<PAGE> 1
Filed Pursuant to Rule 424(b)4
Registration Nos. 333-19969
333-19969-01
333-19969-02
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JANUARY 30, 1997
$150,000,000
BANPONCE TRUST I
8.327% Capital Securities, Series A
(Liquidation Amount $1,000 per Capital Security)
fully and unconditionally guaranteed, as described herein, by
BANPONCE FINANCIAL CORP.
AND
BANPONCE CORPORATION
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The 8.327% Capital Securities, Series A (the "Series A Capital Securities"),
offered hereby represent preferred beneficial ownership interests in BanPonce
Trust I, a statutory business trust created under the laws of the State of
Delaware (the "Series A Issuer"). BanPonce Financial Corp., a Delaware
corporation (the "Corporation"), will be the owner of all of the beneficial
ownership interests represented by common securities of the Series A
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-5 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE SERIES A CAPITAL SECURITIES.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public(1) Commission Series A Issuer(1)(2)(3)
------------ ------------ ------------------------
<S> <C> <C> <C>
Per Series A Capital Security........................ $1,000 (2) $1,000
Total................................................ $150,000,000 (2) $150,000,000
</TABLE>
(1) Plus accrued Distributions, if any, from February 5, 1997.
(2) In view of the fact that the proceeds of the sale of the Series A Capital
Securities will be invested in the Series A Subordinated Debentures, the
Corporation has agreed to pay to the Underwriters, as compensation
("Underwriters' Compensation") for their arranging the investment therein of
such proceeds, $10.00 per Series A Capital Security (or $1,500,000 in the
aggregate). See "Underwriting."
(3) Before deduction of expenses payable by the Corporation estimated at
$405,000.
The Series A Capital Securities are offered by the several Underwriters
when, as and if issued by the Series A Issuer, delivered to and accepted by the
Underwriters and subject to their right to reject any order in whole or in part.
It is expected that the Series A Capital Securities will be ready for delivery
in book-entry form only through the facilities of The Depository Trust Company
on or about February 5, 1997, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON MERRILL LYNCH & CO.
The date of this Prospectus Supplement is January 31, 1997.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
CAPITAL SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), NO
ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S
INVESTMENT IN THE ENTITY (A "PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN
ASSETS" OF ANY PLAN, MAY ACQUIRE OR SHOULD HOLD THE CAPITAL SECURITIES OR ANY
INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE
RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS
EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1 OR 84-14. ANY PURCHASER OR HOLDER
OF THE CAPITAL SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE
REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT IT EITHER (A) IS NOT A PLAN
OR A PLAN ASSET ENTITY AND IS NOT PURCHASING SUCH SECURITIES ON BEHALF OF OR
WITH "PLAN ASSETS" OF ANY PLAN OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF
AVAILABLE UNDER PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH
PURCHASE AND HOLDING. SEE "ERISA CONSIDERATIONS."
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(cover page continued)
Issuer ("Series A Common Securities" and, collectively with the Series A Capital
Securities, the "Series A Securities"). The Corporation is an indirect, wholly
owned subsidiary of BanPonce Corporation, a Puerto Rico corporation (the
"Guarantor"). The Series A Issuer exists for the sole purpose of issuing the
Series A Securities and investing the proceeds thereof in $154,640,000 aggregate
principal amount of 8.327% Junior Subordinated Deferrable Interest Debentures,
Series A (the "Series A Subordinated Debentures"), to be issued by the
Corporation. The Series A Subordinated Debentures will mature on February 1,
2027 (the "Stated Maturity"). The Series A Capital Securities will have a
preference under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise over the Series A Common
Securities. See "Description of Capital Securities -- Subordination of Common
Securities" in the accompanying Prospectus.
The Guarantor will guarantee, on a junior subordinated basis, the payment
of the principal of, premium, if any, and interest on the Series A Subordinated
Debentures, when and as the same are due and payable (the "Series A Debenture
Guarantee"). The Corporation will guarantee the payment of Distributions (as
defined herein) and payments on liquidation or redemption of the Series A
Capital Securities, but only in each case to the extent of funds held by the
Series A Issuer, as described herein (the "Series A Guarantee"). The obligations
of the Corporation under the Series A Guarantee are in turn guaranteed, on a
junior subordinated basis, by the Guarantor (the "Series A Additional
Guarantee"). See "Description of Guarantees and Additional Guarantees" in the
accompanying Prospectus. If the Corporation does not make interest payments on
the Series A Subordinated Debentures held by the Series A Issuer and the
Guarantor does not make payments on the Series A Debenture Guarantees, the
Series A Issuer will have insufficient funds to pay Distributions on the Series
A Capital Securities. The Series A Guarantee and the Series A Additional
Guarantee do not cover payment of Distributions when the Series A Issuer has
insufficient funds to pay such Distributions. In such event, a holder of Series
A Capital Securities may institute a legal proceeding directly against the
Corporation or the Guarantor pursuant to the terms of the Indenture and the
Series A Debenture Guarantee 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" in
the accompanying Prospectus. The obligations of the Corporation and the
Guarantor under the Series A Guarantee and the Series A Additional Guarantee,
respectively, are subordinate and junior in right of payment to all Senior Debt
of the Corporation and the Guarantor, respectively.
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Holders of the Series A Capital Securities will be entitled to receive
cumulative cash distributions accruing from February 5, 1997 and payable
semi-annually in arrears on the first day of August and February of each year,
commencing August 1, 1997, at the annual rate of 8.327% of the Liquidation
Amount (as defined herein) of $1,000 per Series A Capital Security
("Distributions"). Subject to certain exceptions, as described herein, the
Corporation has the right to defer payment of interest on the Series A
Subordinated Debentures at any time or from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Series A 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 8.327%
per annum, compounded semi-annually, to the extent permitted by applicable law),
the Corporation may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Series A Subordinated
Debentures are so deferred, Distributions on the Series A Capital Securities
will also be deferred and the Corporation and the Guarantor will not be
permitted, subject to certain exceptions described herein, to declare or pay any
cash distributions with respect to the Corporation's and the Guarantor's capital
stock or debt securities that rank pari passu with or junior to the Series A
Subordinated Debentures or the Series A Debenture Guarantee, respectively.
During an Extension Period, interest on the Series A Subordinated Debentures
will continue to accrue (and the amount of Distributions to which holders of the
Series A Capital Securities are entitled will accumulate) at the rate of 8.327%
per annum, compounded semi-annually from the relevant payment date for such
interest, and holders of Series A Capital Securities will be required to accrue
interest income for United States Federal income tax purposes prior to the
receipt of cash related to such interest income. See "Certain Terms of Series A
Subordinated Debentures -- Option to Defer Interest Payments" and "Certain
Federal Income Tax Consequences -- Interest Income and Original Issue Discount."
The Series A Subordinated Debentures are unsecured and subordinated to all
Senior Debt (as defined in the accompanying Prospectus) of the Corporation, and
the Series A Debenture Guarantee is unsecured and subordinated to all Senior
Debt of the Guarantor. Substantially all of the Corporation's and the
Guarantor's existing indebtedness constitutes Senior Debt. Because the
Corporation and the Guarantor are holding companies, the right of the
Corporation and the Guarantor to participate in any distribution of assets of
any subsidiary, including their subsidiary banks (and including, in the case of
the Guarantor, the Corporation), upon any 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 Corporation or the Guarantor may itself
be recognized as a creditor of that subsidiary. Accordingly, the Series A
Subordinated Debentures and the Series A Debenture Guarantee (and therefore the
Series A Capital Securities) will be effectively subordinated to all existing
and future liabilities of the Corporation's and the Guarantor's subsidiaries,
and holders thereof should look only to the assets of the Corporation and the
Guarantor for payments on the Series A Subordinated Debentures or the Series A
Debenture Guarantees. See "Description of Junior Subordinated
Debentures -- Subordination" in the accompanying Prospectus.
The Corporation has, through the Series A Guarantee, the Trust Agreement,
the Series A Subordinated Debentures, the Indenture and the Expense Agreement
(each as defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Series A Issuer's obligations under the Series A Capital
Securities. The Guarantor has, through the Series A Additional Guarantee, the
Trust Agreement, the Series A Debenture Guarantee, the Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed all
of the Corporation's obligations under (i) its guarantees of the Series A
Issuer's obligations under the Series A Capital Securities and (ii) the Series A
Subordinated Debentures. See "Relationship Among the Capital Securities, the
Corresponding Junior Subordinated Debentures, the Expense Agreement, the
Guarantees and the Additional Guarantees -- Full and Unconditional Guarantee" in
the accompanying Prospectus.
S-3
<PAGE> 4
The Series A Capital Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Series A Subordinated Debentures at
their Stated Maturity or their earlier redemption. The Series A Subordinated
Debentures are redeemable prior to their Stated Maturity at the option of the
Corporation (i) on or after February 1, 2007, in whole at any time or in part
from time to time, or (ii) prior to February 1, 2007, in whole (but not in
part), at any time within 90 days following the occurrence of a Tax Event or a
Capital Treatment Event (each as defined herein). The Corporation has committed
to the Board of Governors of the Federal Reserve System (the "Federal Reserve")
that the Corporation will not exercise its right to redeem the Series A
Subordinated Debentures prior to the Stated Maturity without having received the
prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve capital guidelines or policies. For a description of
the redemption prices for the Series A Capital Securities pursuant to clause (i)
or (ii) above, see "Certain Terms of Series A Capital Securities -- Redemption"
and "Certain Terms of Series A Subordinated Debentures -- Redemption."
The Corporation will have the right at any time to terminate the Series A
Issuer and cause the Series A Subordinated Debentures to be distributed to the
holders of the Series A Capital Securities in exchange therefor upon liquidation
of the Series A Issuer. The Corporation has committed to the Federal Reserve
that, so long as the Corporation (or any affiliate) is a holder of Common
Securities, the Corporation will not so terminate the Series A Issuer without
having received the prior approval of the Federal Reserve to do so, if then
required under applicable Federal Reserve capital guidelines or policies. See
"Certain Terms of Series A Capital Securities -- Liquidation of Series A Issuer
and Distribution of Series A Subordinated Debentures to Holders."
In the event of the termination of the Series A Issuer, after satisfaction
of liabilities to creditors of the Series A Issuer as required by applicable
law, the holders of the Series A Capital Securities will be entitled to receive
a Liquidation Amount of $1,000 per Series A Capital Security plus accumulated
and unpaid Distributions thereon to the date of payment, which may be in the
form of a distribution of such amount in Series A Subordinated Debentures in
exchange therefor, subject to certain exceptions. See "Description of Capital
Securities -- Liquidation Distribution Upon Termination" in the accompanying
Prospectus.
If the Series A Subordinated Debentures are distributed to the holders of
Series A Capital Securities upon the liquidation of the Series A Issuer, the
Corporation will use its best efforts to include the Series A Subordinated
Debentures on such stock exchanges or other automated quotation systems, if any,
on which the Series A Capital Securities are then listed or traded. The
Corporation at this time does not intend to list the Series A Capital Securities
on any stock exchange or automated quotation system.
The Series A 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 Series A 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, Series
A Capital Securities in certificated form will not be issued in exchange for the
global certificates. See "Book-Entry Issuance" in the accompanying Prospectus.
S-4
<PAGE> 5
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 Junior Subordinated
Indenture, as amended and supplemented from time to time, among the Corporation,
the Guarantor and The First National Bank of Chicago, as trustee (the "Debenture
Trustee"), and (ii) the "Trust Agreement" means the Amended and Restated Trust
Agreement relating to the Series A Issuer among the Corporation, as Depositor,
the Guarantor, The First National Bank of Chicago, as Property Trustee (the
"Property Trustee"), First Chicago Delaware Inc., as Delaware Trustee (the
"Delaware Trustee"), the Administrative Trustees named therein (collectively,
with the Property Trustee and Delaware Trustee, the "Issuer Trustees") and all
holders of Series A Capital Securities. 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.
RISK FACTORS
Prospective purchasers of the Series A Capital Securities should carefully
review the information contained elsewhere, or incorporated by reference, in
this Prospectus Supplement and in the accompanying Prospectus and should
particularly consider the following matters. In addition, because holders of
Series A Capital Securities may receive Series A Subordinated Debentures in
exchange therefor upon liquidation of the Series A Issuer, prospective
purchasers of Series A Capital Securities are also making an investment decision
with regard to the Series A Subordinated Debentures and should carefully review
all the information regarding the Series A Subordinated Debentures contained
herein.
RANKING OF SUBORDINATED OBLIGATIONS
The obligations of the Corporation under the Series A Guarantee issued by
the Corporation for the benefit of the holders of Series A Capital Securities,
of the Guarantor under the Series A Additional Guarantee issued by the Guarantor
for the benefit of the holders of Series A Capital Securities, of the
Corporation under the Series A Subordinated Debentures and of the Guarantor
under the Series A Debenture Guarantee are unsecured and rank subordinate and
junior in right of payment to all Senior Debt of the Corporation and the
Guarantor, respectively. Substantially all of the Corporation's and the
Guarantor's existing indebtedness constitutes Senior Debt. Because each of the
Corporation and the Guarantor is a holding company, the right of each of the
Corporation and the Guarantor to participate in any distribution of assets of
any subsidiary, including its subsidiary banks (and including, in the case of
the Guarantor, the Corporation), upon any 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 Corporation or the Guarantor, as the
case may be, may itself be recognized as a creditor of that subsidiary.
Accordingly, the obligations of the Corporation under the Series A Subordinated
Debentures and the Series A Guarantee will be effectively subordinated to all
existing and future liabilities of the Corporation's subsidiaries and the
obligations of the Guarantor under the Series A Debenture Guarantee and the
Series A Additional Guarantee will be effectively subordinated to all existing
and future liabilities of the Guarantor's subsidiaries, and holders of Series A
Subordinated Debentures and Series A Debenture Guarantees should look only to
the assets of the Corporation and the Guarantor for payments on the Series A
Subordinated Debentures and Series A Debenture Guarantees, respectively. See
"The Corporation" and "The Guarantor" in the accompanying Prospectus. None of
the Indenture, the Series A Debenture Guarantee, the Series A Guarantee, the
Series A Additional Guarantee, the Trust Agreement or the Expense Agreement
places any limitation on the amount of secured or unsecured debt, including
Senior Debt, that may be incurred by any of the Corporation, the Guarantor or
their subsidiaries. See "Description of Guarantees and Additional
Guarantees -- Status of the Guarantees" and "Description of Junior Subordinated
Debentures -- Subordination" in the accompanying Prospectus.
The ability of the Series A Issuer to pay amounts due on the Series A
Capital Securities is solely dependent upon the Corporation (or the Guarantor)
making payments on the Series A Subordinated Debentures (or Series A Debenture
Guarantee) as and when required.
S-5
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OPTION TO DEFER INTEREST PAYMENTS; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture to defer payment
of interest on the Series A Subordinated Debentures at any time or from time to
time for a period not exceeding 10 consecutive semi-annual periods with respect
to each Extension Period, provided that no Extension Period may extend beyond
the Stated Maturity of the Series A Subordinated Debentures. As a consequence of
any such deferral, Distributions on the Series A Capital Securities by the
Series A Issuer would also be deferred (and the amount of Distributions to which
holders of the Series A Capital Securities are entitled would accumulate
additional Distributions thereon at the rate of 8.327% per annum, compounded
semi-annually from the relevant payment date for such Distributions) during any
such Extension Period. During any such Extension Period, the Corporation and the
Guarantor may not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Corporation's or the Guarantor's capital stock, (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Corporation or the Guarantor that rank pari passu in
all respects with or junior in interest to the Series A Subordinated Debentures
or the Series A Debenture Guarantees, respectively, or (iii) make any guarantee
payments with respect to any guarantee by the Corporation or the Guarantor of
the debt securities of any subsidiary of the Corporation or the Guarantor if
such guarantee ranks pari passu in all respects with or junior in interest to
the Series A Subordinated Debentures or the Series A Debenture Guarantees,
respectively, subject to certain exceptions described herein. See "Certain Terms
of Series A Subordinated Debentures -- Option to Defer Interest Payments." Prior
to the termination of any such Extension Period, the Corporation may further
defer the payment of interest, provided that no Extension Period may exceed 10
consecutive semi-annual periods or extend beyond the Stated Maturity of the
Series A Subordinated Debentures. Upon the termination of any Extension Period
and the payment of all interest then accrued and unpaid (together with interest
thereon at the annual rate of 8.327%, compounded semi-annually from the interest
payment date for such interest, to the extent permitted by applicable law), the
Corporation may elect to begin a new Extension Period subject to the above
requirements and restrictions. There is no limitation on the number of times
that the Corporation may elect to begin an Extension Period. See "Certain Terms
of Series A Capital Securities -- Distributions" and "Certain Terms of Series A
Subordinated Debentures -- Option to Defer Interest Payments."
Should an Extension Period occur, a holder of Series A Capital Securities
will be required to accrue income (in the form of original issue discount) in
respect of its pro rata share of the Series A Subordinated Debentures held by
the Series A Issuer for United States federal income tax purposes. As a result,
a holder of Series A Capital Securities will be required to include such income
in gross income for United States Federal income tax purposes in advance of the
receipt of cash attributable to such income, and will not receive the cash
related to such income from the Series A Issuer if the holder disposes of the
Series A 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 "-- Sale or Redemption of Series A Capital
Securities."
The Corporation has no current intention of exercising its right to defer
payments of interest on the Series A Subordinated Debentures. However, should
the Corporation elect to exercise such right in the future, the market price of
the Series A Capital Securities is likely to be affected. A holder that disposes
of its Series A Capital Securities during an Extension Period, therefore, might
not receive the same return on its investment as a holder that continues to hold
its Series A Capital Securities until the end of such Extension Period.
TAX EVENT OR CAPITAL TREATMENT EVENT
Upon the occurrence and continuation of a Tax Event or a Capital Treatment
Event prior to February 1, 2007, the Corporation has the right to redeem the
Series A 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 Series A Capital Securities. Any
such redemption shall be at a price equal to the Make-Whole Amount (as defined
in "Certain Terms of Series A Capital Securities -- Redemption"), together with
accrued Distributions to but excluding the date fixed for redemption. The
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<PAGE> 7
Corporation has committed to the Federal Reserve that it will not exercise such
right unless it has received prior approval of the Federal Reserve to do so, if
such approval is then required under applicable capital guidelines or policies
of the Federal Reserve. See "Certain Terms of Series A Capital Securities --
Redemption" and "Certain Terms of Series A Subordinated
Debentures -- Redemption."
A "Tax Event" means the receipt by the Series A Issuer of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws
(or any regulations thereunder) of the 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 pronouncement or decision is announced on or after the date of issuance of
the Series A Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Series A 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 Series A Subordinated Debentures,
(ii) interest payable by the Corporation on the Series A Subordinated Debentures
is not, or within 90 days of such opinion, will not be, deductible by the
Corporation, in whole or in part, for United States Federal income tax purposes,
or (iii) the Series A 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
Corporation that, as a result of any amendment to, or change (including any
announced proposed 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 pronouncement or action or judicial decision
interpreting or applying such laws, rules or regulations, which amendment or
change is effective or which pronouncement, action or decision is announced on
or after the date of issuance of the Series A Capital Securities under the Trust
Agreement, there is more than an insubstantial risk that the Corporation or the
Guarantor will not be entitled to treat an amount equal to the aggregate
Liquidation Amount of the Series A Capital Securities as "Tier 1 Capital" (or
the then equivalent thereto) for purposes of the capital adequacy guidelines of
the Federal Reserve, as then in effect and applicable to the Corporation or the
Guarantor.
See "Risk Factors -- Possible Tax Law Changes Affecting the Series A
Capital Securities" for a discussion of certain legislative proposals that, if
adopted, could give rise to a Tax Event, which may permit the Corporation to
cause a redemption of the Series A Capital Securities prior to February 1, 2007.
EXCHANGE OF SERIES A CAPITAL SECURITIES FOR SERIES A SUBORDINATED DEBENTURES
The Corporation will have the right at any time to terminate the Series A
Issuer and, after satisfaction of liabilities to creditors of the Series A
Issuer as required by applicable law, cause the Series A Subordinated Debentures
to be distributed to the holders of the Series A Capital Securities in exchange
therefor upon liquidation of the Series A Issuer. The exercise of such right is
subject to the Corporation having received prior approval of the Federal Reserve
if such approval is then required under applicable capital guidelines or
policies of the Federal Reserve. See "Certain Terms of Series A Capital
Securities -- Liquidation of Series A Issuer and Distribution of Series A
Subordinated Debentures to Holders."
Under current United States Federal income tax law and interpretations, a
distribution of the Series A Subordinated Debentures upon liquidation of the
Series A Issuer should not be a taxable event to holders of the Series A Capital
Securities. However, if a Tax Event were to occur which would cause the Series A
Issuer to be subject to United States Federal income tax with respect to income
received or accrued on the Series A Subordinated Debentures, a distribution of
the Series A Subordinated Debentures by the Series A Issuer could be a taxable
event to the Series A Issuer and the holders of the Series A Capital Securities.
See "Certain Federal Income Tax Consequences -- Distribution of the Series A
Subordinated Debentures to Holders of Series A Capital Securities."
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MARKET PRICES
There can be no assurance as to the market prices for Series A Capital
Securities or Series A Subordinated Debentures that may be distributed in
exchange for Series A Capital Securities upon liquidation of the Series A
Issuer. Accordingly, the Series A Capital Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary market,
or the Series A Subordinated Debentures that a holder of Series A Capital
Securities may receive on liquidation of the Series A Issuer, may trade at a
discount to the price that the investor paid to purchase the Series A Capital
Securities offered hereby. As a result of the existence of the Corporation's
right to defer interest payments, the market price of the Series A Capital
Securities (which represent preferred beneficial ownership interests in the
Series A Issuer) may be more volatile than the market prices of other securities
that are not subject to such deferrals. See "Certain Terms of the Series A
Subordinated Debentures" and "Description of Junior Subordinated
Debentures -- Corresponding Junior Subordinated Debentures" in the accompanying
Prospectus.
RIGHTS UNDER THE SERIES A GUARANTEE AND THE SERIES A ADDITIONAL GUARANTEE;
DIRECT ACTION
The Series A Guarantee is issued by the Corporation and guarantees to the
holders of the Series A Capital Securities the following payments, to the extent
not paid by the Series A Issuer: (i) any accumulated and unpaid Distributions
required to be paid on the Series A Capital Securities, to the extent that the
Series A Issuer has funds on hand available therefor at such time, (ii) the
redemption price with respect to any Series A Capital Securities called for
redemption, to the extent that the Series A Issuer has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution,
winding-up or liquidation of the Series A Issuer (unless the Series A
Subordinated Debentures are distributed to holders of the Series A 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 Series A Issuer has funds on hand available therefor at such time, and (b)
the amount of assets of the Series A Issuer remaining available for distribution
to holders of the Series A Capital Securities. The obligations of the
Corporation under the Series A Guarantee will in turn be guaranteed by the
Series A Additional Guarantee issued by the Guarantor to the holders of the
Series A Capital Securities. Each of the Series A Guarantee and the Series A
Additional Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The First National Bank of
Chicago will act as the indenture trustee under the Series A Guarantee and
Series A Additional Guarantee (the "Guarantee Trustee") for the purposes of
compliance with the Trust Indenture Act. The First National Bank of Chicago will
also act as Debenture Trustee for the Series A Subordinated Debentures and as
Property Trustee under the Trust Agreement and First Chicago Delaware Inc. will
act as Delaware Trustee under the Trust Agreement.
The holders of not less than a majority in aggregate Liquidation Amount of
the Series A 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 Series A Guarantee or the Series A Additional
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Series A Guarantee or the Series A Additional
Guarantee. Any holder of the Series A Capital Securities may institute a legal
proceeding directly against the Corporation or the Guarantor to enforce its
rights under the Series A Guarantee or the Series A Additional Guarantee,
respectively, without first instituting a legal proceeding against the Series A
Issuer, the Guarantee Trustee or any other person or entity. If the Corporation
(or the Guarantor, via the Series A Debenture Guarantee) were to default on its
obligation to pay amounts payable under the Series A Subordinated Debentures,
the Series A Issuer would lack funds for the payment of Distributions or amounts
payable on redemption of the Series A Capital Securities or otherwise, and, in
such event, holders of the Series A Capital Securities would not be able to rely
upon the Series A Guarantee or the Series A Additional Guarantee for payment of
such amounts. Instead, if an event of default under the Indenture shall have
occurred and be continuing and such event is attributable to the failure of the
Corporation (or the Guarantor, via the Series A Debenture Guarantees) to pay
interest or premium, if any, on or principal of the Series A Subordinated
Debentures on the date on which such payment is due and payable, then a holder
of Series A Capital Securities may pursuant to the Indenture institute a legal
proceeding directly against the Corporation or the Guarantor for enforcement of
payment to such holder of the principal of or
S-8
<PAGE> 9
interest or premium, if any, on such Series A Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Series A
Capital Securities of such holder (a "Direct Action"). In connection with such
Direct Action, the Corporation and the Guarantor will have a right of set-off
under the Indenture to the extent of any payment made by the Corporation or the
Guarantor to such holder of Series A Capital Securities in the Direct Action.
