PROSPECTUS
1,200,000 PREFERRED SECURITIES
PEOPLE'S BANCSHARES CAPITAL TRUST
9.76% Cumulative Trust Preferred Securities [LOGO]
(Liquidation Amount $10 Per Preferred Security)
guaranteed, as described herein, by
PEOPLE'S BANCSHARES, INC.
--------------------
$12,000,000 9.76% SUBORDINATED DEBENTURES OF
PEOPLE'S BANCSHARES, INC.
--------------------
The 9.76% Cumulative Trust Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of People's Bancshares Capital Trust, a statutory business trust created under
the laws of the State of Delaware (the "Trust"). People's Bancshares, Inc., a
Massachusetts corporation (the "Company"), will own all the common securities
(the "Common Securities" and, together with the Preferred Securities, the "Trust
Securities") representing undivided beneficial interests in the assets of the
Trust.
(continued on next page)
The Preferred Securities have been approved for quotation on The Nasdaq
Stock Market's National Market under the Symbol "PBKBP."
-----------------
SEE "RISK FACTORS" beginning on page 11 for a discussion of certain factors
that should be considered by prospective investors.
-----------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
-----------------
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.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) TRUST(2)
- --------------------------------------------------------------------------------
Per Preferred Security $10 (2) $10
- --------------------------------------------------------------------------------
Total(3) $12,000,000 (2) $12,000,000
================================================================================
(1) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Subordinated Debentures, the Company, as
issuer of the Subordinated Debentures, has agreed to pay the Underwriters,
as compensation, $0.50 per Preferred Security or $600,000 in the aggregate
($690,000 if the over allotment option is exercised in full). See
"Underwriting." The Company has also agreed to pay the expenses of the
offering estimated to be $300,000.
(3) The Trust has granted the Underwriters an option exercisable within 30 days
from the date of this Prospectus to purchase up to 180,000 additional
Preferred Securities on the same terms and conditions set forth above to
cover over-allotments, if any. If all such additional Preferred Securities
are purchased, the total Price to Public and Proceeds to Trust will be
$13,800,000. See "Underwriting."
-------------------
The Preferred Securities are offered by the Underwriters subject to
receipt and acceptance by them, prior sale and the Underwriters' right to reject
any order in whole or in part. It is expected that delivery of the Preferred
Securities will be made through the facilities of the Depository Trust Company
("DTC") and, in certain circumstances, in certificated form in New York, New
York on or about June 25, 1997 against payment therefor in immediately available
funds.
SANDLER O'NEILL & PARTNERS, L.P. STIFEL, NICOLAUS & COMPANY
INCORPORATED
June 19, 1997
(continued from the previous page)
State Street Bank and Trust Company is the Property Trustee (as defined
herein) of the Trust. The Trust exists for the purpose of issuing the Preferred
Securities and investing the proceeds thereof in an equivalent amount of 9.76%
Subordinated Debentures (the "Subordinated Debentures") of the Company. The
Subordinated Debentures will mature on June 30, 2027, which date may be (i)
shortened to a date not earlier than June 30, 2002, or (ii) extended to a date
not later than June 30, 2036, in each case if certain conditions are met
(including, in the case of shortening the Stated Maturity (as defined herein),
the Company having received prior approval of the Board of Governors of the
Federal Reserve System ("Federal Reserve") to do so if then required under
applicable capital guidelines or policies of the Federal Reserve). The Preferred
Securities will have a preference over the Common Securities under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of the Preferred
Securities -- Subordination of Common Securities."
