rescinded such notice,
or such Extension Period, or any extension thereof, shall be continuing.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets of the Company upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the
27
<PAGE>
Company, the holders of Senior Debt will first be entitled to receive payment
in full of all Allocable Amounts (as defined below) on such Senior Debt before
the holders of Junior Subordinated Debentures will be entitled to receive or
retain any payment in respect thereof.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon (including any amounts due upon acceleration) before the holders
of Junior Subordinated Debentures will be entitled to receive or retain any
payment in respect of the Junior Subordinated Debentures.
No payments on account of principal (or premium, if any) or interest in
respect of the Junior Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to Senior
Debt or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Allocable Amounts," when used with respect to any Senior Debt, means all
amounts due or to become due on such Senior Debt less, if applicable, any
amount which would have been paid to, and retained by, the holders of such
Senior Debt (whether as a result of the receipt of payments by the holders of
such Senior Debt from the Company or any other obligor thereon or from any
holders of, or trustee in respect of, other indebtedness that is subordinate
and junior in right of payment to such Senior Debt pursuant to any provision
of such indebtedness for the payment over of amounts received on account of
such indebtedness to the holders of such Senior Debt or otherwise) but for the
fact that such Senior Debt is subordinate or junior in right of payment to (or
subject to a requirement that amounts received on such Senior Debt be paid
over to obligees on) trade accounts payable or accrued liabilities arising in
the ordinary course of business.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person; (iv) every obligation of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such
Person; (vi) all indebtedness of such Person whether incurred on or prior to
the date of the Indenture or thereafter incurred, for claims in respect of
derivative products including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements; and
(vii) and every obligation of the type referred to in clauses (i) through (vi)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly
or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt of
the Company, whether incurred on or prior to the date of the Indenture or
thereafter incurred, unless, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debentures; provided, however, that Senior Debt shall not
be deemed to include (i) any Debt of the Company which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company, (ii)
any Debt of the Company to any of its subsidiaries, (iii) Debt to any employee
of the Company, and (iv) any other debt securities issued pursuant to the
Indenture.
The Indenture places no limitation on the amount of Senior Debt that may be
incurred by the Company. The Company expects from time to time to incur
additional indebtedness and other obligations constituting Senior Debt.
28
<PAGE>
The Indenture provides that the foregoing subordination provisions, insofar
as they relate to any particular issue of Junior Subordinated Debentures, may
be changed prior to such issuance. Any such change would be described in the
Prospectus Supplement.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
Unless otherwise specified in the applicable Prospectus Supplement, the
Junior Subordinated Debentures will be issued in whole or in part in the form
of one or more global certificates ("Global Junior Subordinated Debentures")
registered in the name of and deposited with, or on behalf of, the Depository.
Global Junior Subordinated Debentures may be issued only in fully registered
form and in either temporary or permanent form. Beneficial interests in the
Junior Subordinated Debentures will be shown on, and transfers thereof will be
effected only through, records maintained by the Depository. Except as
described below, Junior Subordinated Debentures in certified form will not be
issued in exchange for the global certificates. See "Book-Entry Issuance."
Unless and until it is exchanged in whole or in part for the individual
Junior Subordinated Debentures represented thereby, a Global Junior
Subordinated Debenture may not be transferred except as a whole by the
Depository for such Global Junior Subordinated Debenture to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by the Depository or any nominee to a successor
Depository or any nominee of such successor.
Upon the issuance of a Global Junior Subordinated Debenture, and the deposit
of such Global Junior Subordinated Debenture with or on behalf of the
Depository, the Depository for such Global Junior Subordinated Debenture or
its nominee will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual Junior Subordinated
Debentures represented by such Global Junior Subordinated Debenture to the
accounts of persons that have accounts with such Depository ("Participants").
Such accounts shall be designated by the dealers, underwriters or agents with
respect to such Junior Subordinated Debentures or by the Company if such
Junior Subordinated Debentures are offered and sold directly by the Company.
Ownership of beneficial interests in a Global Junior Subordinated Debenture
will be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Junior
Subordinated Debenture will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the Depository or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests
in a Global Junior Subordinated Debenture.
A global security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depository or its nominee
only if (i) the Depository notifies the Company that it is unwilling or unable
to continue as a depository for such global security and no successor
depository shall have been appointed, or if at any time the Depository ceases
to be a clearing agency registered under the Exchange Act at a time when the
Depository is required to be so registered to act as such depository, (ii) the
Company in its sole discretion determines that such global security shall be
so exchangeable or (iii) there shall have occurred and be continuing a
Debenture Event of Default. Any global security that is exchangeable pursuant
to the preceding sentence shall be exchangeable for definitive certificates
registered in such names as the Depository shall direct. It is expected that
such instructions will be based upon directions received by the Depository
from its Participants (as defined herein) with respect to ownership of
beneficial interests in such global security. In the event that Junior
Subordinated Debentures are issued in definitive form, such Junior
Subordinated Debentures will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
So long as the Depository for a Global Junior Subordinated Debenture, or its
nominee, is the registered owner of such Global Junior Subordinated Debenture,
such Depository or such nominee, as the case may be, will be considered the
sole owner or holder of the Junior Subordinated Debentures represented by such
Global Junior Subordinated Debenture for all purposes under the Indenture
governing such Junior Subordinated
29
<PAGE>
Debentures. Except as provided below, owners of beneficial interests in a
Global Junior Subordinated Debenture will not be entitled to have any of the
individual Junior Subordinated Debentures represented by such Global Junior
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated
Debentures in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Junior Subordinated Debentures represented by a Global Junior Subordinated
Debenture registered in the name of a Depository or its nominee will be made
to the Depository or its nominee, as the case may be, as the registered owner
of the Global Junior Subordinated Debenture representing such Junior
Subordinated Debentures. None of the Company, the Debenture Trustee, any
Paying Agent, or the Securities Registrar for such Junior Subordinated
Debentures will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Junior Subordinated Debenture representing such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that the Depository for the Junior Subordinated
Debentures or its nominee, upon receipt of any payment of principal, premium,
if any, or interest in respect of a permanent Global Junior Subordinated
Debenture representing any of such Junior Subordinated Debentures, immediately
will credit Participants' accounts with payments in amounts proportionate to
their respective beneficial interest in the principal amount of such Global
Junior Subordinated Debenture for such Junior Subordinated Debentures as shown
on the records of such Depository or its nominee. The Company also expects
that payments by Participants to owners of beneficial interests in such Global
Junior Subordinated Debenture held through such Participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name." Such payments will be the responsibility of such Participants.