Except as described herein, holders of Series A Capital Securities will not be
able to exercise directly any other remedy available to the holders of the
Series A Subordinated Debentures or assert directly any other rights in respect
of the Series A Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities"
and "-- Debenture Events of Default" and "Description of Guarantees and
Additional Guarantees" in the accompanying Prospectus. The Trust Agreement
provides that each holder of Series A Capital Securities by acceptance thereof
agrees to the provisions of the Series A Guarantee, the Series A Additional
Guarantee, the Expense Agreement, the Series A Debenture Guarantee and the
Indenture.
LIMITED VOTING RIGHTS
Holders of Series A Capital Securities generally will have limited voting
rights relating only to the modification of the Series A Capital Securities and
the exercise of the Series A Issuer's rights as holder of Series A Subordinated
Debentures, Series A Debentures Guarantees, the Series A Guarantee and the
Series A Additional Guarantee. Holders of Series A 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 Series A Common Securities except, with
respect to the Property Trustee and the Delaware Trustee, upon the occurrence of
certain events described in the accompanying Prospectus. The Property Trustee,
the Administrative Trustees, the Corporation and the Guarantor may amend the
Trust Agreement without the consent of holders of Series A Capital Securities to
ensure that the Series A Issuer will be classified for United States federal
income tax purposes as a grantor trust or as other than as an association
taxable as a corporation unless such action materially and adversely affects the
interests of such holders. See "Description of Capital Securities -- Voting
Rights; Amendment of Each Trust Agreement" and "-- Removal of Issuer Trustees"
in the accompanying Prospectus.
TRADING CHARACTERISTICS OF SERIES A CAPITAL SECURITIES
The Series A Issuer does not intend to have the Series A Capital Securities
listed on a national securities exchange or traded on the Nasdaq Stock Market's
National Market or any other automated quotation system. The absence of such a
listing or trading of the Series A Capital Securities could adversely affect the
liquidity and the price of the Series A Capital Securities.
POSSIBLE TAX LAW CHANGES AFFECTING THE SERIES A CAPITAL SECURITIES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Revenue
Reconciliation Bill"), the revenue portion of President Clinton's budget
proposal, was introduced in the 104th Congress. If it had been enacted, the
Revenue Reconciliation Bill would have generally denied interest deductions for
interest on an instrument issued by a corporation with a maximum term of more
than 20 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. The above-described provision of the Revenue
Reconciliation Bill was proposed to be effective generally for instruments
issued on or after December 7, 1995. If a similar provision were to apply to the
Series A Subordinated Debentures, the Corporation would be unable to deduct
interest on the Series A Subordinated Debentures. However, on March 29, 1996,
the Chairmen of the Senate Finance and House Ways and Means Committees issued a
joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, would be no earlier
than the date of appropriate Congressional action. Under current law, the
Corporation and the Guarantor will be able to deduct interest on the Series A
Subordinated Debentures. Although the 104th Congress adjourned without enacting
the above-described provision of the Revenue Reconciliation Bill, there can be
no assurance that current or future legislative proposals or final legislation
will
S-9
<PAGE> 10
not affect the ability of the Corporation and the Guarantor to deduct interest
on the Series A Subordinated Debentures. Such a change could give rise to a Tax
Event, which may permit the Corporation to cause a redemption of the Series A
Capital Securities before February 1, 2007. See "Certain Terms of Series A
Capital Securities -- Redemption" and "Certain Terms of Series A Subordinated
Debentures -- Redemption" in this Prospectus Supplement and "Description of
Capital Securities -- Redemption or Exchange -- Tax Event or Capital Treatment
Event Redemption" in the accompanying Prospectus. See also "Certain Federal
Income Tax Consequences -- Possible Tax Law Changes."
BANPONCE TRUST I
BanPonce Trust I is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Corporation, as Depositor,
the Guarantor, The First National Bank of Chicago, as Property Trustee, First
Chicago Delaware Inc., as Delaware Trustee, and the Administrative Trustees
named therein, and (ii) the filing of a certificate of trust with the Delaware
Secretary of State on January 16, 1997. The Series A Issuer's business and
affairs are conducted by the Issuer Trustees: The First National Bank of
Chicago, as Property Trustee, First Chicago Delaware Inc., as Delaware Trustee,
and four individual Administrative Trustees who are employees or officers of or
affiliated with the Corporation. The Series A Issuer exists for the exclusive
purposes of (i) issuing and selling the Series A Securities, (ii) using the
proceeds from the sale of Series A Securities to acquire Series A Subordinated
Debentures issued by the Corporation and (iii) engaging in only those other
activities necessary or incidental thereto. Accordingly, the Series A
Subordinated Debentures and the Series A Debenture Guarantee will be the sole
assets of the Series A Issuer, and payments under the Series A Subordinated
Debentures and the Series A Debenture Guarantee will be the sole revenue of the
Series A Issuer. All of the Series A Common Securities will be owned by the
Corporation. The Series A Common Securities will rank pari passu, and payments
will be made thereon pro rata, with the Series A 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 Corporation, as holder of the Series A Common Securities, to payment in
respect of Distributions and payments upon liquidation, redemption or otherwise
will be subordinated to the rights of the holders of the Series A Capital
Securities. See "Description of Capital Securities -- Subordination of Common
Securities" in the accompanying Prospectus. The Corporation will acquire Series
A Common Securities in an aggregate liquidation amount equal to at least 3% of
the total capital of the Series A Issuer. The Series A Issuer has a term of 55
years, but may terminate earlier as provided in the Trust Agreement. The
principal executive office of the Series A Issuer is c/o BanPonce Financial
Corp., 521 Fellowship Road, Mt. Laurel, New Jersey 08054, and its telephone
number is (609) 273-1119. See "The Issuers" in the accompanying Prospectus.
It is anticipated that the Series A Issuer will not be subject to the
reporting requirements under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
S-10
<PAGE> 11
RECENT DEVELOPMENTS
On December 31, 1996, the Guarantor announced that it had signed a merger
agreement with Roig Commercial Bank ("Roig"), a Puerto Rico bank with 25
branches in Puerto Rico and approximately $900 million in assets and $680
million in deposits. Subject to approval by Roig's shareholders and federal and
Puerto Rican regulatory authorities, the Guarantor will pay $120 million for all
of the stock of Roig, half in cash and half in the Guarantor's common stock, and
Roig's branches will become branches of Banco Popular.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES OF THE GUARANTOR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding Interest on Deposits............................ 2.0 2.0 2.6 3.0 2.9
Including Interest on Deposits............................ 1.4 1.4 1.5 1.5 1.3
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends:
Excluding Interest on Deposits............................ 2.0 2.0 2.5 3.0 2.9
Including Interest on Deposits............................ 1.4 1.4 1.5 1.5 1.3
</TABLE>
For purposes of computing these consolidated ratios, earnings represent
income before income taxes, cumulative effect of a change in accounting
principles and equity in undistributed income of unconsolidated subsidiaries and
affiliates, plus fixed charges excluding capitalized interest. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits), the portion of net rental expense which is
deemed representative of the interest factor, the amortization of debt issuance
expense and capitalized interest.
S-11
<PAGE> 12
SUMMARY FINANCIAL DATA
The following summary financial data at and for each of the years ended
December 31, 1995, 1994 and 1993 have been derived from the Guarantor's audited
financial statements. Such summaries are qualified in their entirety by the
detailed information and financial statements included in the documents
incorporated by reference herein and the accompanying Prospectus. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus. In addition, the following summary financial data for the year ended
December 31, 1996 have been derived from the Guarantor's unaudited financial
statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT (in thousands except per share
amounts)
Interest income............................................. $ 1,272,853 $ 1,105,807 $ 887,141 $ 772,136
Interest expense............................................ 591,540 521,624 351,633 280,008
----------- ----------- ----------- -----------
Net interest income......................................... 681,313 584,183 535,508 492,128
Provision for credit losses................................. 88,839 64,558 53,788 72,892
----------- ----------- ----------- -----------
Net interest income after provision for credit losses....... 592,474 519,625 481,720 419,236
Noninterest income.......................................... 205,472 173,338 141,303 125,180
Noninterest expense......................................... 541,919 486,833 448,231 413,046
----------- ----------- ----------- -----------
Income before income taxes.................................. 256,027 206,130 174,792 131,370
----------- ----------- ----------- -----------
Applicable income taxes..................................... 70,877 59,769 50,043 28,151
Cumulative effect of accounting changes..................... 6,185
----------- ----------- ----------- -----------
Net income.................................................. $ 185,150 $ 146,361 $ 124,749 $ 109,404
=========== =========== =========== ===========
Net income per common share(1).............................. $ 2.68 $ 2.10 $ 1.84 $ 1.68
=========== =========== =========== ===========
Cash dividends per common share(1).......................... $ 0.69 $ 0.58 $ 0.50 $ 0.45
SELECTED PERIOD-END BALANCES (in thousands)
Total assets................................................ $16,711,570 $15,675,451 $12,778,358 $11,513,368
Total loans and loans held-for-sale......................... 9,779,029 8,677,484 7,781,329 6,346,922
Investment and trading securities........................... 4,905,150 5,191,992 3,796,807 4,048,380
Earning assets.............................................. 15,429,454 14,668,195 11,843,806 10,657,994
Deposits.................................................... 10,763,275 9,876,662 9,012,435 8,522,658
Term borrowings(2).......................................... 2,522,003 1,390,135 1,113,365 1,010,028
Shareholders' equity........................................ 1,262,532 1,141,697 1,002,423 834,195
SELECTED FINANCIAL RATIOS
Return on average common equity............................. 16.15% 14.22% 13.80% 13.80%
Return on average assets.................................... 1.14% 1.04% 1.02% 1.02%
Net interest margin(3)...................................... 4.80% 4.74% 5.06% 5.50%
Allowance for credit losses to period-end loans and loans
held-for-sale............................................. 1.90% 1.94% 1.98% 2.10%
Nonperforming assets as a percentage of period-end loans and
loans held-for-sale....................................... 1.56% 1.79% 1.38% 1.75%
Net charge-offs to average loans and loans held-for-sale.... 0.78% 0.61% 0.52% 0.91%
Average equity to average assets............................ 7.33% 7.58% 7.57% 7.42%
Ratio of earnings to fixed charges (excluding interest on
deposits)................................................. 2.0 2.0 2.6 3.0
Ratios of earnings to fixed charges (including interest on
deposits)................................................. 1.4 1.4 1.5 1.5
</TABLE>
- ---------------
(1) Adjusted to reflect the stock split effected in the form of a dividend on
July 1, 1996.
(2) Excludes Federal Funds that must be repaid in one day.
(3) On a taxable equivalent basis.
S-12
<PAGE> 13
USE OF PROCEEDS
All of the proceeds from the sale of Series A Capital Securities will be
invested by the Series A Issuer in Series A Subordinated Debentures. The
Corporation intends that the proceeds from the sale of such Series A
Subordinated Debentures will be lent to its direct or indirect subsidiaries,
including Equity One, or used for general corporate purposes.
The Corporation and the Guarantor are required by the Federal Reserve to
maintain certain levels of capital for bank regulatory purposes. On October 21,
1996, the Federal Reserve announced that cumulative preferred securities having
the characteristics of the Series A Capital Securities which qualify as a
minority interest could be included as Tier 1 Capital for bank holding
companies. Such Tier 1 Capital treatment, together with the Corporation's
ability to deduct, for income tax purposes, interest payable on the Series A
Subordinated Debentures, will provide the Corporation and the Guarantor with a
more cost-effective means of obtaining capital for regulatory purposes than
other Tier 1 Capital alternatives currently available to it.
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
the Guarantor as of December 31, 1996, and as adjusted to give effect to the
issuance of the Series A Capital Securities offered hereby.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
AS
ACTUAL ADJUSTED(1)
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT
Parent Company:
Medium Term Notes, due from 1998 to 2001.................. $ 233,539 $ 233,539
Subordinated Notes, due in 2005........................... 125,000 125,000
Subsidiaries:(2)
Term Notes, due from 1998 to 2000......................... 69,482 69,482
Medium Term Notes, due from 1998 to 2005(3)............... 439,695 439,695
Promissory Notes, due from 1998 to 2005................... 243,700 243,700
Other Notes payable, due from 1998 to 2004................ 297 297
---------- ----------
Total long-term debt............................... $1,111,713 $1,111,713
---------- ----------
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE
CORPORATION'S JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES(4)............................................. -- $ 150,000
---------- ----------
STOCKHOLDERS' EQUITY
8.35% Non-Cumulative Preferred Stock, 1994 Series A ($25
liquidation preference, 4,000,000 shares outstanding)..... $ 100,000 $ 100,000
Common Stock (par value $6, Authorized 90,000,000 shares,
issued and outstanding 66,088,506 shares)................. 396,531 396,531
Surplus..................................................... 496,582 496,582
Retained earnings........................................... 267,719 267,719
Net unrealized (loss) on securities available for sale...... 1,700 1,700
---------- ----------
Total common stockholders' equity.................. $1,162,532 $1,162,532
---------- ----------
Total stockholders' equity......................... $1,262,532 $1,262,532
---------- ----------
Total capitalization............................... $2,374,245 $2,524,245
========== ==========
</TABLE>
- ---------------
(1) Reflects the issuance of $150,000,000 of Series A Capital Securities offered
hereby.
(2) These obligations are direct obligations of subsidiaries of the Guarantor,
and as such, constitute claims against such subsidiaries ranking prior to
the Guarantor's equity therein.
(3) These obligations are guaranteed by the Guarantor.
(4) As described herein, the sole assets of the Series A Issuer will be
approximately $154,640,000 principal amount of Series A Subordinated
Debentures issued by the Corporation to the Series A Issuer. The Series A
Subordinated Debentures will bear interest at 8.327% per annum and will
initially be scheduled to mature on February 1, 2027. The Corporation owns
all of the Series A Common Securities. As described herein, the obligations
of the Corporation under the Series A Subordinated Debentures are guaranteed
by the Guarantor. See "Certain Terms of Series A Debenture Guarantees."
S-13
<PAGE> 14
ACCOUNTING TREATMENT
For financial reporting purposes, the Series A Issuer will be treated as a
subsidiary of the Corporation and, accordingly, the accounts of the Series A
Issuer will be included in the consolidated financial statements of the
Corporation, for which summarized financial information is provided in a note to
the consolidated financial statements of the Guarantor. The Series A Capital
Securities will be presented as a separate line item in the consolidated balance
sheets of the Corporation and the Guarantor, entitled "Guaranteed Preferred
Beneficial Interests in BanPonce Financial's Junior Subordinated Deferrable
Interest Debentures" and appropriate disclosures about the Series A Capital
Securities, the Series A Guarantee, the Series A Additional Guarantee and the
Series A Subordinated Debentures will be included in the notes to the
Guarantor's consolidated financial statements. For financial reporting purposes,
the Corporation and the Guarantor will record Distributions payable on the
Series A Capital Securities as an expense in the consolidated statements of
income.
The Guarantor has agreed that future financial reports of the Guarantor
will: (i) present the Capital Securities issued by other Issuer Trusts on the
Guarantor's balance sheet as a separate line item entitled "Guaranteed Preferred
Beneficial Interests in BanPonce Financial's Junior Subordinated Deferrable
Interest Debentures"; (ii) include in a footnote to the financial statements
disclosure that the sole assets of the trusts are the Junior Subordinated
Debentures (specifying as to each trust the principal amount, interest rate and
maturity date of the Junior Subordinated Debentures held); and (iii) if Staff
Accounting Bulletin 53 treatment is sought, include, in an audited footnote to
the financial statements, disclosure that (a) the trusts are wholly owned, (b)
the sole assets of the trusts are the Junior Subordinated Debentures (specifying
as to each trust the principal amount, interest rate and maturity date of the
Junior Subordinated Debentures held), and (c) the obligations of the Corporation
and the Guarantor under the Junior Subordinated Debentures, the relevant
Indenture, Trust Agreement, Guarantee, Additional Guarantee, Debenture Guarantee
and Expense Agreement, in the aggregate, constitute a full and unconditional
guarantee by the Corporation and the Guarantor of such trust's obligations under
the Capital Securities issued by such trust.
CERTAIN TERMS OF SERIES A CAPITAL SECURITIES
GENERAL
The following summary of certain terms and provisions of the Series A
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 Series A
Capital Securities, which describes the material provisions thereof, does not
purport to be complete and is subject to, and 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.
Holders of the Series A Capital Securities have no preemptive or similar
rights.
DISTRIBUTIONS
The Series A Capital Securities represent preferred beneficial interests in
the Series A Issuer, and Distributions on the Series A Capital Securities will
be payable at the annual rate of 8.327% of the stated liquidation amount (the
"Liquidation Amount") of $1,000, payable semi-annually in arrears on the first
day of August and February of each year (each a "Distribution Date"), to the
holders of the Series A Capital Securities on the relevant record dates. The
record dates for the Series A Capital Securities will be, for so long as the
Series A Capital Securities remain in book-entry form, one Business Day (as
defined below) prior to the relevant Distribution Date and, in the event the
Series A Capital Securities are not in book-entry form, July 17 or January 17,
as the case may be. Distributions will accumulate from February 5, 1997. The
first Distribution payment date for the Series A Capital Securities will be
August 1, 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 Series A Capital
Securities is not a
S-14
<PAGE> 15
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. The Paying Agent for the Capital Securities shall be The First National
Bank of Chicago. See "Description of Capital Securities -- Distributions" in the
accompanying Prospectus.
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture to defer payment
of interest on the Series A Subordinated Debentures at any time or from time to
time for a period not exceeding 10 consecutive semi-annual periods with respect
to each Extension Period, provided that no Extension Period may extend beyond
the Stated Maturity of the Series A Subordinated Debentures. As a consequence of
any such deferral of interest payments by the Corporation, Distributions on the
Series A Capital Securities would also be deferred by the Series A Issuer during
any such Extension Period. Distributions to which holders of the Series A
Capital Securities are entitled would accumulate additional Distributions
thereon at the rate per annum of 8.327% thereof, compounded semi-annually from
the relevant payment date for such Distributions to but excluding the date of
payment. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Corporation and
the Guarantor may not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Corporation's or the Guarantor's capital stock, (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Corporation or the Guarantor that rank pari passu in
all respects with or junior in interest to the Series A Subordinated Debentures
or the Series A Debenture Guarantee, respectively, or (iii) make any guarantee
payments with respect to any guarantee by the Corporation or the Guarantor of
the debt securities of any subsidiary of the Corporation or the Guarantor if
such guarantee ranks pari passu in all respects with or junior in interest to
the Series A Subordinated Debentures or the Series A Debenture Guarantees,
respectively, subject to certain exceptions described herein. See "Certain Terms
of Series A Subordinated Debentures -- Option to Defer Interest Payments." Prior
to the termination of any such Extension Period, the Corporation may further
defer the payment of interest on the Series A Subordinated Debentures, provided
that no Extension Period may exceed 10 consecutive semi-annual periods or extend
beyond the Stated Maturity of the Series A 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 8.327% per
annum, compounded semi-annually, to the extent permitted by applicable law), the
Corporation may elect to begin a new Extension Period. There is no limitation on
the number of times that the Corporation may elect to begin an Extension Period.
See "Certain Terms of Series A Subordinated Debentures -- Option to Defer
Interest Payments" and "Certain Federal Income Tax Consequences -- Interest
Income and Original Issue Discount."
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series A
Subordinated Debentures.
REDEMPTION
While the Series A Securities are outstanding, upon the repayment or
redemption, in whole or in part, of the Series A 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 Series A 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 Series A Capital Securities (the "Redemption Price"),
equal to the aggregate Liquidation Amount of such Series A Capital Securities
plus accumulated and unpaid Distributions thereon to the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Corporation upon the concurrent redemption of such Series A Subordinated
Debentures. If less than all of the Series A Subordinated Debentures are to be
repaid or redeemed on a Redemption Date, then the proceeds from such repayment
or redemption, including any premium paid by the Corporation, shall be allocated
to the redemption pro rata of the Series A Securities.
S-15
<PAGE> 16
The Corporation has the right to redeem the Series A Subordinated
Debentures (i) on or after February 1, 2007, in whole at any time or in part
from time to time or (ii) prior to February 1, 2007, in whole (but not in part),
within 90 days following the occurrence of a Tax Event or Capital Treatment
Event. A redemption of the Series A Subordinated Debentures would cause a
mandatory redemption of the Series A Securities.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices expressed in percentages of the Liquidation Amount
together with accrued Distributions to but excluding the Redemption Date. If
redeemed during the 12-month period beginning February 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2007........................................................ 104.1635%
2008........................................................ 103.7472
2009........................................................ 103.3308
2010........................................................ 102.9145
2011........................................................ 102.4981
2012........................................................ 102.0818
2013........................................................ 101.6654
2014........................................................ 101.2491
2015........................................................ 100.8327
2016........................................................ 100.4164
</TABLE>
and at 100% on or after February 1, 2017.
The Redemption Price, in the case of a redemption following a Tax Event or
a Capital Treatment Event as described under (ii) above, shall equal for each
Series A Capital Security the Make-Whole Amount for a corresponding $1,000
principal amount of Series A Subordinated Debentures together with accrued
Distributions to but excluding the Redemption Date. The "Make-Whole Amount"
shall be equal to the greater of (i) 100% of the principal amount of such Series
A Subordinated Debentures or (ii) as determined by a Quotation Agent (as defined
below), the sum of the present values of the principal amount and premium
payable as part of the Redemption Price with respect to an optional redemption
of such Series A Subordinated Debentures on February 1, 2007, together with
scheduled payments of interest from the Redemption Date to February 1, 2007 (the
"Remaining Life"), in each case discounted to the Redemption Date on a
semi-annual basis (assuming a 360-day year consisting of 30-day months) at the
Adjusted Treasury Rate (as defined below), plus, in each case, accrued
Distributions to but excluding the Redemption Date.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate (as defined below) plus (i) 1.20% if such Redemption Date occurs
on or before February 1, 1998 or (ii) .50% if such Redemption Date occurs after
February 1, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Federal Reserve and which establishes yields on actively
traded United States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities," for the maturity corresponding to the
Remaining Life (if no maturity is within three months before or after the
Remaining Life, yields for the two published maturities most closely
corresponding to the Remaining Life shall be determined and the Treasury Rate
shall be interpolated or extrapolated from such yields on a straight-line basis,
rounding to the nearest month) or (ii) if such release (or any successor
release) is not published during the week preceding the calculation date or does
not contain such yields, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, calculated using a price of
the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date. The
Treasury Rate shall be calculated on the third Business Day preceding the
Redemption Date.
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"Comparable Treasury Issue" means with respect to any Redemption Date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after December 1, 2006, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Quotation Agent" means Credit Suisse First Boston Corporation and its
successors; provided, however, that if the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any other
Primary Treasury Dealer selected by the Debenture Trustee after consultation
with the Corporation.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) if the Debenture
Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Dealer, the average, as determined
by the Debenture Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Debenture Trustee by such Reference Treasury Dealer at
5:00 p.m., New York City time, on the third Business Day preceding such
Redemption Date.
LIQUIDATION OF SERIES A ISSUER AND DISTRIBUTION OF SERIES A SUBORDINATED
DEBENTURES TO HOLDERS
The Corporation will have the right at any time to liquidate the Series A
Issuer and cause the Series A Subordinated Debentures to be distributed to the
holders of the Series A Securities in exchange therefor upon liquidation of the
Series A Issuer. The Corporation has committed to the Federal Reserve that, so
long as the Corporation (or any affiliate) is a holder of Series A Common
Securities, the Corporation will not exercise such right without having received
the prior approval of the Federal Reserve to do so, if then required under
applicable Federal Reserve capital guidelines or policies.
Under current United States Federal income tax law, a distribution of
Series A Subordinated Debentures in exchange for Series A Capital Securities
should not be a taxable event to holders of the Series A Capital Securities.
Should there be a change in law, a change in legal interpretation, a Tax Event
or other circumstances, however, the distribution of the Series A Subordinated
Debentures could be a taxable event to holders of the Series A Capital
Securities. See "Certain Federal Income Tax Consequences -- Distribution of
Series A Subordinated Debentures to Holders of Series A Capital Securities." If
the Corporation elects neither to redeem the Series A Subordinated Debentures
prior to their Stated Maturity nor to liquidate the Series A Issuer and
distribute the Series A Subordinated Debentures to holders of the Series A
Capital Securities in exchange therefor, the Series A Capital Securities will
remain outstanding until the Stated Maturity of the Series A Subordinated
Debentures.