Holders of Preferred Securities are entitled to receive preferential
cumulative cash distributions, at the annual rate of 9.76% of the liquidation
amount of $10 per Preferred Security (the "Liquidation Amount"), accruing from
June 25, 1997, the date of original issuance, and payable quarterly in arrears
on the last day of March, June, September and December of each year, commencing
September 30, 1997 (the "Distributions"). The Company has the right, so long as
no Debenture Event of Default (as defined herein) has occurred and is
continuing, to defer payment of interest on the Subordinated Debentures at any
time or from time to time for a period not to exceed 20 consecutive quarters
with respect to each deferral period (each, an "Extension Period"); provided
that no Extension Period may extend beyond the Stated Maturity of the
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may elect to begin a new
Extension Period subject to the requirements set forth herein. If interest
payments on the Subordinated Debentures are so deferred, Distributions on the
Preferred Securities will also be deferred, and the Company will not be
permitted, subject to certain exceptions described herein, to declare or pay any
cash distributions with respect to its capital stock or debt securities that
rank pari passu with or junior to the Subordinated Debentures. DURING AN
EXTENSION PERIOD, INTEREST ON THE SUBORDINATED DEBENTURES WILL CONTINUE TO
ACCRUE (AND THE AMOUNT OF DISTRIBUTIONS TO WHICH HOLDERS OF THE PREFERRED
SECURITIES ARE ENTITLED WILL ACCUMULATE) AT THE RATE OF 9.76% PER ANNUM,
COMPOUNDED QUARTERLY, AND HOLDERS OF THE PREFERRED SECURITIES WILL BE REQUIRED
TO INCLUDE INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH RESPECT
TO SUCH DEFERRED INTEREST PAYMENTS. UPON THE OCCURRENCE OF AN EXTENSION PERIOD,
A HOLDER OF PREFERRED SECURITIES THAT DISPOSES OF ITS PREFERRED SECURITIES
BETWEEN RECORD DATES FOR PAYMENTS OF DISTRIBUTIONS (AND CONSEQUENTLY DOES NOT
RECEIVE A DISTRIBUTION FROM THE TRUST FOR THE PERIOD PRIOR TO SUCH dISPOSITION)
WILL NEVERTHELESS BE REQUIRED TO INCLUDE ACCRUED BUT UNPAID INTEREST ON THE
SUBORDINATED DEBENTURES THROUGH THE DATE OF DISPOSITION IN INCOME AS ORDINARY
INCOME AND TO ADD SUCH AMOUNT TO ITS ADJUSTED TAX BASIS IN ITS PRO RATA SHARE OF
THE UNDERLYING SUBORDINATED DEBENTURES DEEMED DISPOSED OF. See "Description of
the Subordinated Debentures -- Option to Extend Interest Payment Period,"
"Certain Federal Income Tax Consequences -- Potential Extension of Interest
Payment Period and Original Issue Discount" and "-- Disposition of Preferred
Securities."
The Company and the Trust believe that, taken together, the obligations of
the Company under the Guarantee, the Trust Agreement, the Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein)
provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a
subordinated basis, of all of the obligations of the Trust under the Preferred
Securities. See "Relationship Among the Preferred Securities, the Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Trust, as described herein. See "Description of
the Guarantee -- General." If the Company does not make interest payments on the
Subordinated Debentures held by the Trust, the Trust will have insufficient
funds to pay Distributions on the Preferred Securities. The Guarantee does not
cover payments of Distributions when the Trust does not have sufficient funds to
pay such Distributions. In such event, a holder of Preferred Securities may
institute a legal proceeding directly against the Company pursuant to the terms
of the Indenture to enforce payments of amounts equal to such Distributions to
such holder. See "Description of
2
the Subordinated Debentures -- Enforcement of Certain Rights by Holders of the
Preferred Securities." The obligations of the Company under the Guarantee and
the Preferred Securities are subordinate and junior in right of payment to all
Senior Debt, Subordinated Debt and Additional Senior Obligations (each as
defined herein) of the Company. The Subordinated Debentures are unsecured
obligations of the Company and are subordinated to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company.
The Preferred Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debentures at maturity or their earlier
redemption. Subject to Federal Reserve approval, if then required under
applicable capital guidelines or policies of the Federal Reserve, the
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (i) on or after June 30, 2002, in whole at any time or in part from time
to time, or (ii) at any time, in whole (but not in part), within 180 days
following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event (each as defined herein), in each case at a redemption
price equal to the accrued and unpaid interest on the Subordinated Debentures so
redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof. See "Description of the Preferred Securities -- Redemption or
Exchange."
The Company has the right at any time to dissolve the Trust, subject to the
Company having received prior approval of the Federal Reserve to do so if then
required under applicable capital guidelines or policies of the Federal Reserve.
In the event of the voluntary or involuntary dissolution of the Trust, after
satisfaction of liabilities to creditors of the Trust as required by applicable
law, the holders of Preferred Securities will be entitled to receive a
Liquidation Amount of $10 per Preferred Security, plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
Subordinated Debenture having an aggregate principal amount equal to the
Liquidation Amount of such Preferred Securities (and carrying with it
accumulated interest in an amount equal to the accumulated and unpaid
Distributions then due on such Preferred Securities), subject to certain
exceptions. See "Description of the Preferred Securities -- Redemption or
Exchange" and "-- Liquidation Distribution Upon Dissolution."
The Company will provide to the holders of the Preferred Securities
quarterly reports containing unaudited financial statements and annual reports
containing financial statements audited by the Company's independent auditors.
The Company will also furnish annual reports on Form 10-K and quarterly reports
on Form 10-Q free of charge to holders of the Preferred Securities who so
request in writing addressed to the Clerk of the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING THE PREFERRED SECURITIES AND
BIDDING FOR AND PURCHASING SUCH PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
3
[MAP]
4
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. As used herein, (i) the
"Indenture " means the Indenture, to be dated as of June 25, 1997, as amended
and supplemented from time to time, between the Company and State Street Bank
and Trust Company, as trustee (the "Debenture Trustee"), relating to the
Subordinated Debentures, (ii) the "Trust Agreement" means the Amended and
Restated Declaration of Trust relating to the Trust among the Company, as
Depositor, State Street Bank and Trust Company, as Property Trustee (the
"Property Trustee"), Wilmington Trust Company, as Delaware Trustee (the
"Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees") and (iii) the "Guarantee" means the Guarantee Agreement relating to
the Preferred Securities between the Company and State Street Bank and Trust
Company, as Guarantee Trustee (the "Guarantee Trustee").