Unless otherwise specified in the Prospectus Supplement, if the Depository
is at any time unwilling, unable or ineligible to continue as depository and a
successor depository is not appointed by the Company within 90 days, the
Company will issue individual Junior Subordinated Debentures in exchange for
the Global Junior Subordinated Debenture. In addition, the Company may at any
time and in its sole discretion, subject to any limitations described in the
Prospectus Supplement, determine not to have any Junior Subordinated
Debentures represented by one or more Global Junior Subordinated Debentures
and, in such event, will issue individual Junior Subordinated Debentures in
exchange for the Global Junior Subordinated Debenture or Debentures
representing such Junior Subordinated Debentures. Further, if the Company so
specifies with respect to the Junior Subordinated Debentures, an owner of a
beneficial interest in a Global Junior Subordinated Debenture representing
Junior Subordinated Debentures may, on terms acceptable to the Company, the
Property Trustee and the Depository for such Global Junior Subordinated
Debenture, receive individual Junior Subordinated Debentures in exchange for
such beneficial interests, subject to any limitations described in the
Prospectus Supplement relating to such Junior Subordinated Debentures. In any
such instance, an owner of a beneficial interest in a Global Junior
Subordinated Debenture will be entitled to physical delivery of individual
Junior Subordinated Debentures represented by such Global Junior Subordinated
Debenture equal in principal amount to such beneficial interest and to have
such Junior Subordinated Debentures registered in its name. Individual Junior
Subordinated Debentures so issued will be issued in denominations, unless
otherwise specified by the Company, of $25 and integral multiples thereof.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise specified in the Prospectus Supplement, the Junior
Subordinated Debentures will be issuable only in registered form without
coupons in denominations of $25 and any integral multiple thereof.
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 appropriate securities registrar or at
the office of any transfer agent designated by the Company for such purpose
with respect to the Junior Subordinated Debentures and referred to
30
<PAGE>
in the Prospectus Supplement, without service charge and upon payment of any
taxes and other governmental charges as described in the Indenture. The
Company will appoint the Debenture Trustee as securities registrar under the
Indenture. If the Prospectus Supplement refers to any transfer agents (in
addition to the securities registrar) initially designated by the Company with
respect to any Junior Subordinated Debentures, the Company may at any time
rescind the designation of any such transfer agent or approve a change in the
location through which any such transfer agent acts, provided that the Company
maintains a transfer agent in each place of payment. 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 of any series during a period beginning at the
opening of business 15 days before the day of selection for redemption of
Junior Subordinated Debentures of that series and ending at the close of
business on the day of mailing of the relevant notice of redemption or (ii)
transfer or exchange any Junior Subordinated Debentures so selected for
redemption, except, in the case of any Junior Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
PAYMENT AND PAYING AGENTS
Unless otherwise specified in the Prospectus Supplement, payment of
principal of (and premium, if any) and any interest on a series of Junior
Subordinated Debentures will be made at the office of the Debenture Trustee or
at the office of such paying agent or paying agents as the Company may
designate from time to time in the Prospectus Supplement, except that at the
option of the Company payment of any interest may be made (i) except in the
case of Global Junior Subordinated Debentures, by check mailed to the address
of the person entitled thereto as such address shall appear in the securities
register or (ii) by transfer to an account maintained by the person entitled
thereto as specified in the securities register, provided that proper transfer
instructions have been received by the Regular Record Date. Unless otherwise
indicated in the Prospectus Supplement, payment of any interest on Junior
Subordinated Debentures will be made to the person in whose name such Junior
Subordinated Debenture is registered at the close of business on the Regular
Record Date for such interest, except in the case of defaulted interest. The
Company may at any time designate additional paying agents or rescind the
designation of any paying agent; however the Company will at all times be
required to maintain a paying agent in each place of payment for all of the
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any 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.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of any series of Junior Subordinated Debentures, amend,
waive or supplement the Indenture for specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies (provided that
any such action does not materially adversely affect the interest of the
holders of any series of the Junior Subordinated Debentures or of the Capital
Securities so long as they remain outstanding) and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The
Indenture contains provisions permitting the Company and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of each outstanding series of Junior Subordinated Debentures
affected, to modify the Indenture in a manner adversely affecting the rights
of the holders of such series of Junior Subordinated Debentures in any
material respect; provided, 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 any series of Junior Subordinated Debentures
(except as otherwise specified in the Prospectus Supplement), or reduce the
principal amount thereof,
31
<PAGE>
or reduce the rate or extend the time of payment of interest thereon or (ii)
reduce the percentage of principal amount of Junior Subordinated Debentures of
any series, the holders of which are required to consent to any such
modification of the Indenture, provided that, so long as any Capital
Securities remain outstanding, no such modification may be made that adversely
affects the holders of such Capital Securities in any material respect, and no
termination of the Indenture may occur, and no waiver of any event of default
or compliance with any covenant under the Indenture may be effective, without
the prior consent of the holders of at least a majority of the aggregate
Liquidation Amount of all outstanding Capital Securities affected unless and
until the principal of the Junior Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other conditions
have been satisfied, and (b) where a consent under the Indenture would require
the consent of each holder of Junior Subordinated Debentures, no such consent
shall be given by the Property Trustee without the prior consent of each
holder of Capital Securities.