LIQUIDATION VALUE
The amount payable on the Series A Capital Securities in the event of any
liquidation of the Series A Issuer is $1,000 per Series A Capital Security plus
accumulated and unpaid Distributions, which may be in the form of a distribution
of a Like Amount in Series A Subordinated Debentures, subject to certain
exceptions. See "Description of Capital Securities -- Liquidation Distribution
Upon Termination" in the accompanying Prospectus.
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<PAGE> 18
REGISTRATION OF SERIES A CAPITAL SECURITIES
The Series A Capital Securities will be represented by global certificates
registered in the name of DTC or its nominee. Beneficial interests in the Series
A Capital Securities will be shown on, and transfers thereof will be effected
only through, records maintained by Participants in DTC (as defined in the
accompanying Prospectus). Except as described below and in the accompanying
Prospectus, Series A Capital Securities in certificated form will not be issued
in exchange for the global certificates. See "Book-Entry Issuance" in the
accompanying Prospectus.
A global security shall be exchangeable for Series A Capital Securities
registered in the names of persons other than DTC or its nominee only if (i) DTC
notifies the Series A Issuer that it is unwilling or unable to continue as a
depositary for such global security and no successor depositary shall have been
appointed, or if at any time DTC ceases to be a clearing agency registered under
the Exchange Act, at a time when DTC is required to be so registered to act as
such depositary, (ii) the Series A Issuer in its sole discretion determines that
such global security shall be so exchangeable, or (iii) there shall have
occurred and be continuing an event of default under the Indenture with respect
to the Series A Subordinated Debentures. Any global security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
definitive certificates registered in such names as DTC shall direct. It is
expected that such instructions will be based upon directions received by DTC
from its Participants with respect to ownership of beneficial interests in such
global security. In the event that Series A Capital Securities are issued in
definitive form, such Series A Capital Securities will be in denominations of
$1,000 and integral multiples thereof and may be transferred or exchanged at the
offices described below.
Payments on Series A Capital Securities represented by a global security
will be made to DTC, as the depositary for the Series A Capital Securities. In
the event Series A Capital Securities are issued in certificated form, the
Liquidation Amount and Distributions will be payable, the transfer of the Series
A Capital Securities will be registrable, and Series A Capital Securities will
be exchangeable for Series A 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 Series A Capital Securities are issued in certificated form,
the record dates for payment of Distributions will be July 17 or January 17, as
the case may be. For a description of DTC and the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Book-Entry Issuance" in the accompanying
Prospectus.
CERTAIN TERMS OF SERIES A SUBORDINATED DEBENTURES
GENERAL
The following summary of certain terms and provisions of the Series A
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 Series A 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 Series A Capital Securities, the
Series A Issuer will invest the proceeds thereof, together with the
consideration paid by the Corporation for the Series A Common Securities, in the
Series A Subordinated Debentures issued by the Corporation. The Series A
Subordinated Debentures will be issued in an aggregate principal amount equal to
the aggregate Liquidation Amount of the Series A Capital Securities plus the
aggregate Liquidation Amount of the Series A Common Securities purchased by the
Corporation. The Series A Subordinated Debentures will bear interest at the
annual rate of
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<PAGE> 19
8.327% of the principal amount thereof, payable semi-annually in arrears on the
first day of August and February of each year (each, an "Interest Payment
Date"), commencing August 1, 1997, to the person in whose name each Series A
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment Date.
The Guarantor, via the Series A Debenture Guarantee, will guarantee, on a junior
subordinated basis, the payment of the principal of, premium, if any, and
interest on the Series A Subordinated Debentures, when and as the same are due
and payable. See "Certain Terms of Series A Debenture Guarantees." It is
anticipated that, until the liquidation, if any, of the Series A Issuer, the
Series A Subordinated Debentures will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Series A 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 Series A 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
8.327% thereof, compounded semi-annually from the relevant Interest Payment
Date. The term "interest" as used herein shall include semi-annual interest
payments, interest on semi-annual interest payments not paid on the applicable
Interest Payment Date and Additional Sums (as defined below), as applicable.
The Series A Subordinated Debentures will be issued as a series of junior
subordinated deferrable interest debentures under the Indenture and will mature
on February 1, 2027.
The Series A Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt of the Corporation,
and the obligations of the Guarantor under the Series A Debenture Guarantee will
be unsecured and rank subordinate and junior in right of payment to all Senior
Debt of the Guarantor. See "Description of Junior Subordinated
Debentures -- Subordination" and "Description of Debenture
Guarantees -- Subordination" in the accompanying Prospectus. Substantially all
of the Corporation's and the Guarantor's existing indebtedness constitutes
Senior Debt. Because the Corporation and the Guarantor are holding companies,
the right of the Corporation and the Guarantor to participate in any
distribution of assets of any subsidiary, including their subsidiary banks (and
including, in the case of the Guarantor, the Corporation), 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
Corporation or the Guarantor may itself be recognized as a creditor of that
subsidiary. Accordingly, the Series A Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries and the Series A Debenture Guarantees will be
effectively subordinated to all existing and future liabilities of the
Guarantor's subsidiaries, and holders of Series A Subordinated Debentures and
Series A Debenture Guarantees should look only to the assets of the Corporation
and the Guarantor for payments on the Series A Subordinated Debentures and
Series A Debenture Guarantees, respectively. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of any of the
Corporation, the Guarantor or their subsidiaries, including Senior Debt, whether
under the Indenture or any existing or other indenture that the Corporation or
Guarantor may enter into in the future or otherwise. See "Description of Junior
Subordinated Debentures -- Subordination" and "Description of Debenture
Guarantees -- Subordination" in the accompanying Prospectus.
OPTION TO DEFER INTEREST PAYMENTS
So long as no event of default under the Indenture has occurred and is
continuing, the Corporation has the right under the Indenture at any time or
from time to time during the term of the Series A Subordinated Debentures to
defer payment of interest on the Series A Subordinated Debentures for a period
not exceeding 10 consecutive semi-annual periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated Maturity
of the Series A Subordinated Debentures. At the end of such Extension Period,
the Corporation must pay all interest then accrued and unpaid on the Series A
Subordinated Debentures (together with interest on such unpaid interest at the
annual rate of 8.327%, compounded semi-
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<PAGE> 20
annually from the relevant Interest Payment Date, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Series A Subordinated Debentures (or holders of Series A Capital
Securities while such series is outstanding) will be required to accrue interest
income for United States Federal income tax purposes. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation and the Guarantor may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Corporation's
or the Guarantor's capital stock, (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Corporation or the Guarantor (including other Junior
Subordinated Debentures) that rank pari passu in all respects with or junior in
interest to the Series A Subordinated Debentures or the Series A Debenture
Guarantees, respectively, or (iii) make any guarantee payments with respect to
any guarantee by the Corporation or the Guarantor of the debt securities of any
subsidiary of the Corporation or the Guarantor if such guarantee ranks pari
passu in all respects with or junior in interest to the Series A Subordinated
Debentures or the Series A Debenture Guarantees, respectively (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Corporation or the Guarantor in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Corporation or the Guarantor (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction, in each case entered into prior to the applicable
Extension Period, (b) as a result of any exchange or conversion of any class or
series of the Corporation's or the Guarantor's capital stock (or any capital
stock of a subsidiary of the Corporation or the Guarantor) for any class or
series of the Corporation's or the Guarantor's capital stock, respectively, or
of any class or series of the Corporation's or the Guarantor's indebtedness for
any class or series of the Corporation's or the Guarantor's capital stock,
respectively, (c) the purchase of fractional interests in shares of the
Corporation's or the Guarantor's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (d) any declaration of a dividend in connection with any
stockholder's rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock). Prior
to the termination of any such Extension Period, the Corporation may further
defer the payment of interest on the Series A Subordinated Debentures, provided
that no Extension Period may exceed 10 consecutive semi-annual periods or extend
beyond the Stated Maturity of the Series A 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 8.327% per
annum compounded semi-annually, to the extent permitted by applicable law), the
Corporation may elect to begin a new Extension Period subject to the above
requirements and restrictions. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Corporation 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 Series A Subordinated Debentures
would have been payable except for the election to begin such Extension Period
or (ii) the date the Administrative Trustees are required to give notice to any
applicable stock exchange or automated quotation system on which the Series A
Capital Securities are then listed or quoted or to holders of Series A
Subordinated Debentures of the applicable record date or (iii) the date such
interest is payable, but in any event not less than one Business Day prior to
such record date. The Debenture Trustee shall give notice of the Corporation's
election to begin a new Extension Period to the holders of the Series A
Subordinated Debentures. There is no limitation on the number of times that the
Corporation may elect to begin an Extension Period. See "Description of Junior
Subordinated Debentures -- Option to Defer Interest Payments" in the
accompanying Prospectus.
ADDITIONAL SUMS
If the Series A Issuer is required to pay any additional taxes, duties or
other governmental charges as a result of a Tax Event, the Corporation will pay
as additional amounts on the Series A Subordinated
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<PAGE> 21
Debentures such amounts ("Additional Sums") as shall be required so that the
Distributions payable by the Series A Issuer shall not be reduced as a result of
any such additional taxes, duties or other governmental charges. The
Corporation's obligation to pay such amounts will be guaranteed by the Series A
Debenture Guarantee on the same terms as the Corporation's other obligations
under the Series A Subordinated Debentures are guaranteed. See "Certain Terms of
Series A Debenture Guarantees."
REDEMPTION
Subject to the Corporation's having received prior approval of the Federal
Reserve if then required under applicable Federal Reserve capital guidelines or
policies, the Series A Subordinated Debentures are redeemable prior to Stated
Maturity at the option of the Corporation (i) on or after February 1, 2007, in
whole at any time or in part from time to time or (ii) prior to February 1,
2007, in whole (but not in part) within 90 days following the occurrence of a
Tax Event or Capital Treatment Event. The proceeds of any such redemption will
be used by the Series A Issuer to redeem the Series A Securities.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices, expressed in percentages of the principal amount,
together with accrued interest to but excluding the Redemption Date. If redeemed
during the 12-month period beginning February 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2007........................................................ 104.1635%
2008........................................................ 103.7472
2009........................................................ 103.3308
2010........................................................ 102.9145
2011........................................................ 102.4981
2012........................................................ 102.0818
2013........................................................ 101.6654
2014........................................................ 101.2491
2015........................................................ 100.8327
2016........................................................ 100.4164
</TABLE>
and at 100% on or after February 1, 2017.
The Redemption Price, in the case of a redemption following a Tax Event or
Capital Treatment Event as described under (ii) above, shall equal the
Make-Whole Amount (as defined under "Certain Terms of Series A Capital
Securities -- Redemption"), together with accrued interest to but excluding the
Redemption Date.
DISTRIBUTION OF SERIES A SUBORDINATED DEBENTURES
As described under "Certain Terms of Series A Capital
Securities -- Liquidation of Series A Issuer and Distribution of Series A
Subordinated Debentures to Holders", under certain circumstances involving the
termination of the Series A Issuer, Series A Subordinated Debentures may be
distributed to the holders of the Series A Capital Securities in exchange
therefor upon liquidation of the Series A Issuer after satisfaction of
liabilities to creditors of the Series A Issuer as provided by applicable law.
If distributed to holders of Series A Capital Securities, the Series A
Subordinated Debentures will initially be issued in the form of one or more
global securities and DTC, or any successor depositary for the Series A Capital
Securities, will act as depositary for the Series A Subordinated Debentures. It
is anticipated that the depositary arrangements for the Series A Subordinated
Debentures would be substantially identical to those in effect for the Series A
Capital Securities. If Series A Subordinated Debentures are distributed to the
holders of Series A Capital Securities in exchange therefor upon liquidation of
the Series A Issuer, the Corporation will use its best efforts to include the
Series A Subordinated Debentures for trading on such stock exchanges or
automated quotation system, if any, on which the Series A Capital Securities are
then listed or quoted. The Corporation at this time does not intend to list the
Series A Capital Securities on any stock exchange or automated quotation system.
There can be no assurance as to the market price of any Series A Subordinated
Debentures that may be distributed to the holders of Series A Capital
Securities.
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REGISTRATION OF SERIES A SUBORDINATED DEBENTURES
The Series A Subordinated Debentures will be registered in the name of the
Property Trustee on behalf of the Series A Issuer. In the event that the Series
A Subordinated Debentures are distributed to holders of Series A Capital
Securities, it is anticipated that the depositary and other arrangements for the
Series A Subordinated Debentures will be substantially identical to those in
effect for the Series A Capital Securities. See "Certain Terms of Series A
Capital Securities -- Registration of Series A Capital Securities."
CERTAIN TERMS OF SERIES A GUARANTEE AND SERIES A ADDITIONAL GUARANTEE
The Series A Guarantee guarantees to the holders of the Series A Capital
Securities the following payments, to the extent not paid by the Series A
Issuer: (i) any accumulated and unpaid Distributions required to be paid on the
Series A Capital Securities, to the extent that the Series A Issuer has funds on
hand available therefor at such time, (ii) the Redemption Price with respect to
any Series A Capital Securities called for redemption, to the extent that the
Series A Issuer has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of the
Series A Issuer (unless the Series A Subordinated Debentures are distributed to
holders of the Series A 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 Series A Issuer has funds on hand available
therefor at such time, and (b) the amount of assets of the Series A Issuer
remaining available for distribution to holders of the Series A Capital
Securities after payment of creditors of the Series A Issuer as required by
applicable law. The obligations of the Corporation under the Series A Guarantee
are in turn guaranteed, on a junior subordinated basis, by the Series A
Additional Guarantee issued by the Guarantor. Each of the Series A Guarantee and
the Series A Additional Guarantee will be qualified as an indenture under the
Trust Indenture Act. The First National Bank of Chicago will act as the
Guarantee Trustee for the purposes of compliance with the Trust Indenture Act
and will hold the Series A Guarantee and the Series A Additional Guarantee for
the benefit of the holders of the Series A Capital Securities. The First
National Bank of Chicago will also act as Debenture Trustee for the Series A
Subordinated Debentures and as Property Trustee, and First Chicago Delaware Inc.
will act as Delaware Trustee.
The holders of not less than a majority in aggregate Liquidation Amount of
the Series A 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 to the Series A Guarantee or the Series A Additional
Guarantee, or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Series A Guarantee or the Series A Additional
Guarantee. Any holder of the Series A Capital Securities may institute a legal
proceeding directly against the Corporation or the Guarantor to enforce its
rights under the Series A Guarantee or the Series A Additional Guarantee,
respectively, without first instituting a legal proceeding against the Series A
Issuer, the Guarantee Trustee or any other person or entity. If the Corporation
(or the Guarantor, via the Series A Debenture Guarantee) were to default on its
obligation to pay amounts payable under the Series A Subordinated Debentures,
the Series A Issuer would lack funds for the payment of Distributions or amounts
payable on redemption of the Series A Capital Securities or otherwise, and, in
such event, holders of the Series A Capital Securities would not be able to rely
upon the Series A Guarantee or the Series A Additional Guarantee for payment of
such amounts. Instead, if any event of default under the Indenture shall have
occurred and be continuing and such event is attributable to the failure of the
Corporation (or the Guarantor, via the Series A Debenture Guarantee) to pay
interest or premium, if any, on or principal of the Series A Subordinated
Debentures on the applicable payment date, then a holder of Series A Capital
Securities may institute a Direct Action against the Corporation or the
Guarantor pursuant to the terms of the Indenture for enforcement of payment to
such holder of the principal of or interest or premium, if any, on such Series A
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Series A Capital Securities of such holder. In
connection with such Direct Action, the Corporation and the Guarantor will have
a right to set-off under the Indenture to the extent of any payment made by the
Corporation or the Guarantor to such holder of Series A Securities in the Direct
Action. Except as described herein, holders of Series A Capital Securities will
not be able to exercise directly any other remedy available to the holders of
the Series A Subordinated Debentures or assert directly any other
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<PAGE> 23
rights in respect of the Series A Subordinated Debentures. See "Description of
Guarantees and Additional Guarantees" in the accompanying Prospectus. The Trust
Agreement provides that each holder of Series A Capital Securities by acceptance
thereof agrees to the provisions of the Series A Guarantee, the Series A
Additional Guarantee, the Expense Agreement, the Series A Debenture Guarantees
and the Indenture.
CERTAIN TERMS OF SERIES A DEBENTURE GUARANTEES
GENERAL
The Series A Debenture Guarantee issued by the Guarantor will guarantee, on
a junior subordinated basis, the payment of the principal of, premium, if any,
and interest on the Series A Subordinated Debentures, when and as the same are
due and payable by the Corporation. The Series A Debenture Guarantee is absolute
and unconditional, irrespective of any circumstance that might otherwise
constitute a legal or equitable discharge of a surety or guarantor. To evidence
the Series A Debenture Guarantee, a guarantee, executed by the Guarantor, will
be endorsed on each Series A Subordinated Debenture. Holders of the Series A
Subordinated Debentures may proceed directly against the Guarantor in the event
of default under the Series A Subordinated Debentures without first proceeding
against the Corporation. The Series A Debenture Guarantee will be unsecured and
will rank subordinate and junior in right of payment to all Senior Debt of the
Guarantor. See "Description of Debenture Guarantees" in the accompanying
Prospectus.
TAXATION BY THE COMMONWEALTH OF PUERTO RICO
All payments pursuant to the Series A Debenture Guarantees will be made
without withholding or deduction for, or on account of, any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed or
levied by or on behalf of Puerto Rico or by or with any district, municipality
or other political subdivision thereof or authority therein having power to tax
unless such taxes, duties, assessments or governmental charges are required by
law to be withheld or deducted.
In the event that the Guarantor is required by law to deduct or withhold
any amounts in respect of taxes, duties, assessments or governmental charges,
the Guarantor will pay such additional amounts in respect of principal, premium
and interest as will result (after deduction of the said taxes, duties,
assessments or governmental charges) in the payment to the holders of the Series
A Subordinated Debentures of the amounts which would otherwise have been payable
in respect to the Series A Subordinated Debentures in the absence of such
deduction or withholding ("Additional Guarantee Payments"), except that no such
Additional Guarantee Payments shall be payable:
(i) To any holder of a Series A Subordinated Debenture or any interest
therein or rights in respect thereof where such deduction or withholding is
required by reason of such holder having some connection with Puerto Rico
or any political subdivision or taxing authority thereof or therein other
than the mere holding of and payment in respect of such Series A
Subordinated Debentures;
(ii) in respect of any deduction or withholding that would not have
been required but for the presentation by the holder of a Series A
Subordinated Debenture for payment on a date more than 30 days after the
Stated Maturity or the date on which payment thereof is duly provided for,
whichever occurs later; or
(iii) in respect of any deduction or withholding that would not have
been required but for the failure to comply with any certification,
identification or other reporting requirements concerning the nationality,
residence, identity or connection with Puerto Rico, or any political
subdivision or taxing authority thereof or therein, of the holder of a
Series A Subordinated Debenture or any interest therein or rights in
respect thereof, if compliance is required by Puerto Rico, or any political
subdivision or taxing authority thereof or therein, as a precondition to
exemption from such deduction or withholding.
S-23
<PAGE> 24
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an investment
in the Series A Capital Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the documents
and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986,
as amended (the "Code") prohibit Plans, as well as individual retirement
accounts and Keogh plans subject to Section 4975 of the Code (also "Plans"),
from engaging in certain transactions involving "plan assets" with persons who
are "parties in interest" under ERISA or "disqualified persons" under the Code
("Parties in Interest") with respect to such Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other liabilities
under ERISA and/or Section 4975 of the Code for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
Employee benefit plans that are governmental plans (as defined in Section 3(32)
of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and
foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Series A Issuer would be
deemed to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of
the Code if "plan assets" of the Plan were used to acquire an equity interest in
the Series A Issuer and no exception were applicable under the Plan Assets
Regulation. An "equity interest" is defined under the Plan Assets Regulation as
any interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features and specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Series A Issuer would not be deemed to be "plan assets" of
investing Plans if, immediately after the most recent acquisition of any equity
interest in the Series A Issuer, less than 25% of the value of each class of
equity interests in the Series A Issuer were held by Plans, other employee
benefit plans not subject to ERISA or Section 4975 of the Code (such as
governmental, church and foreign plans), and entities holding assets deemed to
be "plan assets" of any Plan (collectively, "Benefit Plan Investors"), or if the
Series A Capital Securities were "publicly-offered securities" for purposes of
the Plan Assets Regulation. No assurance can be given that the value of the
Series A Capital Securities held by Benefit Plan Investors will be less than 25%
of the total value of such Series A Capital Securities at the completion of the
initial offering or thereafter, and no monitoring or other measures will be
taken with respect to the satisfaction of the conditions to this exception. In
addition, the Series A Capital Securities will be deemed "publicly offered
securities" for the purposes of the Plan Asset Regulations only if owned by 100
or more investors independent of the Series A Issuer and each other. No
assurance can be given that the Series A Capital Securities would be considered
to be "publicly-offered securities" under the Plan Assets Regulation. All of the
Series A Common Securities will be purchased and initially held by the
Corporation.
Certain transactions involving the Series A Issuer could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Code with respect to a Plan if the Series A Capital Securities were
acquired with "plan assets" of such Plan and the assets of the Series A Issuer
were deemed to be "plan assets" of Plans investing in the Series A Issuer. For
example, if the Corporation is a Party in Interest with respect to an investing
Plan (either directly or by reason of its relationship with its affiliates),
extensions of credit between the Corporation and the Series A Issuer (as
represented by the Series A Subordinated Debentures and the Guarantee) would
likely be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B)
of the Code, unless exemptive relief were available under an applicable
administrative exemption (see below). In addition, if the Corporation were
considered to be a fiduciary with respect to the Series A Issuer as a result of
certain powers it holds (such as the powers to remove and replace the Property
Trustee and the Administrative Trustees), certain operations of the Series A
Issuer, including the
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<PAGE> 25
optional redemption or acceleration of the Series A Subordinated Debentures,
could be considered to be prohibited transactions under Section 406(b) of ERISA
and Section 4975(c)(1)(E) of the Code. In order to avoid such prohibited
transactions, each investing plan, by purchasing the Series A Capital
Securities, will be deemed to have directed the Series A Issuer to invest in the
Series A Subordinated Debentures and to have appointed the Property Trustee.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or holding of the Series A Capital
Securities if assets of the Series A Issuer were deemed to be "plan assets" of
Plans investing in the Series A Issuer as described above. Those class
exemptions are PTCE 96-23 (for certain transactions determined by in-house asset
managers), PTCE 95-60 (for certain transactions involving insurance company
general accounts), PTCE 91-38 (for certain transactions involving bank
collective investment funds), PTCE 90-1 (for certain transactions involving
insurance company separate accounts), and PTCE 84-14 (for certain transactions
determined by independent qualified professional asset managers).
Because the Series A Capital Securities may be deemed to be equity
interests in the Series A Issuer for purposes of applying ERISA and Section 4975
of the Code, the Series A Capital Securities may not be purchased and should not
be held by any Plan, any entity whose underlying assets include "plan assets" by
reason of any Plan's investment in the entity (a "Plan Asset Entity") or any
person investing "plan assets" of any Plan, unless such purchaser or holder is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1
or 84-14. Any purchaser or holder of the Series A Capital Securities or any
interest therein will be deemed to have represented by its purchase and holding
thereof that it either (a) is not a Plan or a Plan Asset Entity and is not
purchasing the Series A Capital Securities on behalf of or with "plan assets" of
any Plan or (b) is eligible for the exemptive relief available under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14 with respect to such purchase and holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the Series A
Capital Securities on behalf of or with "plan assets" of any Plan consult with
their counsel regarding the potential consequences if the assets of the Series A
Issuer were deemed to be "plan assets" and the availability of exemptive relief
under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14.