In addition, the Company and the Debenture Trustee may execute, without the
consent of any holder of Junior Subordinated Debentures, any supplemental
Indenture for the purpose of creating any new series of Junior Subordinated
Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to a series of Junior Subordinated Debentures that has
occurred and is continuing constitutes a "Debenture Event of Default" with
respect to such series of Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on such series of Junior
Subordinated Debentures when due (subject to the deferral of any
interest payment in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on such series of
Junior Subordinated Debentures when due whether at maturity or upon
redemption; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 60 days after written
notice to the Company from the Debenture Trustee or the holders of
at least 25% in aggregate outstanding principal amount of such
affected series of outstanding Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of each
series affected of 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 outstanding principal amount of Junior Subordinated
Debentures of each series affected may declare the principal due and payable
immediately upon a Debenture Event of Default. Should the Debenture Trustee or
such holders of such Junior Subordinated Debentures fail to make such
declaration, the holders of at least 25% in aggregate Liquidation Amount of
the Capital Securities shall have such right. The holders of a majority in
aggregate outstanding principal amount of Junior Subordinated Debentures may
annul such declaration. Should the holders of such Junior Subordinated
Debentures fail to annul such declaration and waive such default, the holders
of a majority in aggregate Liquidation Amount of the Capital Securities
affected shall have such right.
The holders of a majority in aggregate outstanding principal amount of each
series of Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures of such series, waive
any default, except a default in the payment of principal or interest (unless
such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Junior Subordinated
Debenture. The Company is required to file annually with the Debenture Trustee
a certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
32
<PAGE>
In case a Debenture Event of Default shall occur and be continuing as to the
Junior Subordinated Debentures, the Property Trustee will have the right to
declare the principal of and the interest on such Junior Subordinated
Debentures, and any other amounts payable under the Indenture, to be forthwith
due and payable and to enforce its other rights as a creditor with respect to
such Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default with respect to a series of Junior
Subordinated Debentures has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on
such series of Junior Subordinated Debentures on the date such interest or
principal is due and payable, a holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such series of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder (a "Direct
Action"). The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of the
holders of all of the Capital Securities outstanding. If the right to bring a
Direct Action is removed, the Issuer may become subject to the reporting
obligations under the Exchange Act. The Company shall have the right under the
Indenture to set-off any payment made to such holder of Capital Securities by
the Company in connection with a Direct Action. See "Risk Factors--Rights
Under the Guarantee; Direct Action."
The holders of the Capital Securities will not be able to exercise directly
any remedies other than those set forth in the preceding paragraph available
to the holders of the Junior Subordinated Debentures unless there shall have
been an event of default under the Trust Agreement. See "Description of
Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall 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 shall consolidate
with or merge into the Company or convey, transfer or lease its properties and
assets substantially as an entirety to the Company, unless (i) in case the
Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any
Person, the successor Person is organized under the laws of the United States
or any state or the District of Columbia, and such successor Person expressly
assumes the Company's obligations on the Junior Subordinated Debentures issued
under the Indenture; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time
or both, would become a Debenture Event of Default, shall have occurred and be
continuing; (iii) such transaction is permitted under the Trust Agreement and
the Guarantee Agreement and does not give rise to any breach or violation of
the Trust Agreement or Guarantee Agreement, and (iv) certain other conditions
as prescribed by the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable 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
33
<PAGE>
the Indenture will cease to be of further effect (except as to the Company's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Company will be deemed to have satisfied and discharged the Indenture.
COVENANTS OF THE COMPANY
The Company will covenant in the Indenture that if and so long as (i) the
Issuer is the holder of all such Junior Subordinated Debentures, (ii) a Tax
Event in respect of the Issuer has occurred and is continuing and (iii) the
Company has elected, and has not revoked such election, to pay Additional Sums
(as defined under "Description of Capital Securities--Redemption") in respect
of such Trust Securities, the Company will pay to the Issuer such Additional
Sums. The Company will also covenant (i) to maintain directly or indirectly
100% ownership of the Common Securities of the Issuer, provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities, (ii) not to voluntarily
terminate, wind up or liquidate the Issuer, except (a) in connection with a
distribution of Junior Subordinated Debentures to the holders of the Capital
Securities in exchange therefor upon liquidation of the Issuer, or (b) in
connection with certain mergers, consolidations or amalgamations permitted by
the Trust Agreement, in either such case, if so specified in the Prospectus
Supplement upon prior approval of the Federal Reserve if then so required
under applicable capital guidelines or policies, and (iii) to use its
reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause the Issuer to remain classified as a grantor trust and not
as an association taxable as a corporation for United States federal income
tax purposes.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Nebraska.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
BOOK-ENTRY ISSUANCE
The Depository will act as securities depository for all of the Capital
Securities and the Junior Subordinated Debentures, unless otherwise referred
to in the Prospectus Supplement relating to an offering of Capital Securities
or Junior Subordinated Debentures. The Capital Securities and the Junior
Subordinated Debentures will be issued only as fully-registered securities
registered in the name of Cede & Co. (the Depository's nominee). One or more
fully-registered global certificates will be issued for the Capital Securities
of the Issuer and the Junior Subordinated Debentures, representing in the
aggregate the total number of the Issuer's Capital Securities or aggregate
principal balance of Junior Subordinated Debentures, respectively, and will be
deposited with the Depository.
The Depository is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depository holds securities that its Participants deposit with the
Depository. The Depository also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited
securities through
34
<PAGE>
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. "Direct
Participants" include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. The Depository is owned
by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the Depository system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain custodial relationships with Direct Participants,
either directly or indirectly ("Indirect Participants"). The rules applicable
to the Depository and its Participants are on file with the Commission.
Purchases of Capital Securities or Junior Subordinated Debentures within the
Depository system must be made by or through Direct Participants, which will
receive a credit for the Capital Securities or Junior Subordinated Debentures
on the Depository's records. The ownership interest of each actual purchaser
of each Capital Security and each Junior Subordinated Debenture ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from the
Depository of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Capital Securities
or Junior Subordinated Debentures. Transfers of ownership interests in the
Capital Securities or Junior Subordinated Debentures are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Capital Securities or Junior Subordinated Debentures,
except in the event that use of the book-entry system for the Capital
Securities of such Issuer or Junior Subordinated Debentures is discontinued.
The Depository has no knowledge of the actual Beneficial Owners of the
Capital Securities or Junior Subordinated Debentures; the Depository's records
reflect only the identity of the Direct Participants to whose accounts such
Capital Securities or Junior Subordinated Debentures are credited, which may
or may not be the Beneficial Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depository to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Capital Securities or Junior Subordinated Debentures. If less than all of
the Issuer's Capital Securities or the Junior Subordinated Debentures are
being redeemed, the Depository's current practice is to determine by lot the
amount of the interest of each Direct Participant to be redeemed.
Although voting with respect to the Capital Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Capital
Securities or Junior Subordinated Debentures, in those instances in which a
vote is required, neither the Depository nor Cede & Co. will itself consent or
vote with respect to Capital Securities or Junior Subordinated Debentures.
Under its usual procedures, the Depository would mail an omnibus proxy (the
"Omnibus Proxy") to the relevant Trustee as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts such Capital Securities or Junior
Subordinated Debentures are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Distribution payments on the Capital Securities or the Junior Subordinated
Debentures will be made by the relevant Trustee to the Depository. The
Depository's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
the Depository's records unless the Depository has reason to believe that it
will not receive payments on such payment date. Payments by
35
<PAGE>
Participants to Beneficial Owners will be governed by standing instructions
and customary practices and will be the responsibility of such Participant and
not of the Depository, the relevant Trustee, the Issuer thereof or the
Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of Distributions to the Depository is the
responsibility of the relevant Trustee, disbursement of such payments to
Direct Participants is the responsibility of the Depository, and disbursements
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
The Depository may discontinue providing its services as securities
depository with respect to any of the Capital Securities or the Junior
Subordinated Debentures at any time by giving reasonable notice to the Trustee
and the Company. In the event that a successor securities depository is not
obtained, definitive Capital Security or Junior Subordinated Debenture
certificates representing such Capital Securities or Junior Subordinated
Debentures are required to be printed and delivered. The Company, at its
option, may decide to discontinue use of the system of book-entry transfers
through the Depository (or a successor depository). After a Debenture Event of
Default, the holders of a majority in liquidation preference of Capital
Securities or aggregate principal amount of Junior Subordinated Debentures may
determine to discontinue the system of book-entry transfers through the
Depository. In any such event, definitive certificates for such Capital
Securities or Junior Subordinated Debentures will be printed and delivered.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Issuer
and the Company believe to be accurate, but the Issuer and the Company assume
no responsibility for the accuracy thereof. Neither the Issuer nor the Company
has any responsibility for the performance by the Depository or its
Participants of their respective obligations as described herein or under the
rules and procedures governing their respective operations.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Issuer of its Capital Securities for the benefit of
the holders from time to time of the Capital Securities. Harris Trust and
Savings Bank will act as the Guarantee Trustee under the Guarantee Agreement
for the purposes of compliance with the Trust Indenture Act and the Guarantee
will be qualified as an indenture under the Trust Indenture Act. This summary
of certain provisions of the Guarantee, which summarizes the material terms
thereof, does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Guarantee,
including the definitions therein of certain terms, and the Trust Indenture
Act, to each of which reference is hereby made. The form of the Guarantee has
been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Issuer's 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 may have or assert
other than the defense of payment. The following payments with respect to the
Capital Securities, to the extent not paid by or on behalf of the Issuer (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated
and unpaid Distributions required to be paid on such Capital Securities, to
the extent that the Issuer has funds on hand available therefor at such time,
(ii) the Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time, or (iii) upon a voluntary or involuntary dissolution, winding up
or liquidation of the Issuer (unless the Junior Subordinated Debentures are
distributed to holders of such Capital Securities in exchange therefor), the
lesser of (a) the Liquidation Distribution and (b) the amount of assets of the
Issuer remaining available for distribution to holders of Capital Securities
after satisfaction of liabilities to creditors of the Issuer as required by
applicable law. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts
36
<PAGE>
by the Company to the holders of the Capital Securities or by causing the
Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer's obligations under the Capital Securities, but will apply only to
the extent that the Issuer has funds sufficient to make such payments, and is
not a guarantee of collection.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Issuer, the Issuer will not be able to pay
Distributions on the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Debt of the Company. See "--Status of the Guarantee."