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<PAGE> 26
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of Series A Capital
Securities. This summary only addresses the tax consequences to a person that
acquires Series A Capital Securities on their original issue at their original
offering price and that is (i) an individual citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any state thereof or the District of Columbia or (iii) an
estate or trust the income of which is subject to United States federal income
tax regardless of source (a "United States Person"). This summary does not
address all tax consequences that may be applicable to a United States Person
that is a beneficial owner of Series A Capital Securities, nor does it address
the tax consequences to (i) persons that are not United States Persons, (ii)
persons that may be subject to special treatment under United States federal
income tax law, such as banks, insurance companies, thrift institutions,
regulated investment companies, real estate investment trusts, tax-exempt
organizations and dealers in securities or currencies, (iii) persons that will
hold Series A 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, (iv) persons whose functional currency is not the
United States dollar or (v) persons that do not hold Series A Capital Securities
as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Sullivan & Cromwell, counsel to the Corporation and
the Series A Issuer. This summary is based upon the Code, Treasury Regulations,
Internal Revenue Service rulings and pronouncements and judicial decisions now
in effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of Series A Capital Securities. In particular,
legislation has been proposed that could adversely affect the Corporation's
ability to deduct interest on the Series A Subordinated Debentures, which may in
turn permit the Corporation to cause a redemption of the Series A Capital
Securities. See "-- Possible Tax Law Changes." The authorities on which this
summary is based are subject to various interpretations, and it is therefore
possible that the federal income tax treatment of the purchase, ownership and
disposition of Series A Capital Securities may differ from the treatment
described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SERIES A CAPITAL SECURITIES, AS
WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE SERIES A ISSUER
Under current law and assuming compliance with the terms of the Trust
Agreement, certain other documents and certain factual matters, the Series A
Issuer will not be taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of Series A Capital Securities (a
"Securityholder") will be required to include in its gross income its pro rata
share of the interest income, including original issue discount, paid or accrued
with respect to the Series A Subordinated Debentures whether or not cash is
actually distributed to the Securityholders. See "-- Interest Income and
Original Issue Discount." No amount included in income with respect to the
Series A Capital Securities will be eligible for the dividends-received
deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a contingency that
stated interest will not be timely paid that is "remote" because of the terms of
the relevant debt instrument will be ignored in determining whether such debt
instrument is issued with original issue discount ("OID"). As a result of terms
and conditions of the Series A Subordinated
S-26
<PAGE> 27
Debentures that prohibit certain payments with respect to the Corporation's and
the Guarantor's capital stock and indebtedness if the Corporation elects to
extend interest payment periods, the Corporation believes that the likelihood of
its exercising its option to defer payments is remote. Based on the foregoing,
the Corporation believes that the Series A Subordinated Debentures will not be
considered to be issued with OID at the time of their original issuance and,
accordingly, a Securityholder should include in gross income such holder's
allocable share of interest on the Series A Subordinated Debentures, in
accordance with such Securityholder's method of accounting. The following
discussion assumes that unless and until the Corporation exercises its option to
defer interest on the Series A Subordinated Debentures, the Series A
Subordinated Debentures will not be considered as issued with OID.
Under the Regulations, if the Corporation exercises its option to defer any
payment of interest, the Series A Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Series A Subordinated
Debentures would thereafter be treated as OID as long as the Series A
Subordinated Debentures remained outstanding. In such event, all of a
Securityholder's taxable interest income with respect to the Series A
Subordinated Debentures would be accounted for as OID on an economic-accrual
basis regardless of such holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a Securityholder would be required to include in gross income OID
even though the Corporation would not make any actual cash payments during an
Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service (the "IRS"), and it is possible
that the IRS could take a position contrary to the interpretation herein.
Because income on the Series A Capital Securities will constitute interest
or OID, corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Series A
Capital Securities.
DISTRIBUTION OF SERIES A SUBORDINATED DEBENTURES TO HOLDERS OF SERIES A CAPITAL
SECURITIES
Under current law, a distribution by the Series A Issuer of the Series A
Subordinated Debentures as described under the caption "Certain Terms of Series
A Capital Securities -- Liquidation of Series A Issuer and Distribution of
Series A Subordinated Debentures to Holders" will be non-taxable and will result
in the Securityholder receiving directly its pro rata share of the Series A
Subordinated Debentures previously held indirectly through the Series A Issuer,
with a holding period and aggregate-tax basis equal to the holding period and
aggregate-tax basis such Securityholder had in its Series A Capital Securities
before such distribution. If, however, the liquidation of the Series A Issuer
were to occur because the Series A Issuer is subject to United States Federal
income tax with respect to income accrued or received on the Series A
Subordinated Debentures, the distribution of Series A Subordinated Debentures to
Securityholders by the Series A Issuer would be a taxable event to the Series A
Issuer and each Securityholder, and each Securityholder would recognize gain or
loss as if the Securityholder had exchanged its Series A Capital Securities for
the Series A Subordinated Debentures it received upon the liquidation of the
Series A Issuer. A Securityholder will include interest in income in respect of
Series A Subordinated Debentures received from the Series A Issuer in the manner
described above under "-- Interest Income and Original Issue Discount."
SALE OR REDEMPTION OF SERIES A CAPITAL SECURITIES
A Securityholder that sells (including a redemption for cash) Series A
Capital Securities will recognize gain or loss equal to the difference between
its adjusted tax basis in the Series A Capital Securities and the amount
realized on the sale of such Series A Capital Securities. Assuming that the
Corporation does not exercise its option to defer payment of interest on the
Series A Subordinated Debentures, a Securityholder's adjusted tax basis in the
Series A Capital Securities generally will be its initial purchase price. If the
Series A Subordinated Debentures are deemed to be issued with OID, as a result
of the Corporation's deferral of interest payments, a Securityholder's adjusted
tax basis in the Series A Capital Securities generally will be its
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<PAGE> 28
initial purchase price, increased by OID previously includible in such
Securityholder's gross income to the date of disposition and decreased by
Distributions or other payments received on the Series A Capital Securities
since and including the date of the first Extension Period. Such gain or loss
generally will be a capital gain or loss (except to the extent any amount
realized is treated as a payment of accrued interest with respect to such
Securityholder's pro rata share of the Series A Subordinated Debentures required
to be included in income) and generally will be a long-term capital gain or loss
if the Series A Capital Securities have been held for more than one year.
Should the Corporation exercise its option to defer any payment of interest
on the Series A Subordinated Debentures, the Series A Capital Securities may
trade at a price that does not accurately reflect the value of accrued but
unpaid interest with respect to the underlying Series A Subordinated Debentures.
In the event of such a deferral, a Securityholder who disposes of its Series A
Capital Securities between record dates for payments of distributions thereon
will be required to include in income as ordinary income accrued but unpaid
interest on the Series A Subordinated Debentures to the date of disposition and
to add such amount to its adjusted-tax basis in its Series A Capital Securities.
To the extent the selling price is less than the Securityholder's adjusted-tax
basis, such holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest income paid and OID accrued on the Series A Capital
Securities held of record by United States Persons (other than corporations and
other exempt Securityholders) will be reported to the IRS. "Backup" withholding
at a rate of 31% will apply to payments of interest to nonexempt 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 Series A 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 IRS.
It is anticipated that income on the Series A Capital Securities will be
reported to holders on Form 1099 and mailed to holders of the Series A Capital
Securities by January 31 following each calendar year.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill, the revenue portion of
President Clinton's budget proposal, was introduced in the 104th Congress. If it
had been enacted, the Revenue Reconciliation Bill would have generally denied
interest deductions for interest on an instrument issued by a corporation with a
maximum term of more than 20 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. The above-described provision of the
Revenue Reconciliation Bill was proposed to be effective generally for
instruments issued on or after December 7, 1995. If a similar provision were to
apply to the Series A Subordinated Debentures, the Corporation would unable to
deduct interest on the Series A Subordinated Debentures. However, on March 29,
1996, the Chairmen of the Senate Finance and House Ways and Means Committees
issued a joint statement to the effect that it was their intention that the
effective date of the President's legislative proposals, if adopted, will be no
earlier than the date of appropriate Congressional action. Under current law,
the Corporation will be able to deduct interest on the Series A
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<PAGE> 29
Subordinated Debentures. Although the 104th Congress adjourned without enacting
the above-described provision of the Revenue Reconciliation Bill, there can be
no assurance that current or future legislative proposals or final legislation
will not affect the ability of the Corporation to deduct interest on the Series
A Subordinated Debentures. Such a change could give rise to a Tax Event, which
may permit the Corporation to cause a redemption of the Series A Capital
Securities, as described more fully under "Description of Capital
Securities -- Redemption or Exchange."
S-29
<PAGE> 30
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated January 31, 1997 (the "Underwriting Agreement"), the Corporation and the
Series A Issuer have agreed that the Series A Issuer will sell to each of the
Underwriters named below, and each of such Underwriters has severally agreed to
purchase from the Series A Issuer, the respective number of Series A Capital
Securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
CAPITAL
UNDERWRITER SECURITIES
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation...................... 75,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 75,000
-------
Total............................................. 150,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to take and pay for all the Series A Capital
Securities offered hereby, if any are taken.
The Underwriters propose to offer the Series A Capital Securities 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 of $6.00 per Series A Capital Security. The Underwriters may allow,
and such dealers may reallow, a discount of $2.50 per Series A Capital Security
on sales to certain other dealers. After the Series A Capital Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
In view of the fact that the proceeds from the sale of the Series A Capital
Securities will be used to purchase the Series A Subordinated Debentures issued
by the Corporation, the Underwriting Agreement provides that the Corporation
will pay as Underwriters' compensation for the Underwriters' arranging the
investment therein of such proceeds an amount of $10.00 per Series A Capital
Security for the accounts of the several Underwriters.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Series A Capital Securities offered hereby as interests in
a direct participation program, the offering is being made in compliance with
Rule 2810 of the NASD's Conduct Rules. Offers and sales of Series A Capital
Securities will be made only to (i) "qualified institutional buyers", as defined
in Rule 144A under the Securities Act of 1933, as amended (the "Act") or (ii)
institutional "accredited investors", as defined in Rule 501(a)(1)-(3) of
Regulation D under the Act. The underwriters may not confirm sales to any
accounts over which they exercise discretionary authority without prior written
approval of the transaction by the customer.
The Corporation, the Guarantor and the Series A Issuer have agreed that,
during the period beginning from the date of the Underwriting Agreement and
continuing to and including the earlier of (i) the termination of trading
restrictions on the Series A Capital Securities, as determined by the
Underwriters, and (ii) the closing date, they will not offer, sell, contract to
sell or otherwise dispose of any Series A Capital Securities, any other
beneficial interests in the assets of any Issuer, or any preferred securities or
any other securities of any Issuer or the Corporation which are substantially
similar to the Series A Capital Securities, including any guarantee of such
securities, or any securities convertible into or exchangeable for or
representing the right to receive preferred securities or any such substantially
similar securities of either any Issuer or the Corporation, without the prior
written consent of the Underwriters, except for the Series A Capital Securities
offered in connection with this offering.
The Series A Capital Securities are a new issue of securities with no
established trading market. The Underwriters have advised the Corporation that
they intend to make a market in the Series A Capital Securities, but are not
obligated to do so and may discontinue market making at any time without notice.
No assurance can be given as to the liquidity of the trading market for the
Series A Capital Securities.
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<PAGE> 31
The Corporation, the Guarantor and the Series A Issuer have agreed to
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act of 1933, as amended, or contribute to
payments which 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 or commercial banking
services to the Corporation 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 Series A
Capital Securities, the enforceability of the Trust Agreement and the formation
of the Series A Issuer will be passed upon by Richards, Layton & Finger, One
Rodney Square, Wilmington, Delaware 19801, special Delaware counsel to the
Corporation and the Series A Issuer. The validity of the Series A Guarantee, the
Series A Additional Guarantee, the Series A Subordinated Debentures and the
Series A Debenture Guarantee will be passed upon for the Corporation by Sullivan
& Cromwell, 125 Broad Street, New York, New York 10004, and for the Underwriters
by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), 425 Lexington Avenue, New York, New York 10017. The validity of
the Series A Additional Guarantee and the Series A Debenture Guarantee will be
passed upon as to matters of Puerto Rico law for the Corporation by Brunilda
Santos de Alvarez, Esq., counsel to the Guarantor. Sullivan & Cromwell and
Simpson Thacher & Bartlett will rely as to certain matters of Delaware law upon
the opinion of Richards, Layton & Finger and as to all matters of Puerto Rico
law upon the opinion of Brunilda Santos de Alvarez, Esq. Certain matters
relating to United States federal income tax considerations will be passed upon
for the Corporation by Sullivan & Cromwell.
S-31
<PAGE> 32
$150,000,000
BANPONCE FINANCIAL CORP.
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES FULLY AND
UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
BANPONCE CORPORATION
BANPONCE TRUST I
BANPONCE TRUST II
CAPITAL SECURITIES FULLY AND UNCONDITIONALLY
GUARANTEED, AS DESCRIBED HEREIN, BY
BANPONCE FINANCIAL CORP.
AND
BANPONCE CORPORATION
BanPonce Financial Corp., a Delaware corporation (the "Corporation"), may
from time to time offer in one or more series or issuances its junior
subordinated deferrable interest debentures (the "Junior Subordinated
Debentures"). The Corporation is an indirect, wholly owned subsidiary of
BanPonce Corporation, a Puerto Rico corporation (the "Guarantor"), and the
Junior Subordinated Debentures will be unconditionally guaranteed, on a junior
subordinated basis, as to the payment of principal, premium, if any, and
interest by the Guarantor (such guarantees, the "Debenture Guarantees"). The
Junior Subordinated Debentures and the Debenture Guarantees will be unsecured
and subordinate and junior in right of payment to all Senior Debt (as defined in
"Description of Junior Subordinated Debentures -- Subordination") of the
Corporation and the Guarantor, respectively. If provided in an accompanying
Prospectus Supplement, the Corporation will have the right to defer payments of
interest on any series of 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 circumstances, however, the
Corporation and the Guarantor 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 Corporation's or the Guarantor's capital stock or debt securities
that rank pari passu in all respects with or junior to such series of Junior
Subordinated Debentures or the Debenture Guarantees, respectively. See
"Description of Junior Subordinated Debentures -- Option to Defer Interest
Payments" and "-- Restrictions on Certain Payments."
BanPonce Trust I and BanPonce Trust II, each a statutory business trust
created under the laws of the State of Delaware (each, an "Issuer," and
collectively, the "Issuers"), may severally offer, from time to time, preferred
securities (the "Capital Securities") representing preferred beneficial
ownership interests in such Issuer. The Corporation will be the owner of the
common securities representing common ownership interests in such Issuer (the
"Common Securities" and, together with the Capital Securities, the "Trust
Securities"). Holders of the Capital Securities will be entitled to receive
preferential cumulative cash distributions ("Distributions") accumulating from
the date of original issuance and payable periodically as provided in an
accompanying Prospectus Supplement.
Concurrently with the issuance by an Issuer of its Capital Securities, such
Issuer will invest the proceeds thereof and of contributions received in respect
of the Common Securities in a corresponding series of the Corporation's Junior
Subordinated Debentures (the "Corresponding Junior Subordinated Debentures"),
guaranteed by the Guarantor's Debenture Guarantee, with terms corresponding to
the terms of that Issuer's Capital Securities (the "Related Capital
Securities"). The Corresponding Junior Subordinated Debentures and the related
Debenture Guarantee will be the sole assets of each Issuer, and payments under
the Corresponding Junior Subordinated Debentures and the related Debenture
Guarantee will be the only revenue of each Issuer. If provided in an
accompanying Prospectus Supplement, the Corporation may, upon receipt of prior
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve") (if such approval is then required by the Federal Reserve), redeem the
Corresponding Junior Subordinated Debentures (and cause the redemption of the
related Capital Securities) or may terminate each Issuer and cause the
Corresponding Junior Subordinated Debentures and the related Debenture Guarantee
to be distributed to the holders of the Related Capital Securities in
liquidation of their interests in such Issuer. See "Description of Capital
Securities -- Liquidation Distribution Upon Termination." (continued on next
page)
------------------
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 30, 1997.
<PAGE> 33
If provided in an accompanying Prospectus Supplement, the Corporation will
have the right to defer payments of interest on any series of Corresponding
Junior Subordinated Debentures. If interest payments are so deferred,
Distributions on the Related Capital Securities will also be deferred and the
Corporation and the Guarantor will not be permitted, subject to certain
exceptions set forth herein, to declare or pay any cash distributions with
respect to the Corporation's or the Guarantor's capital stock or debt securities
that rank pari passu in all respects with or junior to the Corresponding Junior
Subordinated Debentures or Debenture Guarantees thereon, respectively. During an
Extension Period, Distributions will continue to accumulate (and the Related
Capital Securities will accumulate additional Distributions thereon at the rate
per annum set forth in the related Prospectus Supplement). See "Description of
Capital Securities -- Distributions."
Taken together, the Corporation's and the Guarantor's obligations under
each series of Junior Subordinated Debentures, the Indenture, the related Trust
Agreement, the related Expense Agreement, the related Debenture Guarantee, the
related Additional Guarantee and the related Guarantee (each, as defined
herein), in the aggregate, provide a full, irrevocable and unconditional
guarantee of payments of Distributions and other amounts due on the Related
Capital Securities. See "Relationship Among the Capital Securities, the
Corresponding Junior Subordinated Debentures, the Expense Agreements, the
Guarantees and the Additional Guarantees -- Full and Unconditional Guarantee."
The payment of Distributions with respect to the Capital Securities of each
Issuer and payments on liquidation or redemption with respect to such Capital
Securities, in each case out of funds held by such Issuer, are each irrevocably
guaranteed by the Corporation and the Guarantor, to the extent described herein
(each, a "Guarantee"). See "Description of Guarantees and Additional
Guarantees." The obligations of each of the Corporation and the Guarantor under
each of the Guarantee, the Debenture Guarantee and the Additional Guarantee will
be subordinate and junior in right of payment to all Senior Debt of the
Corporation and the Guarantor, respectively.
The Junior Subordinated Debentures and Capital Securities 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 Junior
Subordinated Debentures (other than Corresponding Junior Subordinated
Debentures) and Capital Securities (including the Corresponding Junior
Subordinated Debentures) issued pursuant to the Registration Statement of which
this Prospectus forms a part shall not exceed $150,000,000. Certain specific
terms of the Junior Subordinated Debentures or Capital Securities in respect of
which this Prospectus is being delivered will be described in an accompanying
Prospectus Supplement, including without limitation and where applicable and to
the extent not set forth herein, (a) in the case of Junior Subordinated
Debentures, the specific designation, aggregate principal amount, denominations,
Stated Maturity (including any provisions for the shortening or extension
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, and (b) in the case of Capital Securities, the identity of the
Issuer, specific title, aggregate amount, stated liquidation amount, number of
securities, Distribution rate or method of calculating such rate, 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.
The Prospectus Supplement also will contain information, as applicable,
about certain United States Federal income tax consequences relating to the
Junior Subordinated Debentures or Capital Securities.
The Junior Subordinated Debentures and Capital Securities 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 Junior Subordinated
Debentures or Capital Securities 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 Junior Subordinated Debentures or Capital Securities will be
listed on any national securities exchange or traded on any automated quotation
system. If the Junior Subordinated Debentures or Capital Securities are not
listed on any national securities exchange or traded on any automated quotation
system, there can be no assurance that there will be a secondary market for the
Junior Subordinated Debentures or Capital Securities.
This Prospectus may not be used to consummate sales of Junior Subordinated
Debentures or Capital Securities unless accompanied by a Prospectus Supplement.
2
<PAGE> 34
AVAILABLE INFORMATION
The Guarantor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
The Guarantor, the Corporation and the Issuers have filed with the
Commission a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Guarantor, the Corporation and the securities offered hereby,
reference is made to the Registration Statement and the exhibits and the
financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission at the addresses set forth above or
through the Commission's home page on the Internet. Statements made in this
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete, and in each instance are qualified in all respects by
reference to the copy of such document filed as an exhibit to the Registration
Statement.
No separate financial statements of any Issuer have been included herein.
The Guarantor, the Corporation and the Issuers do not consider that such
financial statements would be material to holders of the Capital Securities
because each 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 Corresponding
Junior Subordinated Debentures of the Corporation and the related Debenture
Guarantees of the Guarantor and issuing the Trust Securities. Furthermore, taken
together, the Corporation's and the Guarantor's obligations under each series of
Corresponding Junior Subordinated Debentures, the Indenture, the related Trust
Agreement, the related Expense Agreement, the related Debenture Guarantee, the
related Additional Guarantee and the related Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Related Capital Securities of an
Issuer. See "The Issuers," "Description of Capital Securities," "Description of
Junior Subordinated Debentures -- Corresponding Junior Subordinated Debentures"
and "Description of Guarantees and Additional Guarantees." In addition, the
Corporation does not expect that any of the Issuers will be filing reports under
the Exchange Act with the Commission.
As an indirect, wholly owned subsidiary of the Guarantor, the Corporation
does not file reports under the Exchange Act with the Commission, and does not
expect to do so in the future. Certain financial disclosure by the Corporation
is contained in the footnotes to the financial statements of the Guarantor,
which are filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Guarantor with the Commission are
incorporated into this Prospectus by reference:
1. the Guarantor's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. the Guarantor's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996; and
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<PAGE> 35
3. the Guarantor's Current Reports on Form 8-K dated January 11, April
9, May 6, July 9, August 30, October 9, 1996 and January 9, 1997.
Each document or report filed by the Guarantor pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated or
deemed to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Guarantor will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein (other
than exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to Amilcar Jordan,
Senior Vice President, BanPonce Corporation, P.O. Box 362708, San Juan, Puerto
Rico 00936-2708, telephone number (787) 765-9800.
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<PAGE> 36
THE CORPORATION
The Corporation was organized in 1991 under the laws of the State of
Delaware and is an indirect, wholly owned subsidiary of the Guarantor. The
Corporation is a wholly owned subsidiary of Popular International Bank, Inc.
("PIB"), which is a wholly owned subsidiary of the Guarantor, organized in 1992
under the laws of the Commonwealth of Puerto Rico and operating as an
"international banking entity" under the International Banking Center Regulatory
Act of Puerto Rico (the "IBC Act"). The principal executive office of the
Corporation is 521 Fellowship Road, Mt. Laurel, New Jersey 08054, and its
telephone number is (609) 273-1119.
The Corporation owns all of the common stock of Pioneer Bancorp, Inc., a
corporation organized under the laws of the State of Delaware and headquartered
in Chicago, Illinois, and a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), which through its
wholly owned subsidiary River Associates Bancorp, Inc., a Delaware corporation,
owns Banco Popular, Illinois (formerly Pioneer Bank & Trust Company), a bank
organized under the laws of the State of Illinois with five branches in that
state. The deposits of Banco Popular, Illinois are insured by the Federal
Deposit Insurance Corporation (the "FDIC"). As of December 31, 1996, the assets
of Banco Popular, Illinois were $467.4 million and its deposits were $375.3
million.
The Corporation owns all of the common stock of COMBANCORP, a corporation
organized under the laws of California and headquartered in Los Angeles, and a
registered bank holding company under the BHC Act. COMBANCORP owns Banco
Popular, N.A. (California) ("Banco Popular (California)"), a national bank with
four branches in California. The deposits of Banco Popular (California) are also
insured by the FDIC. As of December 31, 1996, it had assets of $139.5 million
and deposits of $100.9 million.
The Corporation is also the direct owner of all the common stock of Banco
Popular, FSB, a federal savings bank which acquired from the Resolution Trust
Corporation certain assets and all of the deposits of four New Jersey branches
of the former Carteret Federal Savings Bank, a federal savings bank under
Resolution Trust Corporation (the "RTC") conservatorship. The deposits of Banco
Popular, FSB are insured by the FDIC. As a result of the ownership of Banco
Popular, Illinois and Banco Popular (California), the Corporation and PIB are
registered bank holding companies under the BHC Act.
Banco Popular, FSB owns Equity One, Inc., a Delaware corporation (formerly
Spring Financial Services, Inc.) ("Equity One"). Equity One is a diversified
consumer finance company engaged in the business of granting personal and
mortgage loans and providing dealer financing through 102 offices in 28 states
with total assets of $1.1 billion as of December 31, 1996. Equity One had
initially been acquired by the Corporation on September 30, 1991, prior to which
time the Corporation had no significant business operations.
Summarized consolidated financial statements of the Corporation are
included in the notes to the Guarantor's consolidated financial statements.
THE GUARANTOR
The Guarantor is a bank holding company registered under the BHC Act and
incorporated in 1984 under the laws of the Commonwealth of Puerto Rico ("Puerto
Rico"). The Guarantor is the largest financial institution in Puerto Rico, with
consolidated assets of $16.7 billion, total deposits of $10.8 billion and
stockholders' equity of $1.3 billion as of December 31, 1996. Based on total
assets at September 30, 1996, the Guarantor was the 42nd largest bank holding
company in the United States. The Guarantor's principal executive offices are
located at 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918 and its
telephone number is (787) 765-9800.
The Guarantor's principal subsidiary, Banco Popular de Puerto Rico ("Banco
Popular" or the "Bank"), was incorporated over 100 years ago in 1893 and is
Puerto Rico's largest bank with total assets of $14.0 billion, deposits of $10.1
billion and stockholders' equity of $1.0 billion at December 31, 1996. The Bank
accounted for 84% of the total consolidated assets of the Guarantor at December
31, 1996. A consumer-oriented bank, Banco Popular has the largest retail
franchise in Puerto Rico, operating 178 branches and 327 automated teller
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<PAGE> 37
machines on the island. The Bank also has the largest trust operation in Puerto
Rico and is a leader in the mortgage banking business. In addition, it operates
the largest Hispanic bank branch network in the mainland United States with 29
branches in New York and an agency in Chicago. As of December 31, 1996, these
branches had a total of approximately $1.5 billion in deposits. The Bank also
operates seven branches in the U.S. Virgin Islands and one branch in the British
Virgin Islands. Banco Popular has three subsidiaries: Popular Leasing & Rental
Inc., Puerto Rico's largest vehicle leasing and daily rental company, Popular
Consumer Services, Inc., a small-loan and secondary mortgage company with 38
offices in Puerto Rico operating under the name of Best Finance, and Popular
Mortgage, Inc., a mortgage loan company with four offices in Puerto Rico
operating under the name of Puerto Rico Home Mortgage.