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of that subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and
claimants should look only to the assets of the Company for payments
thereunder. See "The Company." Except as otherwise provided in the Prospectus
Supplement, the Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Debt, whether under
the Indenture, any other existing indenture or any other indenture that the
Company may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the
Issuer's obligations under the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the Capital
Securities. See "Relationship Among 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 Debt 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 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 or upon
distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures. The Guarantee does not place a limitation on the
amount of additional Senior Debt that may be incurred by the Company. The
Company expects from time to time to incur additional indebtedness
constituting Senior Debt.
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
such outstanding 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.
37
<PAGE>
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
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 holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Issuer, the Guarantee Trustee
or any other person or entity.
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
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 any Capital Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
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 upon liquidation of the Issuer or upon distribution of
Junior Subordinated Debentures to the holders of the Capital Securities in
exchange therefor. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Capital
Securities must restore payment of any sums paid under such Capital Securities
or such Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Nebraska.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Company under the
Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Issuer becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Issuer, other than obligations of the Issuer to pay to the holders of any
Capital Securities or other similar interests in the Issuer of the amounts due
such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be.
38
<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 has funds available for the payment of such
Distributions) 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 Indenture, the Trust
Agreement, the Expense Agreement and the Guarantee provide, in the aggregate,
a full, irrevocable and unconditional guarantee of payments of distributions
and other amounts due on the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the Capital
Securities. If and to the extent that the Company does not make payments on
the Junior Subordinated Debentures, the Issuer will not pay Distributions or
other amounts due on the Capital Securities. The Guarantee does not cover
payment of Distributions when the Issuer does not have sufficient funds to pay
such Distributions. In such event, the remedy of a holder of Capital
Securities is to institute a Direct Action. The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to all
Senior Debt of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of such 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 such Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Trust Securities; (iii) the Company shall pay for all and any costs, expenses
and liabilities of the Issuer except the Issuer's obligations to holders of
the Trust Securities under such Trust Securities; and (iv) the Trust Agreement
further provides that the Issuer will not engage in any activity that is not
consistent with the limited purposes thereof.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer or
any other person or entity.
A default or event of default under any Senior Debt of the Company would not
constitute a default or a Debenture Event of Default. However, in the event of
payment defaults under, or acceleration of, Senior Debt of the Company, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on the Junior Subordinated Debentures would
constitute an Event of Default under the Trust Agreement.
LIMITED PURPOSE OF ISSUER
The Issuer's Capital Securities evidence a beneficial interest in the
Issuer, and the Issuer exists for the sole purpose of issuing its Capital
Securities and Common Securities and investing the proceeds thereof in Junior
Subordinated Debentures. A principal difference between the rights of a holder
of a Capital Security and a holder
39
<PAGE>
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company the principal amount of and
interest accrued on Junior Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions from the Issuer (or
from the Company under the Guarantee) if and to the extent the Issuer has
funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding up or liquidation of
the Issuer involving the liquidation of the Junior Subordinated Debentures,
the holders of the Capital Securities will be entitled to receive, out of the
assets held by the Issuer, the Liquidation Distribution in cash. See
"Description of Capital Securities--Liquidation Distribution Upon
Termination." Upon any voluntary or involuntary liquidation or bankruptcy of
the Company, the Property Trustee, as holder of the Junior Subordinated
Debentures, would be a subordinated creditor of the Company, subordinated in
right of payment to all Senior Debt as set forth in the Indenture, but
entitled to receive payment in full of principal and interest, before any
stockholders of the Company receive payments or distributions. Since the
Company is the guarantor under the Guarantee and has agreed to pay for all
costs, expenses and liabilities of the Issuer (other than the Issuer's
obligations to the holders of its Capital Securities), the positions of a
holder of such Capital Securities and a holder of such Junior Subordinated
Debentures relative to other creditors and to stockholders of the Company in
the event of liquidation or bankruptcy of the Company are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Deloitte & Touche LLP, tax advisor to the Company and the
Issuer, the following summary accurately describes the material United States
federal income tax consequences that may be relevant to the purchase,
ownership and disposition of Capital Securities. Unless otherwise stated, this
summary deals only with Capital Securities held as capital assets by United
States Persons (defined below) who purchase the Capital Securities upon
original issuance at their original offering price. As used herein, a "United
States Person" means a person that is (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to United States
federal income taxation regardless of its source, or (iv) a trust the income
of which is subject to United States Federal income taxation regardless of its
source; provided, however, that for taxable years beginning after December 31,
1996 (or, if a trustee so elects, for taxable years ending after August 20,
1996), a "United States Person" shall include any trust if a court is able to
exercise primary supervision over the administration of such trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of such trust. The tax treatment of a holder may vary depending on
his, her or its particular situation. This summary does not address all the
tax consequences that may be relevant to a particular holder or to holders who
may be subject to special tax treatment, such as banks, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, foreign investors, or persons
who 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. In addition, this summary does not include any
description of any alternative minimum tax consequences or the tax laws of any
state, local or foreign government that may be applicable to a holder of
Capital Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated thereunder and administrative
and judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. In particular, legislation
has been proposed that could adversely effect the Company's ability to deduct
interest on the Capital Securities, which may in turn permit the Company to
cause a redemption of the Capital Securities. See "--Possible Tax Law
Changes." The authorities on which this summary is based are subject to
various interpretations and the opinions of Deloitte & Touche LLP are not
binding on the Internal Revenue Service ("IRS") or the courts, either of which
could take a
40
<PAGE>
contrary position. Moreover, no rulings have been or will be sought from the
IRS with respect to the transactions described herein. Accordingly, there can
be no assurance that the IRS will not challenge the opinions expressed herein
or that a court would not sustain such a challenge.