The Guarantor has two other principal subsidiaries: BP Capital Markets and
PIB, which in turn owns all of the outstanding stock of the Corporation. BP
Capital Markets is a direct subsidiary of the Guarantor and engages in the
business of a securities broker-dealer in Puerto Rico, with institutional
brokerage, financial advisory, and investment and security brokerage operations.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES OF THE GUARANTOR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding Interest on Deposits............................ 2.0 2.0 2.6 3.0 2.9
Including Interest on Deposits............................ 1.4 1.4 1.5 1.5 1.3
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends:
Excluding Interest on Deposits............................ 2.0 2.0 2.5 3.0 2.9
Including Interest on Deposits............................ 1.4 1.4 1.5 1.5 1.3
</TABLE>
For purposes of computing these consolidated ratios, earnings represent
income before income taxes, cumulative effect of a change in accounting
principles and equity in undistributed income of unconsolidated subsidiaries and
affiliates, plus fixed charges excluding capitalized interest. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits), the portion of net rental expense which is
deemed representative of the interest factor, the amortization of debt issuance
expense and capitalized interest.
SUPERVISION AND REGULATION
GENERAL
Each of the Corporation, the Guarantor and PIB are bank holding companies
subject to supervision and regulation by the Federal Reserve under the BHC Act.
As a bank holding company, the Corporation's, the Guarantor's and PIB's
activities and those of their banking and nonbanking subsidiaries are limited to
the business of banking and activities closely related or incidental to banking,
and neither the Corporation, the Guarantor or PIB may directly or indirectly
acquire the ownership or control of more than 5% of any class of voting shares
or substantially all of the assets of any company in the United States,
including a bank, without the prior approval of the Federal Reserve. In
addition, bank holding companies are generally prohibited under the BHC Act from
engaging in nonbanking activities, subject to certain exceptions.
Banco Popular is considered a foreign bank for purposes of the
International Banking Act of 1978, as amended (the "IBA"). Under the IBA, Banco
Popular is not permitted to operate a branch or agency that is located outside
of its "home state" except to the extent that a national bank with the same home
state is permitted to do so as described under "-- Interstate Banking
Legislation" below. Puerto Rico is not considered a state for purposes of these
geographic limitations. Banco Popular has designated the state of New York as
its home state. In addition, some states have laws prohibiting or restricting
foreign banks from acquiring banks located in such states and treat Puerto
Rico's banks and bank holding companies as foreign banks for such purposes.
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<PAGE> 38
Banco Popular, Banco Popular, Illinois, Banco Popular (California) and
Banco Popular, FSB are subject to supervision and examination by applicable
federal and state banking agencies including, in the case of Banco Popular, the
Federal Reserve and the Office of the Commissioner of Financial Institutions of
Puerto Rico, in the case of Banco Popular, Illinois, the FDIC and the Illinois
Commissioner of Banks and Trust Companies, in the case of Banco Popular
(California), the Office of the Comptroller of the Currency (the "OCC") and in
the case of Banco Popular, FSB, the Office of Thrift Supervision (the "OTS") and
the FDIC. Banco Popular, Banco Popular, Illinois, Banco Popular (California) and
Banco Popular, FSB are subject to requirements and restrictions under federal
and state law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be granted and the
interest that may be charged thereon, and limitations on the types of other
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of Banco
Popular, Banco Popular, Illinois, Banco Popular (California) and Banco Popular,
FSB. In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve as it attempts to control
the money supply and credit availability in order to influence the economy.
HOLDING COMPANY STRUCTURE
Banco Popular, Banco Popular, Illinois, Banco Popular (California) and
Banco Popular, FSB are subject to restrictions under federal law that limit the
transfer of funds between them and the Corporation, the Guarantor and PIB and
the Guarantor's other nonbanking subsidiaries, whether in the form of loans,
other extensions of credit, investments or asset purchases. Such transfers by
Banco Popular, Banco Popular, Illinois, Banco Popular (California) or Banco
Popular, FSB, respectively, to the Corporation, the Guarantor or PIB, as the
case may be, or to any one nonbanking subsidiary, are limited in amount to 10%
of the transferring institution's capital stock and surplus and, with respect to
the Guarantor and all of its nonbanking subsidiaries, to an aggregate of 20% of
the transferring institution's capital stock and surplus. Furthermore, such
loans and extensions of credit are required to be secured in specified amounts.
Under Federal Reserve policy, a bank holding company, such as the
Corporation, the Guarantor or PIB, is expected to act as a source of financial
strength to each of its subsidiary banks and to commit resources to support each
such subsidiary bank. This support may be required at times when, absent such
policy, the bank holding company might not otherwise provide such support. In
addition, any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary depository institution
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Banco Popular, Banco Popular, Illinois, Banco Popular (California) and Banco
Popular, FSB are currently the only subsidiary depository institutions of the
Corporation, the Guarantor and PIB.
Because the Corporation, the Guarantor and PIB are holding companies, their
right to participate in the assets of any subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of the
subsidiary's creditors (including depositors in the case of depository
institution subsidiaries) except to the extent that the Corporation, the
Guarantor and PIB, as the case may be, may itself be a creditor with recognized
claims against the subsidiary.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution (which term includes both banks and savings associations), the
deposits of which are insured by the FDIC, can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined generally as the appointment of a conservator or a receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. Banco Popular, Banco Popular, Illinois, Banco Popular (California)
and Banco Popular, FSB are currently the only controlled FDIC-insured depository
institutions of the Guarantor. In some circumstances (depending upon the amount
of the loss or anticipated loss suffered by the FDIC), cross-guarantee liability
may result in the ultimate failure or insolvency of one or more insured
depository institutions in a holding
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<PAGE> 39
company structure. Any obligation or liability owned by a subsidiary depository
institution to its parent company is subordinated to the subsidiary bank's
cross-guarantee liability with respect to commonly controlled insured depository
institutions.
CAPITAL ADEQUACY
Under the Federal Reserve's risk-based capital guidelines for bank holding
companies and member banks, the minimum guidelines for the ratio of qualifying
total capital ("Total capital") to risk-weighted assets (including certain
off-balance sheet items, such as standby letters of credit) is 8%. At least half
of the Total capital is to be comprised of common equity, retained earnings,
minority interests in unconsolidated subsidiaries, noncumulative perpetual
preferred stock and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets discussed below ("Tier 1
Capital"). The remainder may consist of a limited amount of subordinated debt,
other preferred stock, certain other instruments and a limited amount of loan
and lease loss reserves ("Tier 2 Capital").
The Federal Reserve has adopted regulations that require most intangibles,
including core deposit intangibles, to be deducted from Tier 1 Capital. The
regulations, however, permit the inclusion of a limited amount of intangibles
related to purchased mortgage servicing rights and purchased credit card
relationships and include a "grandfather" provision permitting the continued
inclusion of certain existing intangibles.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies and member banks. These guidelines provide
for a minimum ratio of Tier 1 Capital to total assets, less goodwill and certain
other intangible assets discussed below (the "leverage ratio") of 3% for bank
holding companies and member banks that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies and member banks will be required to maintain a leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. Furthermore, the guidelines indicate that the Federal Reserve will
continue to consider a "tangible Tier 1 leverage ratio" and other indicia of
capital strength in evaluating proposals for expansion or new activities. The
tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier 1
Capital, less all intangibles, to total assets, less all intangibles.
Under the Federal Reserve's requirements, the Guarantor's and Banco
Popular's capital ratios at December 31, 1996 are set forth below:
<TABLE>
<CAPTION>
GUARANTOR BANCO POPULAR
--------- -------------
<S> <C> <C>
Tier 1 Capital.............................................. 11.59% 11.20%
Total Capital............................................... 14.15% 12.45%
Leverage ratio.............................................. 6.70% 6.61%
</TABLE>
Banco Popular, Illinois, Banco Popular (California) and Banco Popular, FSB
are subject to similar capital requirements adopted by the FDIC, the OCC and the
OTS, respectively.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "FDICIA" below.
Bank regulators have in the past indicated their desire to raise capital
requirements applicable to banking organizations beyond current levels. However,
management is unable to predict whether and when high capital requirements would
be imposed and, if so, at what levels or on what schedule.
FDICIA
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), federal banking regulators must take prompt corrective action in
respect of depository institutions that do not meet minimum capital
requirements. FDICIA and regulations thereunder establish five capital tiers:
"well
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<PAGE> 40
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." A depository institution
is deemed well capitalized if it maintains a leverage ratio of at least 5%, a
risk-based Tier 1 capital ratio of at least 6% and a risk-based Total capital
ratio of at least 10% and is not subject to any written agreement or directive
to meet a specific capital level. A depository institution is deemed adequately
capitalized if it is not well capitalized but maintains a leverage ratio of at
least 4% (or at least 3% if given the highest regulatory rating and not
experiencing or anticipating significant growth), a risk-based Tier 1 capital
ratio of at least 4% and a risk-based Total capital ratio of at least 8%. A
depository institution is deemed undercapitalized if it fails to meet the
standards for adequately capitalized institutions (unless it is deemed
significantly or critically undercapitalized). An institution is deemed
significantly undercapitalized if it has a leverage ratio of less than 3%, a
risk-based Tier 1 capital ratio of less than 3% or a risk-based Total capital
ratio of less than 6%. An institution is deemed critically undercapitalized if
it has tangible equity equal to 2% or less of total assets. A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives a less than
satisfactory examination rating in any one of four categories.
At December 31, 1996, Banco Popular, Banco Popular, Illinois, Banco Popular
(California), and Banco Popular, FSB were well capitalized. An institution's
capital category, as determined by applying the prompt corrective action
provisions of law, may not constitute an accurate representation of the overall
financial condition or prospects of the Guarantor or its banking subsidiaries,
and should be considered in conjunction with other available information
regarding the Guarantor's financial condition and results of operations.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized. Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
The capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions such as
the banking and savings association subsidiaries of the Corporation, the
Guarantor and PIB, but they are not directly applicable to holding companies,
such as the Corporation, the Guarantor or PIB, which control such institutions.
However, federal banking agencies have indicated that, in regulating holding
companies, they may take appropriate action at the holding company level based
on their assessment of the effectiveness of supervisory actions imposed upon
subsidiary insured depository institutions pursuant to such provisions and
regulations.
INTERSTATE BANKING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits bank holding companies, with Federal Reserve approval, to acquire banks
located in states other than the holding company's home state without regard to
whether the transaction is prohibited under state law. In addition, commencing
June 1, 1997, national and state banks with different home states will be
permitted to merge across state lines, with approval of the appropriate federal
banking agency, unless the home state of a participating bank passes legislation
prior to May 31, 1997 expressly prohibiting interstate mergers. States may "opt
in" to permit interstate branching by merger prior to June 1, 1997, and to
permit de novo interstate branching. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
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<PAGE> 41
acquire additional branches at any location in the state where any bank involved
in the interstate merger transaction could have established or acquired branches
under applicable federal or state law. A bank that has established a branch in a
state through de novo branching may establish and acquire additional branches in
such state in the same manner and to the same extent as a bank having a branch
in such state as a result of an interstate merger. If a state opts out of
interstate branching within the specified time period, no bank in any other
state may establish a branch in the state which has opted out, whether through
an acquisition or de novo. A foreign bank, like Banco Popular, may branch
interstate by merger or de novo to the same extent as domestic banks in the
foreign bank's home state, which, in the case of Banco Popular, is New York.
Various other legislation, including proposals to overhaul the bank
regulatory system, expand bank and bank holding company powers and limit the
investments that a depository institution may make with insured funds, is from
time to time introduced in Congress. The Corporation and the Guarantor cannot
determine the ultimate effect that such potential legislation, if enacted, or
implementing regulations, would have upon their financial condition or results
of operations.
DIVIDEND RESTRICTIONS
The principal source of cash flow for the Guarantor is dividends from Banco
Popular. Various statutory provisions limit the amount of dividends Banco
Popular can pay to the Guarantor without regulatory approval. As a member bank
subject to the regulation of the Federal Reserve, Banco Popular must obtain the
approval of the Federal Reserve for any dividend if the total of all dividends
declared by the bank in any calendar year would exceed the total of its net
profits, as defined by the Federal Reserve, for that year, combined with its
retained net profits for the preceding two years. In addition, a member bank may
not pay a dividend in an amount greater than its undivided profits then on hand
after deducting its losses and bad debts. For this purpose, bad debts are
generally defined to include the principal amount of loans that are in arrears
with respect to interest by six months or more unless such loans are fully
secured and in the process of collection. Moreover, for purposes of this
limitation, a member bank is not permitted to add the balance in its allowance
for loan losses account to its undivided profits then on hand. A member bank
may, however, net the sum of its bad debts as so defined against the balance in
its allowance for loan losses account and deduct from undivided profits only bad
debts as so defined in excess of that amount. At December 31, 1996, Banco
Popular could have declared a dividend of approximately $197.1 million without
the approval of the Federal Reserve. Illinois law contains similar limitations
on the amount of dividends that Banco Popular, Illinois can pay and the National
Bank Act contains similar limitations, on the amount of dividends that Banco
Popular (California) can pay. In addition, OTS regulations limit the amount of
capital distributions (whether by dividend or otherwise) that any savings
association may make without prior OTS approval, based upon the savings
association's regulatory capital levels. These limitations are applicable to
Banco Popular, FSB. Also, in connection with the acquisition by Banco Popular,
FSB from the RTC of four New Jersey branches of the former Carteret Federal
Savings Bank, the RTC provided Banco Popular, FSB and the Corporation interim
financial assistance. See "The Corporation" above. Pursuant to the terms of such
financing, evidenced by a promissory note (which matures on January 20, 2000 but
is prepayable any time before then), Banco Popular, FSB may not, among other
things, declare or pay any dividends on its outstanding capital stock (unless
such dividends are used exclusively for payment of principal of or interest on
such promissory note) or make any distributions of its assets in full of such
promissory note.
The payment of dividends by Banco Popular, Banco Popular, Illinois, Banco
Popular (California) or Banco Popular, FSB may also be affected by other
regulatory requirements and policies, such as the maintenance of adequate
capital. If, in the opinion of the applicable regulatory authority, a depository
institution under its jurisdiction is engaged in, or is about to engage in, an
unsafe or unsound practice (that, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such depository institution cease
and desist from such practice. The Federal Reserve has issued a policy statement
that provides that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings. In addition, all insured
depository institutions are subject to the capital-based limitations required by
FDICIA. See "FDICIA."
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See "Supervision and Regulation -- Puerto Rico Regulation" for a
description of certain restrictions on Banco Popular's ability to pay dividends
under Puerto Rico law.
FDIC INSURANCE ASSESSMENTS
Banco Popular, Banco Popular, Illinois, Banco Popular (California) and
Banco Popular, FSB are subject to FDIC deposit insurance assessments.
Pursuant to FDICIA, the FDIC has adopted a risk-based assessment system,
under which the assessment rate for an insured depository institution varies
according to the level of risk incurred in its activities. An institution's risk
category is based partly upon whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. Each insured
depository institution is also assigned to one of the following "supervisory
subgroups": "A", "B" or "C". Group "A" institutions are financially sound
institutions with only a few minor weaknesses; group "B" institutions are
institutions that demonstrate weaknesses that, if not corrected, could result in
significant deterioration; and group "C" institutions are institutions for which
there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness.
The FDIC reduced the insurance premiums it charges on bank deposits insured
by the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000.00 for
"well capitalized" banks, effective January 1, 1996. On September 30, 1996, the
Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed into law.
DIFA repealed the statutory minimum premium, and currently premiums related to
deposits assessed by both the BIF and the Savings Association Insurance Fund
("SAIF") are to be assessed at a rate of between 0 cents and 27 cents per
$100.00 of deposits. DIFA also provides for a special one-time assessment
imposed on deposits insured by the SAIF to recapitalize the SAIF to bring the
SAIF up to statutory required levels. The Guarantor accrued for the one-time
assessment in the third quarter of 1996.
DIFA also separates, effective January 1, 1997, the Financing Corporation
("FICO") assessment to service the interest on its bond obligations from the BIF
and SAIF assessments. The amount assessed on individual institutions by the FICO
will be in addition to the amount, if any, paid for deposit insurance according
to the FDIC's risk-related assessment rate schedules. FICO assessment rates for
the first semiannual period of 1997 were set at 1.30 basis points annually for
BIF-assessable deposits and 6.48 basis points annually for SAIF-assessable
deposits. (These rates may be adjusted quarterly to reflect changes in
assessment bases for the BIF and the SAIF. By law, the FICO rate on
BIF-assessable deposits must be one-fifth the rate on SAIF-assessable deposits
until the insurance funds are merged or until January 1, 2000, whichever occurs
first.) As of December 31, 1996, the Guarantor had a BIF deposit assessment base
of approximately $10.1 billion and a SAIF deposit assessment base of
approximately $207 million.
BROKERED DEPOSITS
FDIC regulations adopted under FDICIA govern the receipt of brokered
deposits. Under these regulations, a bank cannot accept, roll over or renew
brokered deposits (which term is defined also to include any deposit with an
interest rate more than 75 basis points above prevailing rates) unless (i) it is
well capitalized, or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank that is adequately capitalized may not pay an interest
rate on any deposits in excess of 75 basis points over certain prevailing market
rates specified by regulation. There are no such restrictions on a bank that is
well capitalized. The Guarantor does not believe the brokered deposits
regulation has had or will have a material effect on the funding or liquidity of
Banco Popular, Banco Popular, Illinois, Banco Popular (California) or Banco
Popular, FSB.
PUERTO RICO REGULATION
General
As a commercial bank organized under the laws of the Commonwealth, Banco
Popular is subject to supervision, examination and regulation by the Office of
the Commissioner of Financial Institutions of the
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Commonwealth (the "Office of the Commissioner"), pursuant to the Puerto Rico
Banking Act of 1933, as amended (the "Banking Law").
Section 27 of the Banking Law requires that at least ten percent (10%) of
the yearly net income of the Bank be credited annually to a reserve fund. This
apportionment shall be done every year until the reserve fund shall be equal to
ten percent (10%) of the total deposits or the total paid-in capital, whichever
is greater. At the end of its most recent fiscal year, Banco Popular had an
adequate reserve fund established.
Section 27 of the Banking Law also provides that when the expenditures of a
bank are greater than the receipts, the excess of the former over the latter
shall be charged against the undistributed profits of the bank, and the balance,
if any, shall be charged against the reserve fund, as a reduction thereof. If
there is no reserve fund sufficient to cover such balance in whole or in part,
the outstanding amount shall be charged against the capital account and no
dividend shall be declared until said capital has been restored to its original
amount and the reserve fund to 20% of the original capital.
Section 16 of the Banking Law requires every bank to maintain a legal
reserve which shall not be less than 20% of its demand liabilities, except
government deposits (federal, state and municipal) which are secured by actual
collateral. However, if a bank becomes a member of the Federal Reserve System,
the 20% legal reserve shall not be effective and the reserve requirements
demanded by the Federal Reserve System shall be applicable. However, pursuant to
an order of the Federal Reserve dated November 24, 1982, the Bank has been
exempted from such reserve requirements with respect to deposits payable in
Puerto Rico. As to those deposits, the Section 16 reserve requirements are
applicable.
Section 17 of the Banking Law permits the Bank to make loans to any one
person, firm, partnership or corporation, up to an aggregate amount of fifteen
percent (15%) of the paid-in capital and reserve fund of the Bank. As of
December 31, 1996, the legal lending limit for the Bank under this provision was
approximately $90 million. If such loans are secured by collateral worth at
least twenty-five percent (25%) more than the amount of the loan, the aggregate
maximum amount may reach one third of the paid-in capital of the Bank, plus its
reserve fund. There are no restrictions under Section 17 on the amount of loans
that are wholly secured by bonds, securities and other evidences of indebtedness
of the Government of the United States or the Commonwealth, or by current debt
bonds, not in default, of municipalities or instrumentalities of the
Commonwealth.
Section 14 of the Banking Law authorizes the Bank to conduct certain
financials and related activities directly or through subsidiaries, including
finance leasing of personal property, making and servicing mortgage loans and
operating a small-loan company. The Bank engages in these activities through its
wholly owned subsidiaries, Popular Leasing & Rental, Inc., Popular Mortgage,
Inc., and Popular Consumer Services, Inc., respectively, all of which are
organized and operate in Puerto Rico.
The Finance Board, which is a part of the Office of the Commissioner, but
also includes as its members the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the President of the Planning
Board, and the President of the Government Development Bank for Puerto Rico, has
the authority to regulate the maximum interest rates and finance charges that
may be charged on loans to individuals and unincorporated businesses in the
Commonwealth. The current regulations of the Finance Board provide that the
applicable interest rate on loans to individuals and unincorporated businesses
(including real estate development loans but excluding certain other personal
and commercial loans secured by mortgages on real estate properties) is to be
determined by free competition. The Finance Board also has authority to regulate
the maximum finance charges on retail installment sales contracts, which are
currently set at 21%, and for credit card purchases, which are currently set at
26%. There is no maximum rate set for installment sales contracts involving
motor vehicles, commercial, agricultural and industrial equipment, commercial
electric appliances and insurance premiums.
IBC Act
Under the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not amend its articles of incorporation or issue
additional shares of capital stock or other securities convertible into
additional
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shares of capital stock unless such shares are issued directly to the
shareholders of PIB previously identified in the application to organize the
international banking entity, in which case notification to the Office of the
Commissioner must be given within ten business days following the date of the
issue. Pursuant to the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not initiate the sale, encumbrance, assignment, merger or
other transfer of shares if by such transaction a person or persons acting in
concert could acquire direct or indirect control of 10% or more of any class of
the Company's stock. Such authorization must be requested at least 30 days prior
to the transaction.
The IBC Act empowers the Office of the Commissioner to revoke or suspend,
after a hearing, the license of an international banking entity if, among other
things, it fails to comply with the IBC Act, regulations issued by the Office of
the Commissioner or the terms of its license, or if the Office of the
Commissioner finds that the business of the international banking entity is
conducted in a manner not consistent with the public interest.
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THE ISSUERS
Each Issuer is a statutory business trust formed under Delaware law
pursuant to (i) a trust agreement executed by the Corporation, as Depositor of
the Issuer, the Guarantor and the Delaware Trustee (as defined herein) of such
Issuer and (ii) the filing of a certificate of trust with the Delaware Secretary
of State. Each trust agreement will be amended and restated in its entirety
(each, as so amended and restated, a "Trust Agreement") substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Each Trust Agreement will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Each 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 a series of Corresponding Junior Subordinated Debentures (with related
Debenture Guarantees) issued by the Corporation (and the Guarantor), and (iii)
engaging in only those other activities necessary or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the
Corresponding Junior Subordinated Debentures and the related Debenture Guarantee
will be the sole assets of each Issuer, and payments under the Corresponding
Junior Subordinated Debentures or the related Debenture Guarantee will be the
sole revenue of each Issuer.
All of the Common Securities of each Issuer will be owned by the
Corporation. The Common Securities of an Issuer will rank pari passu, and
payments will be made thereon pro rata, with the Capital Securities of such
Issuer, except that upon the occurrence and continuance of an event of default
under a Trust Agreement resulting from an event of default under the Indenture,
the rights of the Corporation, 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 such
Issuer. See "Description of Capital Securities -- Subordination of Common
Securities". The Corporation will acquire Common Securities in an aggregate
Liquidation Amount equal to not less than 3% of the total capital of each
Issuer.
Unless otherwise specified in the applicable Prospectus Supplement, each
Issuer has a term of approximately 55 years, but may terminate earlier as
provided in the applicable Trust Agreement. Each Issuer's business and affairs
are conducted by its trustees, each appointed by the Corporation as holder of
the Common Securities. The trustees for each Issuer will be The First National
Bank of Chicago, as Property Trustee (the "Property Trustee"), First Chicago
Delaware Inc., as Delaware Trustee (the "Delaware Trustee"), and two individual
trustees (the "Administrative Trustees") who are employees or officers of or
affiliated with the Corporation (collectively, the "Issuer Trustees"). The First
National Bank of Chicago, as Property Trustee, will act as sole indenture
trustee under each Trust Agreement for purposes of compliance with the Trust
Indenture Act. The First National Bank of Chicago will also act as trustee under
the Guarantees, the Additional Guarantees and the Indenture. See "Description of
Guarantees and Additional Guarantees" and "Description of Junior Subordinated
Debentures." The holder of the Common Securities of an Issuer, or the holders of
a majority in Liquidation Amount of the Related Capital Securities if an event
of default under the Trust Agreement for such Issuer has occurred and is
continuing, will be entitled to appoint, remove or replace the Property Trustee
and/or the Delaware Trustee for such Issuer. 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 each Issuer Trustee are
governed by the applicable Trust Agreement. The Corporation will pay all fees
and expenses related to each Issuer and the offering of the Capital Securities
and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of each Issuer.
The principal executive office of each Issuer is c/o BanPonce Financial
Corp., 521 Fellowship Road, Mt. Laurel, New Jersey 08054 and its telephone
number is (609) 273-1119.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, the
Corporation intends to use the proceeds from the sale of its Junior Subordinated
Debentures (including Corresponding Junior Subordinated Debentures issued to the
Issuers in connection with the investment by the Issuers of all of the proceeds
from the sale of Capital Securities) for general corporate purposes, including
working capital, acquisitions, capital
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expenditures, investments in or loans to subsidiaries, refinancing of debt,
including outstanding commercial paper and other short-term indebtedness, the
satisfaction of other obligations or for such other purposes as may be specified
in the applicable Prospectus Supplement.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued in one or more series
under a Junior Subordinated Indenture, as supplemented from time to time (as so
supplemented, the "Indenture"), among the Corporation, the Guarantor and The
First National Bank of Chicago, as trustee (the "Debenture Trustee"). This
summary of certain terms and provisions of the Junior Subordinated Debentures,
Corresponding 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 (as supplemented or
amended from time to time) are referred to herein or in a Prospectus Supplement,
such defined terms are incorporated herein or therein by reference.
GENERAL
Each series of 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 Corporation.
See " -- Subordination." Pursuant to the Debenture Guarantees, the Guarantor
will guarantee, on a junior subordinated basis, the punctual payment of the
principal of, premium, if any, and interest on the Junior Subordinated
Debentures, as the same are due and payable by the Corporation. See "Description
of Debenture Guarantees -- General." The obligations of the Guarantor under the
Debenture Guarantees are unsecured and rank subordinate and junior in right of
payment to all Senior Debt of the Guarantor. Each of the Corporation and the
Guarantor is a non-operating holding company and almost all of the operating
assets of the Corporation and the Guarantor and their consolidated subsidiaries
are owned by such subsidiaries. The Corporation and the Guarantor rely primarily
on dividends from such subsidiaries to meet their obligations. See "Supervision
and Regulation -- Dividend Restrictions." Because the Corporation and the
Guarantor are holding companies, the right of the Corporation or the Guarantor
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 the subsidiary, except to the extent the Corporation or
the Guarantor 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 Corporation's subsidiaries and the
Debenture Guarantees will be effectively subordinated to all existing and future
liabilities of the Guarantor's subsidiaries, and holders of Junior Subordinated
Debentures (with related Debenture Guarantees), should look only to the assets
of the Corporation and the Guarantor for payments on the Junior Subordinated
Debentures and Debenture Guarantees, respectively. Except as otherwise provided
in the applicable Prospectus Supplement, the Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Corporation or
the Guarantor, including Senior Debt, whether under the Indenture, any other
existing indenture or any other indenture that the Corporation or the Guarantor
may enter into in the future or otherwise. See " -- 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 a resolution of the
Corporation's Board of Directors or a committee thereof.
The applicable Prospectus Supplement or Prospectus Supplements 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 or dates on
which the principal of the Junior Subordinated Debentures is payable (the
"Stated Maturity") or the method of
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determination thereof; (4) the rate or rates, if any, 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 Corporation to defer or extend an Interest Payment Date, and the record
dates for any interest payable on any Interest Payment Date or the method by
which any of the foregoing shall be determined; (5) the place or places 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 or places where notices and demands to or
upon the Corporation in respect of the Junior Subordinated Debentures and the
Indentures may be made ("Place of Payment"); (6) any period or periods within
which or date or dates on which, the price or prices 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 Corporation or a holder thereof; (7) the
obligation or the right, if any, of the Corporation or a holder thereof to
redeem, purchase or repay the Junior Subordinated Debentures and the period or
periods within which, the price or prices at which, the currency or currencies
(including currency unit or 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 $1,000 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 and
additional interest accruing thereon ("Additional 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
Corporation 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 a series of Junior Subordinated
Debentures as shall be necessary to permit or facilitate the issuance of such
series 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 of such series
and the exchange of such temporary Global Security for definitive Junior
Subordinated Debentures of such series; (15) subject to the terms described
herein under "-- Global Junior Subordinated Debentures," whether the Junior
Subordinated Debentures of the series shall be issued in whole or in part in the
form of one or more Global Securities and, in such case, the depositary for such
Global Securities, which depositary 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 Corporation or a holder
to convert or exchange the Junior Subordinated Debentures into Capital
Securities; (18) the form of Trust Agreement, Guarantee Agreement and Expense
Agreement, if applicable; (19) the relative degree, if any, to which such Junior
Subordinated Debentures of the series shall be senior to or be subordinated to
other series of such Junior Subordinated Debentures or other indebtedness of the
Corporation in right of payment, whether such other series of Junior
Subordinated Debentures or other indebtedness are outstanding or not; and (20)
any other terms of the Junior Subordinated Debentures not inconsistent with the
provisions of the Indenture.
Junior Subordinated Debentures may be sold at a substantial discount below
their stated principal amount, bearing no interest or interest at a rate which
at the time of issuance is below market rates. Certain United States Federal
income tax consequences and special considerations applicable to any such Junior
Subordinated Debentures will be described in the applicable Prospectus
Supplement.
If the purchase price of any of the Junior Subordinated Debentures is
payable in one or more foreign currencies or currency units or if any Junior
Subordinated Debentures are denominated in one or more foreign currencies or
currency units or if the principal of, premium, if any, or interest, if any, on
any Junior Subordinated Debentures is payable in one or more foreign currencies
or currency units, the restrictions, elections, certain United States Federal
income tax consequences, specific terms and other information with
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respect to such series of Junior Subordinated Debentures and such foreign
currency or currency units will be set forth in the applicable Prospectus
Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of Junior Subordinated Debentures,
special United States Federal income tax, accounting and other considerations
applicable thereto will be described in the applicable Prospectus Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Junior Subordinated Debentures will be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. Junior
Subordinated Debentures of any series will be exchangeable for other Junior
Subordinated Debentures of the same issue and series, of any authorized
denominations, of a like aggregate principal amount, of the same original issue
date and Stated Maturity and bearing the same interest rate.
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 Corporation for such purpose with
respect to any series of Junior Subordinated Debentures and referred to in the
applicable Prospectus Supplement, without service charge and upon payment of any
taxes and other governmental charges as described in the Indenture. The
Corporation will appoint the Trustee as securities registrar under the
Indenture. If the applicable Prospectus Supplement refers to any transfer agents
(in addition to the securities registrar) initially designated by the
Corporation with respect to any series of Junior Subordinated Debentures, the
Corporation 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 Corporation maintains a transfer agent in each Place of
Payment for such series. The Corporation may at any time designate additional
transfer agents with respect to any series of Junior Subordinated Debentures.
In the event of any redemption, neither the Corporation nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures of any series during the 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.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures of a series may be issued in whole or in
part in the form of one or more Global Junior Subordinated Debentures that will
be deposited with, or on behalf of, a depositary (the "Depositary") identified
in the Prospectus Supplement relating to such series. Global Junior Subordinated
Debentures may be issued only in fully registered form and in either temporary
or permanent form. Unless and until it is exchanged in whole or in part for the
individual Junior Subordinated Debentures represented thereby, a Global Junior
Subordinated Debenture may not be transferred except as a whole by the
Depositary for such Global Junior Subordinated Debenture to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor
Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series
of Junior Subordinated Debentures will be described in the Prospectus Supplement
relating to such series. The Corporation anticipates that the following
provisions will generally apply to depositary arrangements.
Upon the issuance of a Global Junior Subordinated Debenture, and the
deposit of such Global Junior Subordinated Debenture with or on behalf of the
Depositary, the Depositary 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
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Junior Subordinated Debenture to the accounts of persons that have accounts with
such Depositary ("Participants"). Such accounts shall be designated by the
dealers, underwriters or agents with respect to such Junior Subordinated
Debentures or by the Corporation if such Junior Subordinated Debentures are
offered and sold directly by the Corporation. 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 applicable Depositary 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.
So long as the Depositary for a Global Junior Subordinated Debenture, or
its nominee, is the registered owner of such Global Junior Subordinated
Debenture, such Depositary 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 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 of the series 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 of such series 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 Depositary or its nominee will be made to
the Depositary 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 Corporation, the Guarantor, the Debenture Trustee, any
Paying Agent (as defined herein), 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 Corporation expects that the Depositary for a series of 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 Depositary or its nominee. The
Corporation 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 applicable Prospectus Supplement, if a
Depositary for a series of Junior Subordinated Debentures is at any time
unwilling, unable or ineligible to continue as depositary and the Corporation is
unable to locate a qualified successor, the Corporation will issue individual
Junior Subordinated Debentures of such series in exchange for the Global Junior
Subordinated Debenture representing such series of Junior Subordinated
Debentures. In addition, the Corporation may at any time and in its sole
discretion, subject to any limitations described in the Prospectus Supplement
relating to such Junior Subordinated Debentures, determine not to have any
Junior Subordinated Debentures of such series represented by one or more Global
Junior Subordinated Debentures and, in such event, will issue certificated
Junior Subordinated Debentures of such series in exchange for the Global Junior
Subordinated Debenture or Securities representing such series of Junior
Subordinated Debentures. Further, if the Corporation so specifies with respect
to the Junior Subordinated Debentures of a series, an owner of a beneficial
interest in a Global Junior Subordinated Debenture representing Junior
Subordinated Debentures of such series may, on terms accept-
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able to the Corporation, the Debenture Trustee and the Depositary for such
Global Junior Subordinated Debenture, receive certificated Junior Subordinated
Debentures of such series 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 certificated Junior Subordinated Debentures of the series 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 of such series so issued
will be issued in denominations, unless otherwise specified by the Corporation,
of $1,000 and integral multiples thereof.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Junior Subordinated
Debentures will be made at the office of the Debenture Trustee in The City of
New York or at the office of such paying agent or paying agents as the
Corporation may designate from time to time, except that at the option of the
Corporation 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
applicable 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 Corporation and the
Guarantor may at any time designate additional Paying Agents or rescind the
designation of any paying agent; however the Corporation will at all times be
required to maintain a paying agent in each Place of Payment for each series of
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent, or
then held by the Corporation 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 Corporation, be repaid
to the Corporation and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Corporation for
payment thereof.
OPTION TO DEFER INTEREST PAYMENTS
If provided in the applicable Prospectus Supplement, the Corporation will
have the right at any time and from time to time during the term of any series
of Junior Subordinated Debentures to defer payment of interest for up to such
number of Extension Periods as may be specified in the applicable Prospectus
Supplement, subject to the terms, conditions and covenants, if any, specified in
such Prospectus Supplement, provided that such Extension Periods may not extend
beyond the Stated Maturity of such series of Junior Subordinated Debentures.
Certain United States Federal income tax consequences and special considerations
applicable to any such Junior Subordinated Debentures will be described in the
applicable Prospectus Supplement.
REDEMPTION
Unless otherwise indicated in the applicable Prospectus Supplement, Junior
Subordinated Debentures will not be subject to any sinking fund.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporation may, at its option, and subject to receipt of prior approval by the
Federal Reserve if such approval is then required under applicable Federal
Reserve capital guidelines or policies, redeem the Junior Subordinated
Debentures of any series in whole at any time or in part from time to time. If
the Junior Subordinated Debentures of any series are so redeemable only on or
after a specified date or upon the satisfaction of additional conditions, the
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applicable Prospectus Supplement will specify such date or describe such
conditions. Junior Subordinated Debentures in denominations larger than $1,000
may be redeemed in part but only in integral multiples of $1,000. Except as
otherwise specified in the applicable Prospectus Supplement, the redemption
price for any Junior Subordinated Debenture so redeemed shall equal any accrued
and unpaid interest (including Additional Interest) thereon to the redemption
date, plus 100% of the principal amount thereof.
Except as otherwise specified in the applicable Prospectus Supplement, if a
Tax Event (as defined below) in respect of a series of Junior Subordinated
Debentures or a Capital Treatment Event (as defined below) shall occur and be
continuing, the Corporation may, at its option, and subject to receipt of prior
approval by the Federal Reserve if such approval is then required under
applicable Federal Reserve capital guidelines or policies, redeem such series of
Junior Subordinated Debentures in whole (but not in part) at any time within 90
days following 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 applicable
Prospectus Supplement.
"Tax Event" means the receipt by an Issuer of a series of Capital
Securities of an opinion of counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
proposed change) in, the laws (or any regulations thereunder) of the 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 which pronouncement or decision is announced on or after the date
of issuance of such Capital Securities under the Trust Agreement, there is more
than an insubstantial risk that (i) such 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 corresponding series of
Corresponding Junior Subordinated Debentures, (ii) interest payable by the
Corporation on such series of Corresponding Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by
the Corporation, in whole or in part, for United States Federal income tax
purposes, or (iii) such Issuer is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
A "Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws,
rules or regulations, which amendment or change is effective or which
pronouncement, action or decision is announced on or after the date of issuance
of the Capital Securities, there is more than an insubstantial risk that the
Corporation or the Guarantor will not be entitled to treat an amount equal to
the aggregate Liquidation Amount of the Capital Securities as "Tier 1 Capital"
(or the then equivalent thereof) for purposes of the capital adequacy guidelines
of the Federal Reserve, as then in effect and applicable to the Corporation or
the Guarantor.
Notice of any redemption will be mailed at least 45 days but not more than
75 days before the redemption date to each Holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Corporation
defaults in payment of the redemption price, on and after the redemption date
interest shall cease to accrue on such Junior Subordinated Debentures or
portions thereof called for redemption.
RESTRICTIONS ON CERTAIN PAYMENTS
Each of the Corporation and the Guarantor will also covenant, as to each
series of Junior Subordinated Debentures, that it will not, and will not permit
any of its subsidiaries 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 Corporation's or the Guarantor's capital stock, (ii) make any payment
of principal of or interest or premium, if any, on or repay or repurchase or
redeem any debt securities of the Corporation or the Guarantor (including other
Junior Subordinated Debentures) that rank pari passu in all respects with or
junior in interest to the
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Junior Subordinated Debentures or the Debenture Guarantees thereon,
respectively, or (iii) make any guarantee payments with respect to any guarantee
by the Corporation or the Guarantor of the debt securities of any subsidiary of
the Corporation or the Guarantor if such guarantee ranks pari passu in all
respects with or junior in interest to the Series A Subordinated Debentures or
the Series A Debenture Guarantees, respectively (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Corporation
or the Guarantor in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Corporation or the Guarantor (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of any exchange or conversion of any class or series of the Corporation's
or the Guarantor's capital stock (or any capital stock of a subsidiary of the
Corporation or the Guarantor) for any class or series of the Corporation's or
the Guarantor's capital stock, respectively, or of any class or series of the
Corporation's or the Guarantor's indebtedness for any class or series of the
Corporation's or the Guarantor's capital stock, respectively, (c) the purchase
of fractional interests in shares of the Corporation's or the Guarantor's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock), if at such time (i) there shall have occurred any
event of which the Corporation or the Guarantor has actual knowledge that (a)
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 of such series and (b) in respect of which the Corporation and the
Guarantor shall not have taken reasonable steps to cure, (ii) if such Junior
Subordinated Debentures are held by an Issuer of a series of Related Capital
Securities, the Corporation or the Guarantor shall be in default with respect to
its payment of any obligations under the Guarantee or Additional Guarantee,
respectively, relating to such Related Capital Securities or (iii) the
Corporation shall have given notice of its selection of an Extension Period as
provided in the Indenture with respect to the Junior Subordinated Debentures of
such series and shall not have rescinded such notice, or such Extension Period,
or any extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time the Corporation, the Guarantor 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 Junior Subordinated Debentures or, in the case
of Corresponding Junior Subordinated Debentures, the holders of the Related
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 Corporation, the Guarantor 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 affecting adversely the
rights of the holders of such series of the 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 applicable Prospectus
Supplement), or reduce the principal amount thereof, 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, in the case of Corresponding Junior Subordinated Debentures, so
long as any of the Related Capital Securities remain outstanding, (a) no such
modification may be made that adversely affects the holders of such Capital
Securities in any material respect, and no termination of the Indenture may
occur,
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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 Related
Capital Securities affected unless and until the principal of the Corresponding
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
Corresponding Junior Subordinated Debentures, no such consent will be given by
the Property Trustee without the prior consent of each holder of Related Capital
Securities.
In addition, the Corporation, the Guarantor 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, including any Additional Interest in respect
thereof, 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 any other covenants contained in
the Indenture for 90 days after written notice to the Corporation and the
Guarantor 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
Corporation or the Guarantor.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures of each series affected 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. In case a Debenture Event of Default shall
occur and be continuing as to a series of Corresponding Junior Subordinated
Debentures, the Property Trustee will have the right to declare the principal of
and the interest on such Corresponding 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 Corresponding
Junior Subordinated Debentures. In the case of Corresponding Junior Subordinated
Debentures, should the Debenture Trustee or the Property Trustee fail to make
such declaration, the holders of at least 25% in aggregate Liquidation Amount of
the Related Capital Securities shall have such right. The Property Trustee may
annul such declaration and waive such default, provided all defaults have been
cured and all payment obligations have been made current. Should the Property
Trustee fail to annul such declaration and waive such default, the holders of a
majority in aggregate Liquidation Amount of the Related Capital Securities 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 (including any
Additional Interest) (unless such default has been cured and a sum sufficient to
pay all matured installments of interest (including any Additional 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 of such series. In the
case of Corresponding Junior Subordinated Debentures, the holders of a majority
in
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aggregate Liquidation Amount of the Related Capital Securities shall have such
right. Each of the Corporation and the Guarantor is required to file annually
with the Debenture Trustee a certificate as to whether or not it is in
compliance with all the conditions and covenants applicable to it under the
Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default with respect to a series of Corresponding
Junior Subordinated Debentures has occurred and is continuing and such event is
attributable to the failure of the Corporation (or the Guarantor, via the
Debenture Guarantees) to pay interest or principal on such Corresponding Junior
Subordinated Debentures on the date such interest or principal is due and
payable, a holder of Related Capital Securities may institute a legal proceeding
under the Indenture directly against the Corporation or the Guarantor for
enforcement of payment to such holder of the principal of or interest (including
any Additional Interest) on such Corresponding Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Related Capital Securities of such holder (a "Direct Action"). The Corporation
and the Guarantor 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 applicable Issuer may become subject to the reporting obligations
under the Exchange Act. The Corporation and the Guarantor shall have the right
under the Indenture to set-off any payment made to such holder of Capital
Securities by the Corporation or the Guarantor in connection with a Direct
Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies other than those set forth in the preceding paragraph available to
the holders of the Corresponding 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 each of the Corporation and the Guarantor shall
not consolidate with or merge into any other Person (as defined below) 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
Corporation or the Guarantor, as the case may be, or convey, transfer or lease
its properties and assets substantially as an entirety to the Corporation or the
Guarantor, as the case may be, unless (i) in case the Corporation or the
Guarantor, as the case may be, 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 or Puerto Rico, and such
successor Person expressly assumes the Corporation's or the Guarantor's
obligations, as the case may be, on the Junior Subordinated Debentures or the
Debenture Guarantees, as the case may be, 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, and (iii) 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 Corporation or the Guarantor that may adversely affect
holders of the Junior Subordinated Debentures.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
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 Corporation deposits or causes
to be deposited with the Debenture Trustee funds, in trust, for the purpose and
in an amount in the currency or
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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 (including any Additional Interest)
to the date of the deposit or to the Stated Maturity, as the case may be, then
the Indenture will cease to be of further effect (except as to the Corporation'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
Corporation will be deemed to have satisfied and discharged the Indenture.
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable Prospectus Supplement, the
Junior Subordinated Debentures of any series may be convertible or exchangeable
into Junior Subordinated Debentures of another series or into Capital Securities
of another series. The specific terms on which Junior Subordinated Debentures of
any series may be so converted or exchanged will be set forth in the applicable
Prospectus Supplement. Such terms may include provisions for conversion or
exchange, either mandatory, at the option of the holder, or at the option of the
Corporation, in which case the number of shares of Capital Securities or other
securities to be received by the holders of Junior Subordinated Debentures would
be calculated as of a time and in the manner stated in the applicable Prospectus
Supplement.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate in right of payment,
to the extent set forth in the Indenture, to all Senior Debt (as defined below)
of the Corporation. Substantially all of the existing indebtedness of the
Corporation and the Guarantor constitutes Senior Debt. If the Corporation
defaults in the payment of any principal, premium, if any, or interest, if any,
or any other amount payable on any Senior Debt when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Debt of the Corporation has been
paid, no direct or indirect payment (in cash, property, securities, by set-off
or otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means any obligation of the
Corporation or the Guarantor, as the case may be, to its creditors, whether now
outstanding or subsequently incurred, other than any obligation as to which, in
the instrument creating or evidencing the obligation or pursuant to which the
obligation is outstanding, it is provided that such obligation is not Senior
Indebtedness. As used herein, "Senior Subordinated Indebtedness" means any
obligation of the Corporation or the Guarantor, as the case may be, to its
creditors, whether now outstanding or subsequently incurred, where the
instrument creating or evidencing the obligation or pursuant to which the
obligation is outstanding, provides that it is subordinate and junior in right
of payment to Senior Indebtedness. Senior Subordinated Indebtedness of the
Guarantor includes the Guarantor's outstanding subordinated debt securities and
Senior Subordinated Indebtedness also includes any subordinated debt securities
issued in the future by the Corporation or the Guarantor, as the case may be,
with substantially similar subordination terms, but does not include the Junior
Subordinated Debentures of any series or any junior subordinated debt securities
issued in the future with subordination terms substantially similar to those of
the Junior Subordinated Debentures. Senior Indebtedness does not include Senior
Subordinated Indebtedness or the Junior Subordinated Debentures.
As used herein, "Senior Debt" of the Corporation or the Guarantor, as the
case may be, shall include (i) Senior Indebtedness of the Corporation or the
Guarantor, respectively (but excluding trade accounts payable and accrued
liabilities arising in the ordinary course of business), and (ii) the Allocable
Amounts of Senior Subordinated Indebtedness of the Corporation or Guarantor,
respectively.
As used herein, "Allocable Amounts," when used with respect to any Senior
Subordinated Indebtedness of the Corporation or the Guarantor, as the case may
be, means the amounts necessary to pay all principal of (and premium, if any)
and interest, if any, on such Senior Subordinated Indebtedness of the
Corporation or
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the Guarantor, as the case may be, in full less, if applicable, any portion of
such amounts which would have been paid to, and retained by, the holders of such
Senior Subordinated Indebtedness (whether as a result of the receipt of payments
by the holders of such Senior Subordinated Indebtedness from the Corporation or
the Guarantor, as the case may be, 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 Subordinated Indebtedness 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 Subordinated
Indebtedness) but for the fact that such Senior Subordinated Indebtedness is
subordinate or junior in right of payment to trade accounts payable or accrued
liabilities arising in the ordinary course of business.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv) any
other marshalling of the assets of the Corporation, all Senior Debt (including
any interest thereon accruing after the commencement of any such proceedings) of
the Corporation shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Debt of the Corporation in
accordance with the priorities then existing among such holders until all Senior
Debt of the Corporation (including any interest thereon accruing after the
commencement of any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Debt of the Corporation, the holders of Junior
Subordinated Debentures, together with the holders of any obligations of the
Corporation ranking on a parity with the Junior Subordinated Debentures, will be
entitled to be paid from the remaining assets of the Corporation the amounts at
the time due and owing on the Junior Subordinated Debentures and such other
obligations before any payment or other distribution, whether in cash, property
or otherwise, will be made on account of any capital stock or obligations of the
Corporation ranking junior to the Junior Subordinated Debentures. If any payment
or distribution by the Corporation on account of the Junior Subordinated
Debentures of any character or any security, whether in cash, securities or
other property is received by any holder of any Junior Subordinated Debentures
in contravention of any of the terms hereof and before all the Senior Debt of
the Corporation has been paid in full, such payment or distribution or security
will be received in trust for the benefit of, and must be paid over or delivered
and transferred to, the holders of the Senior Debt of the Corporation at the
time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Senior Debt of the Corporation
remaining unpaid to the extent necessary to pay all such Senior Debt of the
Corporation in full. By reason of such subordination, in the event of the
insolvency of the Corporation, holders of Senior Debt of the Corporation may
receive more, ratably, and holders of the Junior Subordinated Debentures may
receive less, ratably, than the other creditors of the Corporation. Such
subordination will not prevent the occurrence of any Debenture Event of Default.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Debt that may be incurred by the Corporation. The Corporation
expects from time to time to incur additional indebtedness constituting Senior
Debt.
TRUST EXPENSES
Pursuant to the Expense Agreement for each series of Corresponding Junior
Subordinated Debentures, the Corporation will irrevocably and unconditionally
agree with each Issuer that holds Junior Subordinated Debentures that the
Corporation will pay to such Issuer, and reimburse such Issuer for, the full
amounts 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 the amounts due such holders pursuant to
the terms
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of the Capital Securities or such other similar interests, as the case may be.