The following discussion does not discuss the tax consequences that might be
relevant to persons that are not United States Persons ("non-United States
Persons"). Non-United States Persons should consult their own tax advisors as
to the specific United States federal income tax consequences of the purchase,
ownership and disposition of Capital Securities.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE CAPITAL
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF
CAPITAL SECURITIES--REDEMPTION."
CLASSIFICATION OF THE ISSUER
In connection with the issuance of the Capital Securities, Deloitte & Touche
LLP is of the opinion that, under current law and assuming compliance with the
terms of the Trust Agreement, and based on certain facts and assumptions
contained in such opinion, the Issuer will be classified as a grantor trust or
as a partnership and not as an association taxable as a corporation for United
States federal income tax purposes. As a result, each beneficial owner of
Capital Securities (a "Securityholder") will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures. Accordingly, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or original issue discount that is paid or
accrued on the Junior Subordinated Debentures whether or not cash is actually
distributed to such Securityholder. See "--Interest Income and Original Issue
Discount." No amounts included in taxable income will be eligible for the
dividends received deduction.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company, the Issuer and the holders of the Capital Securities (by
acceptance of a beneficial interest in a Capital Security) will agree to treat
the Junior Subordinated Debentures as indebtedness for all United States tax
purposes. In connection with the issuance of the Junior Subordinated
Debentures, Deloitte & Touche LLP is of the opinion that, under current law,
and based on certain representations, facts and assumptions set forth in such
opinion, the Junior Subordinated Debentures will be classified as indebtedness
for United States federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be included in income by a Securityholder at the
time such interest income is paid or accrued in accordance with such
Securityholder's regular method of tax accounting.
Applicable Treasury Regulations issued generally provide that stated
interest on a debt instrument is not "qualified stated interest" and,
therefore, will give rise to original issue discount ("OID") unless such
interest is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed rate. Interest
is considered to be unconditionally payable only if reasonable legal remedies
exist to compel timely payment or the debt instrument otherwise provides terms
and conditions that make the likelihood of late payment (other than late
payment that occurs within a reasonable grace period) or non-payment a "remote
contingency."
41
<PAGE>
Under the Junior Subordinated Indenture, the Company has the right, at any
time and from time to time during the term of the Junior Subordinated
Debentures to defer payments of interest by extending the interest payment
period for a period not exceeding 20 consecutive quarters with respect to each
Extension Period. Unless the likelihood of exercise of such right to defer is
remote, the Junior Subordinated Debenture would be issued with OID. During any
Extension Period, (a) the Company will not be permitted to declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of its capital stock, and (b) the
Company will not be permitted to make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures (although these restrictions will
not apply to dividends or distributions in common stock of the Company and in
certain other limited situations). See "Description of Junior Subordinated
Debentures--Option to Defer Interest Payments." The Company currently believes
that the adverse impact that the imposition of such restrictions would have on
the Company and the value of the equity securities of the Company makes the
likelihood of the Company exercising its right to defer payments of interest
on the Junior Subordinated Debentures remote. Accordingly, the Company
believes that the stated interest on the Junior Subordinated Debentures should
be considered unconditionally payable for purposes of the OID provisions of
the Code and that the Junior Subordinated Debentures should not be considered
to have been issued with OID (other than de minimus OID, if any). As a result,
each Securityholder will be required to include interest payments in taxable
income at the time accrued or received in accordance with its own method of
accounting. There can be no assurance, however, that the IRS will agree with
such determination.
If, however, the Company exercises its right to defer payments of interest
on the Junior Subordinated Debentures, the Junior Subordinated Debentures will
become OID instruments at such time and all Securityholders will be required
to accrue the stated interest on the Junior Subordinated Debentures on a daily
basis during the Extension Period and thereafter, even though the Company will
not pay such interest until the end of the Extension Period, and even though
some Securityholders may use the cash method of tax accounting. Moreover,
thereafter the Junior Subordinated Debentures will be taxed as OID instruments
for as long as they remain outstanding. Thus, even after the end of the
Extension Period, all Securityholders would be required to continue to include
the stated interest on the Junior Subordinated Debentures in income on a daily
economic accrual basis, regardless of their method of tax accounting and in
advance of receipt of the cash attributable to such interest income. Under the
OID economic accrual rules, a Securityholder would accrue an amount of
interest income each year that approximates the stated interest payments
called for under the terms of the Junior Subordinated Debentures, and actual
cash payments of interest on the Junior Subordinated Debentures would not be
reported separately as taxable income. Any amount of OID included in a
Securityholder's gross income (whether or not during an Extension Period) will
increase such Securityholder's tax basis in its Capital Securities, and the
amount of Distributions received by a Securityholder with respect to such
Capital Securities will reduce the tax basis of such Capital Securities. A
Securityholder that disposes of the Capital Securities during an Extension
Period may suffer a loss because the market value of the Capital Securities
likely will fall if the Company exercises its option to defer payments of
interest on the Junior Subordinated Debentures. To the extent the selling
price is less than the Securityholder's adjusted tax basis (which will include
all accrued by unpaid interest), a Securityholder will recognize a capital
loss.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a contrary position. If the IRS were to assert successfully that
the stated interest on the Junior Subordinated Debentures was OID regardless
of whether the Company exercises its right to defer payments of interest on
such debentures, all Securityholders would be required to include such stated
interest in income on a daily economic accrual basis as described above.
Corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Capital
Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL
SECURITIES
Under current law, a distribution by the Issuer of the Junior Subordinated
Debentures as described under the caption "Description of Capital Securities--
Liquidation Distribution Upon Dissolution" will be non-taxable
42
<PAGE>
and will result in the Securityholder receiving directly its pro rata share of
the Junior Subordinated Debentures previously held indirectly through the
Issuer, with a holding period and aggregate tax basis equal to the holding
period and aggregate tax basis such Securityholder had in its Capital
Securities before such distribution. If, however, the liquidation of the
Issuer were to occur because the Issuer is subject to United States federal
income tax with respect to income accrued or received on the Junior
Subordinated Debentures, the distribution of Junior Subordinated Debentures to
Securityholders by the Issuer would be a taxable event to the Issuer and each
Securityholder, and a Securityholder would recognize gain or loss as if the
Securityholder had exchanged its Capital Securities for the Junior
Subordinated Debentures it received upon the liquidation of the Issuer. A
Securityholder will accrue interest in respect of Junior Subordinated
Debentures received from the Issuer in the manner described above under "--
Interest Income and Original Issue Discount."
SALES OR REDEMPTION OF CAPITAL SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Capital
Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized by the Securityholder on the sale or
redemption of the Capital Securities (except to the extent that such amount
realized is characterized as a payment in respect of accrued but unpaid
interest on such Securityholder's allocable share of the Junior Subordinated
Debentures) and the Securityholder's adjusted tax basis in the Capital
Securities sold or redeemed. Such gain or loss generally will be taxable as
long-term capital gain or loss if the Securityholder held the Capital
Securities that it sold or redeemed for more than one year. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for Federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on the Capital Securities held of record by United
States Persons (other than corporations and other exempt Securityholders), if
any, will be reported to the Internal Revenue Service. "Backup" withholding at
a rate of 31% will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury Regulations, certifies that
such number is correct, certifies as to no loss of exemption from backup
withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Capital Securities to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
establishes an exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information
is furnished to the Internal Revenue Service.
POSSIBLE TAX LAW CHANGES
On February 6, 1997, the Administration's Revenue Proposals (the "Proposal")
was introduced in the 105th Congress. If enacted, the Proposal would generally
deny interest deductions for interest on an instrument issued by a publicly
traded corporation that (a) has a maximum weighted average maturity of more
than 40 years or (b) that has a maximum term of more than 15 years and that is
not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument that
is not shown as indebtedness on the issuer's consolidated balance sheet. For
purposes of determining the weighted average maturity or the term of an
instrument, any right to extend would be treated as exercised. The above-
described provisions state that the Proposal will be effective generally for
instruments issued on or after the date of first Congressional committee
action on the Proposal. If either provision were to apply to the Junior
Subordinated Debentures, the Company would not be able to deduct interest on
the Junior Subordinated Debentures. If the proposed legislation is
43
<PAGE>
introduced and ultimately enacted and if the effective date provision
contained in the Proposal is followed, such legislation would not apply to the
Junior Subordinated Debentures. There can be no assurance, however, that
current or future legislative proposals or final legislation will not
adversely affect the ability of the Company to deduct interest on the Junior
Subordinated Debentures or otherwise affect the tax treatment of the
transaction described herein. Moreover, 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--Tax Event or
Capital Treatment Event Redemption" and "Description of Junior Subordinated
Debentures--Redemption."
PLAN OF DISTRIBUTION
The Capital Securities or the Junior Subordinated Debentures may be sold in
a public offering to or through underwriters or dealers designated from time
to time. The Company and the Issuer may sell its Capital Securities or Junior
Subordinated Debentures as soon as practicable after effectiveness of the
Registration Statement of which this Prospectus forms a part. The names of any
underwriters or dealers involved in the sale of the Capital Securities or
Junior Subordinated Debentures in respect of which this Prospectus is
delivered, the amount or number of Capital Securities and Junior Subordinated
Debentures to be purchased by any such underwriters and any applicable
commissions or discounts will be set forth in the Prospectus Supplement.