Such payment obligation will include any such costs, expenses or liabilities of
the Issuer that are required by applicable law to be satisfied in connection
with a termination of such Issuer. The Guarantor will be a party to each such
Expense Agreement and will guarantee the Corporation's obligations thereunder.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
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.
CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
The Corresponding Junior Subordinated Debentures may be issued in one or
more series of Junior Subordinated Debentures under the Indenture with terms
corresponding to the terms of a series of Related Capital Securities. In that
event, concurrently with the issuance of each Issuer's Capital Securities, such
Issuer will invest the proceeds thereof and the consideration paid by the
Corporation for the Common Securities of such Issuer in such series of
Corresponding Junior Subordinated Debentures (with related Debenture
Guarantees), issued by the Corporation (and the Guarantor), to such Issuer. Each
series of Corresponding Junior Subordinated Debentures will be in the principal
amount equal to the aggregate stated Liquidation Amount of the Related Capital
Securities and the Common Securities of such Issuer and will rank pari passu
with all other series of Junior Subordinated Debentures. Holders of the Related
Capital Securities will have the rights in connection with modifications to the
Indenture or upon occurrence of Debenture Events of Default, as described under
"-- Modification of Indenture" and "-- Debenture Events of Default," unless
provided otherwise in the Prospectus Supplement for such Related Capital
Securities.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Tax Event in respect of an Issuer shall occur and be continuing, the Corporation
may, at its option, and subject to prior approval of the Federal Reserve if then
so required under applicable Federal Reserve capital guidelines or policies,
redeem the Corresponding Junior Subordinated Debentures at any time within 90
days of the occurrence of such Tax Event, in whole but not in part, subject to
the provisions of the Indenture and whether or not such Corresponding Junior
Subordinated Debentures are then otherwise redeemable at the option of the
Corporation. Unless otherwise specified in the applicable Prospectus Supplement,
the redemption price for any Corresponding Junior Subordinated Debentures shall
be equal to 100% of the principal amount of such Corresponding Junior
Subordinated Debentures then outstanding plus accrued and unpaid interest to the
date fixed for redemption. For so long as the applicable Issuer is the holder of
all the outstanding Corresponding Junior Subordinated Debentures, the proceeds
of any such redemption will be used by the Issuer to redeem the corresponding
Trust Securities in accordance with their terms. The Corporation may not redeem
a series of Corresponding Junior Subordinated Debentures in part unless all
accrued and unpaid interest has been paid in full on all outstanding
Corresponding Junior Subordinated Debentures of such series for all interest
periods terminating on or prior to the Redemption Date.
The Corporation will covenant in the Indenture, as to each series of
Corresponding Junior Subordinated Debentures, that if and so long as (i) the
Issuer of the related series of Trust Securities is the holder of all such
Corresponding Junior Subordinated Debentures, (ii) a Tax Event in respect of
such Issuer has occurred and is continuing and (iii) the Corporation has
elected, and has not revoked such election, to pay Additional
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Sums (as defined under "Description of Capital Securities -- Redemption or
Exchange") in respect of such Trust Securities, the Corporation will pay to such
Issuer such Additional Sums. The Corporation will also covenant, as to each
series of Corresponding Junior Subordinated Debentures, (i) to maintain directly
or indirectly 100% ownership of the Common Securities of the Issuer to which
such Corresponding Junior Subordinated Debentures have been issued, provided
that certain successors which are permitted pursuant to the Indenture may
succeed to the Corporation's ownership of the Common Securities, (ii) not to
voluntarily terminate, wind-up or liquidate any Issuer, except (a) in connection
with a distribution of Corresponding Junior Subordinated Debentures to the
holders of the Capital Securities in exchange therefor upon liquidation of such
Issuer or (b) in connection with certain mergers, consolidations or
amalgamations permitted by the related Trust Agreement, and (iii) to use its
reasonable efforts, consistent with the terms and provisions of the related
Trust Agreement, to cause such Issuer to be classified as a grantor trust and
not as an association taxable as a corporation for United States Federal income
tax purposes.
DESCRIPTION OF DEBENTURE GUARANTEES
This summary of certain terms and provisions of Debenture Guarantees 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 (as supplemented or amended from time to time) are referred to
herein or in a Prospectus Supplement, such defined terms are incorporated herein
or therein by reference.
GENERAL
Pursuant to the Debenture Guarantees, the Guarantor will guarantee, on a
junior subordinated basis, the punctual payment of the principal of, premium, if
any, and interest on the Junior Subordinated Debentures, when and as the same
are due and payable by the Corporation. The guarantee is absolute and
unconditional, irrespective of any circumstance that might otherwise constitute
a legal or equitable discharge of a surety or guarantor. To evidence the
guarantee, a Debenture Guarantee, executed by the Guarantor, will be endorsed on
each Junior Subordinated Debenture. Holders of the Junior Subordinated
Debentures may proceed directly against the Guarantor in the event of default
under the Junior Subordinated Debentures without first proceeding against the
Corporation. Each Debenture Guarantee will rank pari passu with all other
Debenture Guarantees and will be unsecured and subordinated and junior to the
Senior Debt of the Guarantor. See "-- Subordination".
SUBORDINATION
The Debenture Guarantees will be subordinate in right of payment, to the
extent set forth in the Indenture, to all Senior Debt of the Guarantor. If the
Guarantor defaults in the payment of any principal, premium, if any, or
interest, if any, or any other amount payable on any Senior Debt when the same
becomes due and payable, whether at maturity or at a date fixed for redemption
or by declaration of acceleration or otherwise, then, unless and until such
default has been cured or waived or has ceased to exist or all Senior Debt of
the Guarantor has been paid, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) may be made or agreed to be made on the
Debenture Guarantees.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Guarantor, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Guarantor, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Guarantor for the benefit of creditors or (iv) any
other marshalling of the assets of the Guarantor, all Senior Debt (including any
interest thereon accruing after the commencement of any such proceedings) of the
Guarantor, as the case may be, shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be made on
account of the Debenture Guarantees. In such event, any payment or distribution
on account
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of the Debenture Guarantees, whether in cash, securities or other property, that
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of the Debenture Guarantees will be paid or delivered directly to the
holders of Senior Debt of the Guarantor in accordance with the priorities then
existing among such holders until all Senior Debt of the Guarantor (including
any interest thereon accruing after the commencement of any such proceedings)
has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Debt of the Guarantor, the holders of the Junior
Subordinated Debentures, together with the holders of any obligations of the
Guarantor ranking on a parity with the Debenture Guarantees, will be entitled to
be paid from the remaining assets of the Guarantor the amounts at the time due
and owing on the Debenture Guarantees and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Guarantor ranking
junior to the Debenture Guarantees. If any payment or distribution by the
Guarantor on account of the Debenture Guarantees of any character or any
security, whether in cash, securities or other property is received by any
holder of any Junior Subordinated Debenture in contravention of any of the terms
hereof and before all the Senior Debt of the Guarantor has been paid in full,
such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Debt of the Guarantor at the time outstanding in accordance with
the priorities then existing among such holders for application to the payment
of all Senior Debt of the Guarantor remaining unpaid to the extent necessary to
pay all such Senior Debt of the Guarantor in full. By reason of such
subordination, in the event of the insolvency of the Guarantor, holders of
Senior Debt of the Guarantor may receive more, ratably, and holders of the
Debenture Guarantees may receive less, ratably, than the other creditors of the
Guarantor. Such subordination will not prevent the occurrence of any Debenture
Event of Default.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Debt that may be incurred by the Guarantor. The Guarantor
expects from time to time to incur additional indebtedness constituting Senior
Debt.
TAXATION BY THE COMMONWEALTH OF PUERTO RICO
All payments pursuant to the Debenture Guarantees will be made without
withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature imposed or levied
by or on behalf of Puerto Rico or by or with any district, municipality or other
political subdivision thereof or authority therein having power to tax unless
such taxes, duties, assessments or governmental charges are required by law to
be withheld or deducted.
In the event that the Guarantor is required by law to deduct or withhold
any amounts in respect of taxes, duties, assessments or governmental charges,
the Guarantor will pay such additional amounts in respect of, principal, premium
and interest as will result (after deduction of the said taxes, duties,
assessments or governmental charges) in the payment to the holders of the Junior
Subordinated Debentures of the amounts which would otherwise have been payable
in respect to the Junior Subordinated Debentures in the absence of such
deduction or withholding ("Additional Guarantee Payments"), except that no such
Additional Guarantee Payments shall be payable:
(i) to any Holder of a Junior Subordinated Debenture or any interest
therein or rights in respect thereof where such deduction or withholding is
required by reason of such Holder having some connection with Puerto Rico
or any political subdivision or taxing authority thereof or therein other
than the mere holding of and payment in respect of a Junior Subordinated
Debenture;
(ii) in respect of any deduction or withholding that would not have
been required but for the presentation by the holder of a Junior
Subordinated Debenture for payment on a date more than 30 days after the
Stated Maturity or the date on which payment thereof is duly provided for,
whichever occurs later; or
(iii) in respect of any deduction or withholding that would not have
been required but for the failure to comply with any certification,
identification or other reporting requirements concerning the nationality,
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residence, identity or connection with Puerto Rico, or any political
subdivision or taxing authority thereof or therein, of the holder of a
Junior Subordinated Debenture or any interest therein or rights in respect
thereof, if compliance is required by Puerto Rico, or any political
subdivision or taxing authority thereof or therein, as a precondition to
exemption from such deduction or withholding.
GOVERNING LAW
The Debenture Guarantees will be governed by and construed in accordance
with the laws of the State of New York.
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement for each Issuer, the Issuer
Trustees on behalf of such Issuer will issue the Capital Securities and the
Common Securities. The Capital Securities of a particular Issuer will represent
preferred 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
corresponding Trust Agreement. This summary of certain provisions of the Capital
Securities and each 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 each Trust Agreement,
including the definitions therein of certain terms, and the Trust Indenture Act,
to which reference is hereby made. Wherever particular defined terms of a 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.
Each of the Issuers is a legally separate entity and the assets of one are not
available to satisfy the obligations of the other.
GENERAL
The Capital Securities of an Issuer will rank pari passu, and payments will
be made thereon pro rata, with the Common Securities of that Issuer except as
described under "-- Subordination of Common Securities". Legal title to the
Corresponding Junior Subordinated Debentures and the related Debenture Guarantee
will be held by the Property Trustee in trust for the benefit of the holders of
the related Capital Securities and Common Securities. Each Guarantee Agreement
executed by the Corporation and the Guarantor for the benefit of the holders of
an Issuer's Capital Securities will be, in the case of the Corporation, a
guarantee on a subordinated basis with respect to the related Capital Securities
(the "Guarantee" for such Capital Securities), and, in the case of the
Guarantor, a guarantee on the Corporation's obligations under the Guarantee (the
"Additional Guarantee" for such Capital Securities). The Guarantee and the
Additional Guarantee will not guarantee payment of Distributions or amounts
payable on redemption or liquidation of such Capital Securities when the related
Issuer does not have funds on hand available to make such payments. See
"Description of Guarantees and Additional Guarantees."
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 applicable 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
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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.
Each Issuer's Capital Securities represent preferred beneficial ownership
interests in the applicable Issuer, and the Distributions on each Capital
Security will be payable at a rate specified in the applicable 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 applicable 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 applicable Prospectus Supplement. The term "Distributions" as used herein
includes any such additional Distributions unless otherwise stated.
If provided in the applicable Prospectus Supplement, the Corporation has
the right under the Indenture, pursuant to which it will issue the Corresponding
Junior Subordinated Debentures, to defer the payment of interest at any time or
from time to time on any series of the Corresponding Junior Subordinated
Debentures for up to such number of consecutive interest payment periods which
will be specified in such Prospectus Supplement relating to such series (each,
an "Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Corresponding Junior Subordinated Debentures. As a
consequence of any such deferral, Distributions on the Related 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 of such Related Capital
Securities during any such Extension Period. During any such Extension Period,
the Corporation and the Guarantor may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Corporation's or the Guarantor's capital stock, (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Corporation or the Guarantor
that rank pari passu in all respects with or junior in interest to the
Corresponding Junior Subordinated Debentures or the related Debenture
Guarantees, respectively, or (iii) make any guarantee payments with respect to
any guarantee by the Corporation or the Guarantor of the debt securities of any
subsidiary of the Corporation or the Guarantor if such guarantee ranks pari
passu in all respects with or junior in interest to the Series A Subordinated
Debentures or the Series A Debenture Guarantees, respectively (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Corporation or the Guarantor in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Corporation or the Guarantor (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of any exchange or conversion of any class or series of the
Corporation's or the Guarantor's capital stock (or any capital stock of a
subsidiary of the Corporation or the Guarantor) for any class or series of the
Corporation's or the Guarantor's capital stock, respectively, or of any class or
series of the Corporation's or the Guarantor's indebtedness for any class or
series of the Corporation's or the Guarantor's capital stock, respectively, (c)
the purchase of fractional interests in shares of the Corporation's or the
Guarantor's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock).
The revenue of each Issuer available for distribution to holders of its
Related Capital Securities will be limited to payments under the Corresponding
Junior Subordinated Debentures and the related Debenture Guarantees in which the
Issuer will invest the proceeds from the issuance and sale of its Trust
Securities. See "Description of Junior Subordinated Debentures -- Corresponding
Junior Subordinated Debentures." If the Corporation does not make interest
payments on such Corresponding Junior Subordinated Debentures and the Guarantor
does not make payment under the related Debenture Guarantee, the Property
Trustee will not have funds available to pay Distributions on the Related
Capital Securities. The payment of Distributions (if and to
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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
Corporation and the Guarantor on a limited basis as set forth herein under
"Description of Guarantees and Additional Guarantees."
Distributions on the Capital Securities will be payable to the holders
thereof as they appear on the register of such 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 applicable 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 fifteenth day next
preceding to the relevant Distribution Date, as specified in the applicable
Prospectus Supplement.
REDEMPTION OR EXCHANGE
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of any Corresponding Junior Subordinated Debentures, whether at 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 Trust Securities, upon not less than 30
nor more than 60 days notice, at a redemption price (the "Redemption Price")
equal to the aggregate Liquidation Amount of such Trust Securities plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Corporation upon the concurrent redemption of such Corresponding Junior
Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Redemption." If less than all of any series of Corresponding
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 Related Capital Securities and the Common
Securities. The amount of premium, if any, paid by the Corporation upon the
redemption of all or any part of any series of any Corresponding Junior
Subordinated Debentures to be repaid or redeemed on a Redemption Date shall be
allocated to the redemption pro rata of the Related Capital Securities and the
Common Securities.
The Corporation will have the right to redeem any series of Corresponding
Junior Subordinated Debentures (i) on or after such date as may be specified in
the applicable Prospectus Supplement, in whole at any time or in part from time
to time, (ii) unless otherwise provided in the applicable Prospectus Supplement,
at any time, in whole (but not in part), upon the occurrence of a Tax Event or
Capital Treatment Event or (iii) as may be otherwise specified in the applicable
Prospectus Supplement, in each case subject to receipt of prior approval by the
Federal Reserve if then so required under applicable Federal Reserve capital
guidelines or policies.
Distribution of Corresponding Junior Subordinated Debentures. Subject to
the Corporation having received prior approval of the Federal Reserve to do so
if such approval is then required under applicable capital guidelines or
policies of the Federal Reserve, the Corporation has the right at any time to
terminate any Issuer and, after satisfaction of the liabilities of creditors of
such Issuer as provided by applicable law, cause such Corresponding Junior
Subordinated Debentures and related Debenture Guarantee in respect of the
Related Capital Securities and Common Securities issued by such Issuer to be
distributed to the holders of such Related Capital Securities and Common
Securities in liquidation of the Issuer.
After the liquidation date fixed for any distribution of Corresponding
Junior Subordinated Debentures for any series of Capital Securities (i) such
series of Capital Securities will no longer be deemed to be outstanding, (ii)
the depositary or its nominee, as the record holder of such series of Capital
Securities, will receive a registered global certificate or certificates
representing the Corresponding Junior Subordinated Debentures to be delivered
upon such distribution and (iii) any certificates representing such series of
Capital Securities not held by DTC or its nominee will be deemed to represent
the Corresponding Junior Subordinated Debentures having a principal amount equal
to the stated Liquidation Amount of such series of Capital Securities, and
bearing accrued and unpaid interest in an amount equal to the accrued and unpaid
Distributions on such series of Capital Securities until such certificates are
presented to the Issuer Trustee or its agent for transfer or reissuance.
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There can be no assurance as to the market prices for the Capital
Securities or the Corresponding Junior Subordinated Debentures that may be
distributed in exchange for Capital Securities if a dissolution and liquidation
of an Issuer were to occur. Accordingly, the Capital Securities that an investor
may purchase, or the Corresponding Junior Subordinated Debentures that the
investor may receive on dissolution and liquidation of an Issuer, may trade at a
discount to the price that the investor paid to purchase the Capital Securities
offered hereby.
Tax Event or Capital Treatment Event Redemption. Except as otherwise
provided in the applicable Prospectus Supplement, if a Tax Event or Capital
Treatment Event in respect of a series of Capital Securities and Common
Securities shall occur and be continuing, the Corporation has the right to
redeem the Corresponding Junior Subordinated Debentures in whole (but not in
part) and thereby cause a mandatory redemption of such Related 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 in respect
of a series of Capital Securities and Common Securities has occurred and is
continuing and the Corporation does not elect to redeem the Corresponding Junior
Subordinated Debentures and thereby cause a mandatory redemption of such Capital
Securities or to liquidate the related Issuer and cause the Corresponding Junior
Subordinated Debentures and related Debenture Guarantee 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 (as defined below) may be payable on the
Corresponding 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 an 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 such Issuer has become subject as a result of a Tax Event.
"Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws,
rules or regulations, which amendment or change is effective or such
pronouncement, action or decision is announced on or after the date of issuance
of the Capital Securities of an Issuer, there is more than an insubstantial risk
that the Corporation or the Guarantor will not be entitled to treat an amount
equal to the aggregate Liquidation Amount of such Capital Securities as "Tier 1
Capital" (or the then equivalent thereto) for purposes of the capital adequacy
guidelines of the Federal Reserve, as then in effect and applicable to the
Corporation or the Guarantor.
"Like Amount" means (i) with respect to a redemption of any series of Trust
Securities, Trust Securities of such series having a Liquidation Amount (as
defined below) equal to the principal amount of Corresponding Junior
Subordinated Debentures to be contemporaneously redeemed in accordance with the
Indenture, the proceeds of which will be used to pay the Redemption Price of
such Trust Securities, and (ii) with respect to a distribution of Corresponding
Junior Subordinated Debentures to holders of any series of Trust Securities in
connection with a dissolution or liquidation of the related Issuer,
Corresponding Junior Subordinated Debentures having a principal amount equal to
the Liquidation Amount of the Trust Securities in respect of which such
distribution is made.
"Liquidation Amount" means the stated amount per Trust Security of $1,000
(or such other stated amount as is set forth in the applicable Prospectus
Supplement).
"Tax Event" with respect to an Issuer means the receipt by the Issuer of a
series of Capital Securities of an opinion of counsel experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced proposed change) in, the laws (or any regulations
thereunder) of the 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 which pronouncement or
decision is announced on or after the date of
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issuance of such Capital Securities under the Trust Agreement, there is more
than an insubstantial risk that (i) such 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 corresponding series of
Corresponding Junior Subordinated Debentures, (ii) interest payable by the
Corporation on such series of Corresponding Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by
the Corporation, in whole or in part, for United States Federal income tax
purposes, or (iii) such Issuer is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
Possible Tax Law Changes. On March 19, 1996, the Revenue Reconciliation
Bill, the revenue portion of President Clinton's budget proposal, was introduced
in the 104th Congress. If it had been enacted, the Revenue Reconciliation Bill
would have generally denied interest deductions for interest on an instrument
issued by a corporation with a maximum term of more than 20 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. The
above-described provision of the Revenue Reconciliation Bill was proposed to be
effective generally for instruments issued on or after December 7, 1995. If
similar provisions were to apply to the Capital Securities of any series, the
Corporation would be unable to deduct interest on the Capital Securities of such
series. However, on March 29, 1996, the Chairmen of the Senate Finance and House
Ways and Means Committees issued a joint statement to the effect that it was
their intention that the effective date of the President's legislative
proposals, if adopted, will be no earlier than the date of appropriate
Congressional action. Under current law, the Corporation and the Guarantor will
be able to deduct interest on the Capital Securities. Although the 104th
Congress adjourned without enacting the above-described provision of the Revenue
Reconciliation Bill, there can be no assurance that current or future
legislative proposals or final legislation will not affect the ability of the
Corporation to deduct interest on the Capital Securities. Such a change could
give rise to a Tax Event, which may permit the Corporation to cause a redemption
of the Capital Securities, as described more fully herein.
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 Corresponding 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 related Issuer has funds on
hand available for the payment of such Redemption Price. See also
"-- Subordination of Common Securities."
If the Property Trustee gives a notice of redemption in respect 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 Depositary funds sufficient to pay the applicable Redemption Price and
will give the Depositary irrevocable instructions and authority to pay the
Redemption Price to the holders of such 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 and any Distribution payable in respect of the Capital
Securities on or prior to the Redemption Date, 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
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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 each case, with the same force and effect as if made on such date. 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 Corporation pursuant to the Guarantee or the Guarantor
pursuant to the Additional Guarantee as described under "Description of
Guarantees and Additional Guarantees," 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 Corporation, the Guarantor or their 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 Corresponding Junior Subordinated Debentures (with related
Debenture Guarantees) 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 applicable Prospectus Supplement.
If less than all of the Capital Securities and Common Securities issued by
an Issuer are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Capital Securities and Common Securities to be
redeemed shall be allocated pro rata to the Capital Securities and the Common
Securities based upon the relative Liquidation Amounts of such classes. The
particular Capital Securities to be redeemed shall be selected on a pro rata
basis not more than 60 days prior to the Redemption Date by the Property Trustee
from the outstanding Capital Securities not previously called for redemption, 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 $1,000 or an
integral multiple of $1,000 in excess thereof, unless a different amount is
specified in the applicable Prospectus Supplement) of the Liquidation Amount of
Capital Securities of a denomination larger than $1,000 (or such other
denomination as is specified in the applicable Prospectus Supplement). The
Property Trustee shall promptly notify the securities 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 each 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. Unless the Corporation defaults in payment
of the Redemption Price on the Corresponding Junior Subordinated Debentures, on
and after the Redemption Date interest will cease to accrue on such Junior
Subordinated Debentures or portions thereof (and Distributions will cease to
accrue on the Related Capital Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Issuer's
Capital Securities and Common Securities, as applicable, 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, Redemption Date
or Liquidation Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of, or
Liquidation Distribution in respect 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
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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, or in the case of payment of the Liquidation
Distribution the full amount of such Liquidation Distribution on all outstanding
Capital Securities, shall have been made or provided for, and all funds
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 (as defined below) under the applicable
Trust Agreement resulting from a Debenture Event of Default, the Corporation as
holder of such 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
any such Events of Default under the applicable 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 Corporation 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 TERMINATION
Pursuant to each Trust Agreement, each Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the distribution of a Like Amount of the Corresponding Junior Subordinated
Debentures (with related Debenture Guarantees) to the holders of its Trust
Securities, if the Corporation, as Depositor, has given written direction to the
Property Trustee to terminate such Issuer (subject to the Corporation having
received prior approval of the Federal Reserve if then so required under
applicable capital guidelines or policies); (iii) redemption of all of the
Issuer's Capital Securities as described under "Description of Capital
Securities -- Redemption or Exchange -- 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 of such Issuer as provided by applicable law, to the
holders of such Trust Securities in exchange therefor a Like Amount of the
Corresponding Junior Subordinated Debentures (with related Debenture
Guarantees), 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 such 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 such Issuer has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by such
Issuer on its Capital Securities shall be paid on a pro rata basis. The
holder(s) of such 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
each Trust Agreement with respect to the Capital Securities issued thereunder
(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 under the Indenture
(see "Description of Junior Subordinated Debentures -- Debenture Events of
Default"); or
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(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 in such Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Capital Securities of the applicable Issuer, 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 Corporation to
appoint a successor Property Trustee within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of such Issuer's Capital
Securities, the Administrative Trustees, the Corporation, as Depositor, and the
Guarantor unless such Event of Default shall have been cured or waived. The
Corporation, 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
each 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 "-- 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 Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Corporation 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
applicable 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 Corporation, 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 applicable 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.
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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 Trustee shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under each Trust Agreement,
provided such Person shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUERS
An 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. An Issuer may, at the request of the Corporation, 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 such 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 Corporation expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Corresponding 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 assigns ratings to 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 Corporation 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 Corporation or any permitted successor
or assignee owns all of the Common Securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee (the "Successor
Guarantees") and the Guarantor or any permitted successor or assignee guarantees
the obligations of the Corporation or such successor entity under the Successor
Guarantees at least to the extent provided by the Additional Guarantee.