Underwriters may offer and sell Capital Securities or Junior Subordinated
Debentures at a fixed price or prices, which may be changed, or from time to
time at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. In connection with the
sale of Capital Securities, underwriters may be deemed to have received
compensation from the Company and/or the Issuer in the form of underwriting
discounts or commissions and may also receive commissions. Underwriters may
sell Capital Securities or Junior Subordinated Debentures to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters.
Any underwriting compensation paid by the Company and/or the Issuer to
underwriters in connection with the offering of Capital Securities or Junior
Subordinated Debentures, and any discounts, concessions or commissions allowed
by such underwriters to participating dealers, will be described in an
accompanying Prospectus Supplement. Underwriters and dealers participating in
the distribution of Capital Securities or Junior Subordinated Debentures may
be deemed to be underwriters, and any discounts and commissions received by
them and any profit realized by them on resale of such Capital Securities or
Junior Subordinated Debentures may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters and dealers may be
entitled, under agreement with the Company and the Issuer, to indemnification
against and contribution toward certain civil liabilities, including
liabilities under the Securities Act, and to reimbursement by the Company for
certain expenses.
In connection with the offering of the Capital Securities of the Issuer, the
Issuer may grant to the underwriters an option to purchase additional Capital
Securities to cover over-allotments, if any, at the initial public offering
price (with an additional underwriting commission), as may be set forth in the
accompanying Prospectus Supplement. If the Issuer grants any over-allotment
option, the terms of such over-allotment option will be set forth in the
Prospectus Supplement for such Capital Securities.
Underwriters and dealers may engage in transactions with, or perform
services for, the Company and/or the Issuer and/or any of their affiliates in
the ordinary course of business.
The Capital Securities and the Junior Subordinated Debentures will be new
issues of securities and will have no established trading market. Any
underwriters to whom Capital Securities or Junior Subordinated Debentures are
sold for public offering and sale may make a market in such Capital Securities
and Junior Subordinated Debentures, but such underwriters will not be
obligated to do so and may discontinue any market
44
<PAGE>
making at any time without notice. Such Capital Securities or Junior
Subordinated Debentures may or may not be listed on a national securities
exchange or the Nasdaq National Market. No assurance can be given as to the
liquidity of or the existence of trading markets for any Capital Securities or
Junior Subordinated Debentures.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the formation of the
Issuer will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to the Company and the Issuer. The validity of the Junior
Subordinated Debentures will be passed upon for the Company by Housley
Kantarian & Bronstein, P.C. The validity of the Guarantee will be passed upon
for the Company by Fitzgerald, Schorr, Barmettler & Brennan, P.C. The validity
of the Junior Subordinated Debentures and the Guarantee will be passed upon
for the Underwriters by Dorsey & Whitney LLP. Housley Kantarian & Bronstein,
P.C. and Dorsey & Whitney LLP will rely on the opinion of Richards, Layton &
Finger, P.A. as to matters of Delaware law. Certain matters relating to United
States federal income tax considerations described in this Prospectus will be
passed upon for the Company by Deloitte & Touche LLP.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1996 and
1995 and for each of the three years in the period ended June 30, 1996,
incorporated in this Prospectus by reference from the Company's Annual Report
on Form 10-K have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report, which is incorporated herein by reference (which
report expresses an unqualified opinion and includes an explanatory paragraph
referring to a change in the method of accounting for mortgage servicing
rights in fiscal year 1996, and a change in the method of accounting for
income taxes, a change in the method of accounting for postretirement
benefits, and a change in the method of accounting for intangible assets in
fiscal year 1994), and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
45
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLE-
MENT OR IN THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUM-
STANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY OR ITS SUBSIDIARIES OR THAT INFORMATION CONTAINED HEREIN IS CUR-
RENT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY OR THEREBY TO ANY PER-
SON OR IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED
TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLIC-
ITATION IN SUCH JURISDICTION.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Summary.................................................................. S-4
Summary Consolidated Financial Information............................... S-8
Recent Developments...................................................... S-11
Capitalization........................................................... S-14
Use of Proceeds.......................................................... S-15
Certain Terms of Capital Securities...................................... S-15
Certain Terms of Junior Subordinated Debentures.......................... S-17
Certain Terms of Guarantee............................................... S-19
Underwriting............................................................. S-20
Validity of Securities................................................... S-21
PROSPECTUS
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 3
Risk Factors............................................................. 5
The Company.............................................................. 11
The Issuer............................................................... 11
Use of Proceeds.......................................................... 12
Accounting Treatment..................................................... 12
Ratio of Earnings to Fixed Charges....................................... 13
Description of Capital Securities........................................ 13
Description of Junior Subordinated Debentures............................ 24
Book-Entry Issuance...................................................... 34
Description of Guarantee................................................. 36
Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee............................................ 39
Certain Federal Income Tax Consequences.................................. 40
Plan of Distribution..................................................... 44
Legal Matters............................................................ 45
Experts.................................................................. 45
</TABLE>
1,800,000 TRUST PREFERRED SECURITIES
CFC PREFERRED TRUST
9.375% Cumulative Trust Preferred Securities (Liquidation Amount $25 per Trust
Preferred Security) Fully and Unconditionally Guaranteed, as Described Herein,
by
[LOGO OF COMMERCIAL FEDERAL CORPORATION APPEARS HERE]
---------------------------------
PROSPECTUS SUPPLEMENT
to Prospectus dated April 29, 1997
---------------------------------
Piper Jaffray Inc.
Dain Bosworth
INCORPORATED
May 9, 1997