Notwithstanding the foregoing, an 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 an association taxable as a corporation or as other than a grantor
trust for United States Federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
Except as provided below and under "Description of Guarantees and
Additional Guarantees -- Amendments and Assignment" and as otherwise required by
law and the applicable Trust Agreement, the holders of the Capital Securities
will have no voting rights.
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Each Trust Agreement may be amended from time to time by the Corporation,
the Guarantor, 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 such Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under such Trust Agreement, which shall
not be inconsistent with the other provisions of such Trust Agreement, or (ii)
to modify, eliminate or add to any provisions of such 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 or as other than an
association taxable as a corporation at all times that any Trust Securities are
outstanding or to ensure that the Issuer will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
in the case of either clause (i) or clause (ii), such action shall not adversely
affect in any material respect the interests of any holder of Capital
Securities, and any amendments of such Trust Agreement shall become effective
when notice thereof is given to the holders of Trust Securities. Each Trust
Agreement may be amended by the Issuer Trustees, the Corporation and the
Guarantor 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 counsel to the effect that such
amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not cause the Issuer to be taxable as a
corporation or affect the Issuer's status as a grantor trust for United States
Federal income tax purposes or the Issuer's exemption from status as an
"investment company" under the Investment Company Act, provided that without the
consent of each holder of Trust Securities, 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 Corresponding 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 Corresponding 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 Corresponding 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 Corresponding 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 Corresponding 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 counsel experienced in such matters to the
effect that the Issuer will not be classified as an association taxable as a
corporation for United States Federal income tax purposes on account of such
action and such action would not cause the Issuer to be classified as other than
a grantor trust for United States Federal income tax purposes.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of Capital Securities in the manner set forth in each
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required
for an Issuer to redeem and cancel its Capital Securities in accordance with the
applicable Trust Agreement.
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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 Corporation, the Guarantor, the Issuer Trustees
or any affiliate of the Corporation, the Guarantor or any Issuer Trustees,
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
GLOBAL CAPITAL SECURITIES
The Capital Securities of a series may be issued in whole or in part in the
form of one or more Global Capital Securities that will be deposited with, or on
behalf of, the Depositary identified in the Prospectus Supplement relating to
such series. Unless otherwise indicated in the applicable Prospectus Supplement
for such series, the Depositary will be The Depository Trust Company ("DTC").
Global Capital Securities may be issued only in fully registered form and in
either temporary or permanent form. Unless and until it is exchanged in whole or
in part for the individual Capital Securities represented thereby, a Global
Capital Security may not be transferred except as a whole by the Depositary for
such Global Capital Security to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
the Depositary or any nominee to a successor Depositary or any nominee of such
successor.
The specific terms of the depositary arrangement with respect to a series
of Capital Securities will be described in the Prospectus Supplement relating to
such series. The Corporation anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a Global Capital Security, and the deposit of such
Global Capital Security with or on behalf of the Depositary, the Depositary 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 Corporation if such Capital Securities are offered and sold directly by
the Corporation. 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 Depositary 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 Depositary for a Global Capital Security, or its nominee, is
the registered owner of such Global Capital Security, such Depositary 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 of the series 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 of such
series 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 Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Capital
Security representing such Capital Securities. None of the Corporation, the
Guarantor, 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 Corporation expects that the Depositary for a series of Capital
Securities or its nominee, upon receipt of any payment of Liquidation Amount,
premium or Distributions, including any payment of Redemption
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Price, 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 Depositary or its nominee. The
Corporation 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 applicable Prospectus Supplement, if a
Depositary for a series of Capital Securities is at any time unwilling, unable
or ineligible to continue as depositary and a successor depositary is not
appointed by the Issuer within 90 days, or if there shall have occurred and be
continuing an event of default under the Indenture with respect to the Junior
Subordinated Debentures of such series, the Issuer will issue individual Capital
Securities of such series in exchange for the Global Capital Security
representing such series of Capital Securities. In addition, the Issuer may at
any time and in its sole discretion, subject to any limitations described in the
Prospectus Supplement relating to such Capital Securities, determine not to have
any Capital Securities of such series represented by one or more Global Capital
Securities and, in such event, will issue individual Capital Securities of such
series in exchange for the Global Capital Security or Securities representing
such series of Capital Securities. Further, if the Issuer so specifies with
respect to the Capital Securities of a series, an owner of a beneficial interest
in a Global Capital Security representing Capital Securities of such series may,
on terms acceptable to the Issuer, the Property Trustee and the Depositary for
such Global Capital Security, receive individual Capital Securities of such
series 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
of the series represented by such Global Capital Security equal in principal
amount to such beneficial interest and to have such Capital Securities
registered in its name. Individual Capital Securities of such series so issued
will be issued in denominations, unless otherwise specified by the Issuer, and
integral multiples thereof that are the same as the denominations and multiples
in which the Capital Securities are issued.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any Issuer's Capital Securities are not
held by the Depositary, 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 applicable 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 Corporation. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days' written notice to the Property Trustee
and the Corporation. 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 Corporation) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable 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 each Issuer, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuers will not be required to register or cause to be registered
the transfer of their Capital Securities after such Capital Securities have been
called for redemption.
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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 each 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 applicable 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
applicable Trust Agreement or is unsure of the application of any provision of
the applicable Trust Agreement, and the matter is not one on which holders of
Capital Securities are entitled under such Trust Agreement to vote, then the
Property Trustee shall take such action as is directed by the Corporation 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 Issuers in such a way that no Issuer will be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
or as other than a grantor trust for United States Federal income tax purposes
and so that the Corresponding Junior Subordinated Debentures will be treated as
indebtedness of the Corporation and the Guarantor for United States Federal
income tax purposes. In this connection, the Corporation and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of each Issuer or each Trust Agreement, that the
Corporation 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 related Capital
Securities.
Holders of the Capital Securities have no preemptive or similar rights.
No Issuer may borrow money or issue debt or mortgage or pledge any of its
assets.
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary 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. (DTC's nominee). One or more fully-registered global
certificates will be issued for the Capital Securities of each Issuer and the
Junior Subordinated Debentures, representing in the aggregate the total number
of such Issuer's Capital Securities or aggregate principal balance of Junior
Subordinated Debentures, respectively, and will be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. "Direct Participants" include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and
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dealers, banks and trust companies that clear through or maintain custodial
relationships with Direct Participants, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of Capital Securities or Junior Subordinated Debentures within
the DTC system must be made by or through Direct Participants, which will
receive a credit for the Capital Securities or Junior Subordinated Debentures on
DTC'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 DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Capital Securities 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.
DTC has no knowledge of the actual Beneficial Owners of the Capital
Securities or Junior Subordinated Debentures; DTC'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 DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Capital Securities or Junior Subordinated Debentures. If less than all of an
Issuer's Capital Securities or the Junior Subordinated Debentures are being
redeemed, DTC'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 DTC nor Cede & Co. will itself consent or vote with respect
to Capital Securities or Junior Subordinated Debentures. Under its usual
procedures, DTC 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 DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC, the relevant Trustee, the Issuer thereof, the Corporation or the
Guarantor, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of Distributions to DTC is the responsibility
of the relevant Trustee, disbursement of such payments to Direct Participants is
the responsibility of DTC, and disbursements of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to any of the Capital Securities or the Junior Subordinated Debentures
at any time by giving reasonable notice to the relevant
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Trustee and the Corporation. In the event that a successor securities depositary
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 Corporation, at its
option, may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depositary). After a Debenture Event of Default, the
holders of a majority in liquidation preference of Capital Securities or
aggregate principal amount of Junior Subordinated Debentures may determine to
discontinue the system of book-entry transfers through DTC. 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 DTC and DTC's book-entry system
has been obtained from sources that the Issuers, the Corporation and the
Guarantor believe to be accurate, but the Issuers, the Corporation and the
Guarantor assume no responsibility for the accuracy thereof. None of the
Issuers, the Corporation and the Guarantor has any responsibility for the
performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.
DESCRIPTION OF GUARANTEES AND ADDITIONAL GUARANTEES
A Guarantee and an Additional Guarantee will be executed and delivered by
the Corporation and the Guarantor, respectively, concurrently with the issuance
by each Issuer of its Capital Securities for the benefit of the holders from
time to time of such Capital Securities. The First National Bank of Chicago will
act as indenture trustee ("Guarantee Trustee") under each Guarantee and
Additional Guarantee for the purposes of compliance with the Trust Indenture Act
and each Guarantee and Additional Guarantee will be qualified as an indenture
under the Trust Indenture Act. This summary of certain provisions of the
Guarantees and the Additional Guarantees, 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 each Guarantee and Additional
Guarantee, including the definitions therein of certain terms, and the Trust
Indenture Act, to each of which reference is hereby made. The forms of the
Guarantee and the Additional Guarantee have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Reference in this
summary to Capital Securities means that Issuer's Capital Securities to which a
Guarantee or an Additional Guarantee relates. The Guarantee Trustee will hold
each Guarantee and Additional Guarantee for the benefit of the holders of the
related Issuer's Capital Securities.
GENERAL
The Corporation 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 such 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 related 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 such 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 such Issuer has funds on hand
available therefor at such time, or (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of such Issuer (unless the Corresponding
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 such Issuer remaining available for distribution
to holders of Capital Securities after satisfaction of liabilities to creditors
of such Issuer as required by applicable law.
The Guarantor will irrevocably agree to pay in full on a junior
subordinated basis, to the extent set forth herein, the Corporation's obligation
under the Guarantee to make the Guarantee Payments to the holders of the Capital
Securities, as and when due, regardless of any defense, right of set-off or
counterclaim that such Issuer may have or assert other than the defense of
payment.
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The Corporation's and the Guarantor's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Corporation or the Guarantor to the holders of the applicable Capital Securities
or by causing the Issuer to pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee on a junior subordinated
basis of the related Issuer's obligations under the Capital Securities, but will
apply only to the extent that such related Issuer has funds sufficient to make
such payments, and is not a guarantee of collection. Each Additional Guarantee
will be an irrevocable guarantee on a junior subordinated basis of the
Corporation's obligations under the related Guarantee.
If the Corporation does not make interest payments on the Corresponding
Junior Subordinated Debentures held by the Issuer and the Guarantor does not
make payments pursuant to the Debenture Guarantees, the Issuer will not be able
to pay Distributions on the Related Capital Securities and will not have funds
legally available therefor. Each Guarantee and Additional Guarantee will rank
subordinate and junior in right of payment to all Senior Debt of the Corporation
and the Guarantor, respectively. See "-- Status of the Guarantees". Because each
of the Corporation and the Guarantor is a holding company, the right of the
Corporation or the Guarantor 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 Corporation or the Guarantor may itself be recognized as a creditor
of that subsidiary. Accordingly, each of the Corporation's and the Guarantor's
obligations under the Guarantees and the Additional Guarantees, respectively,
will be effectively subordinated to all existing and future liabilities of their
respective subsidiaries, and claimants should look only to the assets of the
Corporation and the Guarantor for payments thereunder. See "The Corporation" and
"The Guarantor." Except as otherwise provided in the applicable Prospectus
Supplement, the Guarantees and the Additional Guarantees do not limit the
incurrence or issuance of other secured or unsecured debt of the Corporation or
the Guarantor, including Senior Debt, whether under the Indenture, any other
existing indenture or any other indenture that the Corporation or the Guarantor
may enter into in the future or otherwise. See the applicable Prospectus
Supplement relating to any offering of Capital Securities.
The Corporation has, through the applicable Guarantee, the applicable Trust
Agreement, the applicable series of Corresponding Junior Subordinated
Debentures, the Indenture and the applicable Expense Agreement, taken together,
fully, irrevocably and unconditionally guaranteed all of the Issuer's
obligations under the Capital Securities. The Guarantor has, through the
applicable Additional Guarantee, the applicable Trust Agreement, the applicable
Debenture Guarantee, the Indenture and the applicable Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the
Corporation's obligations under (i) its guarantees of the Issuer's obligations
under the Capital Securities and (ii) the Corresponding Junior Subordinated
Debentures. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantees. 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
Corresponding Junior Subordinated Debentures, the Expense Agreement, the
Guarantees and the Additional Guarantees."
STATUS OF THE GUARANTEES
Each Guarantee and Additional Guarantee will constitute an unsecured
obligation of the Corporation and the Guarantor, respectively, and will rank
subordinate and junior in right of payment to all Senior Debt of the Corporation
and the Guarantor in the same manner as Junior Subordinated Debentures and
Debenture Guarantees, respectively.
Each Guarantee and Additional Guarantee will rank pari passu with all other
Guarantees and Additional Guarantees issued by the Corporation and the
Guarantor, respectively. Each Guarantee and Additional Guarantee will constitute
a guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the Corporation or the Guarantor
to enforce its rights under the Guarantee and the Additional Guarantee,
respectively, without first instituting a legal proceeding against any other
person or entity). Each Guarantee and Additional Guarantee will be held for the
benefit of the holders
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of the related Capital Securities. Each Guarantee and Additional 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 Corresponding Junior Subordinated Debentures. None of the
Guarantees and the Additional Guarantees places a limitation on the amount of
additional Senior Debt that may be incurred by the Corporation or the Guarantor.
The Corporation or the Guarantor expect 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 related Capital Securities (in which case no vote
will be required), no Guarantee or Additional Guarantee may 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 Each Trust Agreement." All guarantees
and agreements contained in each Guarantee and Additional Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the
Corporation and the Guarantor, respectively, and shall inure to the benefit of
the holders of the related Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under a Guarantee or an Additional Guarantee will occur
upon the failure of the Corporation or the Guarantor, as the case may be, to
perform any of its payment obligations thereunder or to perform any non-payment
obligations if such non-payment default remains unremedied for 30 days. The
holders of not less than a majority in aggregate Liquidation Amount of the
related 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 such Guarantee or Additional Guarantee or to direct the exercise
of any trust or power conferred upon the Guarantee Trustee under such Guarantee
or Additional Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Corporation or the Guarantor to enforce its rights under
such Guarantee or Additional Guarantee, respectively, without first instituting
a legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity.
The Corporation and the Guarantor, as guarantors, are required to file
annually with the Guarantee Trustee a certificate as to whether or not the
Corporation and the Guarantor are in compliance with all the conditions and
covenants applicable to them under the Guarantee and the Additional Guarantee,
respectively.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Corporation or the Guarantor in performance of any Guarantee or
Additional Guarantee, undertakes to perform only such duties as are specifically
set forth in each Guarantee and Additional Guarantee and, after default with
respect to any Guarantee or Additional 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 any Guarantee
or Additional 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 GUARANTEES AND ADDITIONAL GUARANTEES
Each Guarantee and Additional Guarantee will terminate and be of no further
force and effect upon full payment of the Redemption Price of the related
Capital Securities, upon full payment of the amounts payable upon liquidation of
the related Issuer or upon distribution of Corresponding Junior Subordinated
Debentures to the holders of the Related Capital Securities in exchange
therefor. Each Guarantee and Additional Guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time any holder of the
related Capital Securities must restore payment of any sums paid under such
Capital Securities or such Guarantee or Additional Guarantee.
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GOVERNING LAW
Each Guarantee and Additional Guarantee will be governed by and construed
in accordance with the laws of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Corporation and the
Guarantor under each Trust Agreement (the "Expense Agreement"), each of the
Corporation and the Guarantor 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. The Expense Agreement will be enforceable by third parties.
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RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE CORRESPONDING
JUNIOR SUBORDINATED DEBENTURES, THE EXPENSE AGREEMENT,
THE GUARANTEES AND THE ADDITIONAL GUARANTEES
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 Corporation and the Guarantor
as and to the extent set forth under "Description of Guarantees and Additional
Guarantees." Taken together, the Corporation's and the Guarantor's obligations
under each series of Corresponding Junior Subordinated Debentures and Debenture
Guarantee, the Indenture, the related Trust Agreement, the related Expense
Agreement, and the related Guarantee and Additional Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Related 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 Related Capital
Securities. If and to the extent that the Corporation and the Guarantor do not
make payments on any series of Corresponding Junior Subordinated Debentures or
the related Debenture Guarantee, respectively, such Issuer will not pay
Distributions or other amounts due on its Related Capital Securities. The
Guarantees and Additional Guarantees do not cover payment of Distributions when
the related Issuer does not have sufficient funds to pay such Distributions. In
such event, the remedy of a holder of a series of Capital Securities is to
institute a legal proceeding directly against the Corporation or the Guarantor
pursuant to the terms of the Indenture for enforcement of payment of amounts of
such Distributions to such holder. The obligations of the Corporation and the
Guarantor under each Guarantee and Additional Guarantee are subordinate and
junior in right of payment to all Senior Debt of the Corporation and the
Guarantor, respectively.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
each series of Corresponding Junior Subordinated Debentures, such payments will
be sufficient to cover Distributions and other payments due on the Related
Capital Securities, primarily because (i) the aggregate principal amount of each
series of Corresponding Junior Subordinated Debentures will be equal to the sum
of the aggregate stated Liquidation Amount of the Related Capital Securities and
related Common Securities; (ii) the interest rate and interest and other payment
dates on each series of Corresponding Junior Subordinated Debentures will match
the Distribution rate and Distribution and other payment dates for the Related
Capital Securities; (iii) the Corporation or the Guarantor shall pay for all and
any costs, expenses and liabilities of such Issuer except the Issuer's
obligations to holders of its Capital Securities under such Capital Securities;
and (iv) each Trust Agreement provides that the Issuer will not engage in any
activity that is not consistent with the limited purposes of such Issuer.
Notwithstanding anything to the contrary in the Indenture, each of the
Corporation and the Guarantor has the right to set-off any payment it is
otherwise required to make thereunder with and to the extent the Corporation or
the Guarantor has theretofore made, or is concurrently on the date of such
payment making, a payment under the related Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Corporation or the Guarantor to enforce its rights under the related
Guarantee or Additional Guarantee without first instituting a legal proceeding
against the Guarantee Trustee, the related Issuer or any other person or entity.
A default or event of default under any Senior Debt of the Corporation or
the Guarantor would not constitute a default or Debenture Event of Default.
However, in the event of payment defaults under, or acceleration of, Senior Debt
of the Corporation or the Guarantor, the subordination provisions of the
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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 any series of Junior Subordinated Debentures would constitute a
Debenture Event of Default.
LIMITED PURPOSE OF ISSUERS
Each Issuer's Capital Securities evidence a beneficial interest in such
Issuer, and each 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 of a Junior Subordinated Debenture is that a
holder of a Junior Subordinated Debenture is entitled to receive from the
Corporation the principal amount of and interest accrued on Junior Subordinated
Debentures held, while a holder of Capital Securities is entitled to receive
Distributions from such Issuer (or from the Corporation or the Guarantor under
the applicable Guarantee or Additional Guarantee) if and to the extent such
Issuer has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
any Issuer involving the liquidation of the Corresponding Junior Subordinated
Debentures, the holders of the Related Capital Securities will be entitled to
receive, out of the assets held by such 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
Corporation or the Guarantor, the Property Trustee, as holder of the
Corresponding Junior Subordinated Debentures (with related Debenture
Guarantees), would be a subordinated creditor of the Corporation or the
Guarantor, respectively, 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 Corporation or the Guarantor, as
the case may be, receive payments or distributions. Since each of the
Corporation and the Guarantor is the guarantor under the Guarantee and
Additional Guarantee, respectively, and has agreed to pay for all costs,
expenses and liabilities of each 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 Corresponding Junior Subordinated
Debentures (with related Debenture Guarantees) relative to other creditors and
to stockholders of the Corporation or the Guarantor, respectively, in the event
of liquidation or bankruptcy of the Corporation or the Guarantor are expected to
be substantially the same.
PLAN OF DISTRIBUTION
The Junior Subordinated Debentures or the Capital Securities may be sold in
a public offering to or through underwriters or dealers designated from time to
time. The Corporation and each Issuer may sell its Junior Subordinated
Debentures or Capital Securities 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 Junior Subordinated
Debentures or Capital Securities in respect of which this Prospectus is
delivered, the amount or number of Junior Subordinated Debentures and Capital
Securities to be purchased by any such underwriters and any applicable
commissions or discounts will be set forth in the applicable Prospectus
Supplement.
Underwriters may offer and sell Junior Subordinated Debentures or Capital
Securities 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 Corporation and/or the applicable Issuer in the form of underwriting
discounts or commissions and may also receive commissions. Underwriters may sell
Junior Subordinated Debentures or Capital Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters.
48
<PAGE> 80
Any underwriting compensation paid by the Corporation and/or the applicable
Issuer to underwriters in connection with the offering of Junior Subordinated
Debentures or Capital Securities, 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 Junior Subordinated Debentures or Capital Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of such Junior Subordinated Debentures
or Capital Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters and dealers may be entitled,
under agreement with the Corporation and the applicable Issuer, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by the
Corporation for certain expenses.
In connection with the offering of the Capital Securities of any Issuer,
such 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 such 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 Corporation and/or the Guarantor and/or the applicable Issuer
and/or any of their affiliates in the ordinary course of business.
The Junior Subordinated Debentures and the Capital Securities will be new
issues of securities and will have no established trading market. Any
underwriters to whom Junior Subordinated Debentures or Capital Securities are
sold for public offering and sale may make a market in such Junior Subordinated
Debentures and Capital Securities, but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. Such
Junior Subordinated Debentures or Capital Securities may or may not be listed on
a national securities exchange or the Nasdaq National Market's Stock Market. No
assurance can be given as to the liquidity of or the existence of trading
markets for any Junior Subordinated Debentures or Capital Securities.
VALIDITY OF SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, certain
matters of Delaware law relating to the validity of the Capital Securities, the
enforceability of the Trust Agreements and the formation of the Issuers will be
passed upon by Richards, Layton & Finger, One Rodney Square, Wilmington,
Delaware 19801, special Delaware counsel to the Corporation and the Issuers.
Unless otherwise indicated in the applicable Prospectus Supplement, the validity
of the Guarantees, the Additional Guarantees, the Junior Subordinated Debentures
and the Debenture Guarantees will be passed upon for the Corporation by Sullivan
& Cromwell, 125 Broad Street, New York, New York 10004, and for the Underwriters
by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), 425 Lexington Avenue, New York, New York 10017. The validity of
the Additional Guarantees and the Debenture Guarantees will be passed upon as to
matters of Puerto Rico law for the Corporation by Brunilda Santos de Alvarez,
Esq., counsel to the Guarantor. Sullivan & Cromwell and Simpson Thacher &
Bartlett will rely as to certain matters of Delaware law upon the opinion of
Richards, Layton & Finger and as to all matters of Puerto Rico law upon the
opinion of Brunilda Santos de Alvarez, Esq.
EXPERTS
The consolidated financial statements of the Guarantor and subsidiaries
incorporated in this Prospectus by reference from the Guarantor's Annual Report
on Form 10-K for the year ended December 31, 1995 have been audited by Price
Waterhouse, independent accountants, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
49
<PAGE> 81
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION, THE GUARANTOR, THE SERIES A ISSUER OR ANY UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
CORPORATION, THE GUARANTOR OR THE SERIES A ISSUER SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors............................. S-5
BanPonce Trust I......................... S-10
Recent Developments...................... S-11
Consolidated Ratios of Earnings to Fixed
Changes of the Guarantor............... S-11
Summary Financial Data................... S-12
Use of Proceeds.......................... S-13
Capitalization........................... S-13
Accounting Treatment..................... S-14
Certain Terms of Series A Capital
Securities............................. S-14
Certain Terms of Series A Subordinated
Debentures............................. S-18
Certain Terms of Series A Guarantee and
Series A Additional Guarantee.......... S-22
Certain Terms of Series A Debenture
Guarantees............................. S-23
ERISA Considerations..................... S-24
Certain Federal Income Tax
Consequences........................... S-26
Underwriting............................. S-30
Validity of Securities................... S-31
PROSPECTUS
Available Information.................... 3
Incorporation of Certain Documents by
Reference.............................. 3
The Corporation.......................... 5
The Guarantor............................ 5
Consolidated Ratios of Earnings to Fixed
Changes of the Guarantor............... 6
Supervision and Regulation............... 6
The Issuers.............................. 14
Use of Proceeds.......................... 14
Description of Junior Subordinated
Debentures............................. 15
Description of Debenture Guarantees...... 27
Description of Capital Securities........ 29
Book-Entry Issuance...................... 41
Description of Guarantees and Additional
Guarantees............................. 43
Relationship Among the Capital
Securities, the Corresponding Junior
Subordinated Debentures, the Expense
Agreement, the Guarantees and the
Additional Guarantees.................. 47
Plan of Distribution..................... 48
Validity of Securities................... 49
Experts.................................. 49
</TABLE>
$150,000,000
BANPONCE TRUST I
8.327%
Capital Securities,
Series A
(Liquidation Amount $1,000
per Capital Security)
fully and unconditionally guaranteed,
as described herein, by
BANPONCE
FINANCIAL CORP.
AND
BANPONCE CORPORATION
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