PEOPLE'S BANCSHARES, INC.
The Company is a one-bank holding company that operates primarily through
People's Savings Bank of Brockton (the "Bank"). The Bank is a community bank,
with 14 branches located in and around the communities of Brockton, New Bedford
and Taunton in Southeastern Massachusetts. The Bank has experienced a
significant turnaround during the last five years, from suffering a loss in 1992
to achieving a return on average equity of 13.03% in 1996 and 16.28% in the
first quarter of 1997. Asset size increased from $163.5 million at December 31,
1992 to $548.8 million at March 31, 1997.
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------- ------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Pre tax income (loss) $ 2,049 $ 1,094 $ 5,444 $ 3,023 $ 1,734 $ 15 $ (2,390)
Net income (loss) 1,308 687 3,559 2,194 1,974 1,053 (377)
Earnings (loss) per share
(fully diluted) 0.36 0.25 1.09 0.87 0.84 0.46 (0.16)
Assets 548,774 533,134 496,133 324,440 231,566 190,661 163,483
Deposits 328,331 322,261 336,238 174,583 134,345 137,602 146,814
Stockholders' equity 30,790 27,382 31,064 19,677 16,975 15,971 14,872
Return (loss) on average total
equity 16.28% 12.20% 13.03% 11.65% 11.80% 6.77% (2.62)%
</TABLE>
The Company has sought to consistently increase earnings per share and to
maximize return on equity through a combination of strategies, including:
* Capital Management. The Company intends to continue to focus on managing
its capital to provide an attractive return on equity. As part of this
strategy, the Company has significantly increased its assets through the
use of borrowings to purchase mortgage-backed securities. These
borrowings, consisting of Federal Home Loan Bank ("FHLB") advances and
repurchase agreements, have increased from none at December 31, 1992 to
$184.4 million at March 31, 1997.
* Residential Mortgage Brokerage. The Company has sought to increase
non-interest income through the establishment in 1995 of a residential
mortgage loan origination and brokerage subsidiary. This subsidiary
currently maintains five mortgage loan production offices. The Company's
loan originations have increased from $17 million in 1994 to $229 million
in 1996 and $65 million for the three months ended March 31, 1997. The
Company sells substantially all of the mortgage loans it originates,
together with the servicing rights to such loans, to third parties.
5
* Commercial Lending. One of the Company's recently adopted principal
strategies is to increase core earnings by redeploying funds from
investments into commercial business and commercial mortgage loans to
small businesses and middle market companies in its market area. These
companies tend to be privately-held and owner-operated with annual sales
of less than $25 million and with typical borrowing arrangements of
$250,000 to $1.5 million. Partly as a result of recent acquisitions, total
commercial loans increased from approximately $39 million at December 31,
1995 to approximately $55 million at March 31, 1997. In carrying out this
strategy, the Bank intends to utilize the experience that several of its
senior managers and commercial lending officers have acquired through
prior service with larger commercial banking institutions.
* Acquisitions. The Company intends to continue to consider opportunities
for expansion through selective acquisitions as a means of realizing
improved economies of scale and increased market penetration and scope, if
and when suitable opportunities arise. In four acquisitions consummated
during 1995 and 1996 the Bank acquired nine branch locations and assets
having an aggregate value of $186.2 million at the time of acquisition. As
part of the integration process of these acquisitions, the Company has
upgraded and conformed its technology and processes to establish an
operational infrastructure conducive to further growth.
The principal executive office of the Company is located at 545 Pleasant
Street, New Bedford, Massachusetts 02740 and its telephone number is (508)
991-2601.
PEOPLE'S BANCSHARES CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law upon the
filing of a certificate of trust with the Delaware Secretary of State. The
Trust's business and affairs are conducted by the Issuer Trustees: the Property
Trustee, the Delaware Trustee, and the three individual Administrative Trustees,
who are officers of the Company. The Trust exists for the exclusive purposes of
(i) issuing and selling the Trust Securities, (ii) using the proceeds from the
sale of the Trust Securities to acquire the Subordinated Debentures issued by
the Company and (iii) engaging in only those other activities necessary,
advisable or incidental thereto. The Subordinated Debentures will be the sole
assets of the Trust and, accordingly, payments under the Subordinated Debentures
will be the sole revenue of the Trust. All of the Common Securities will be
owned by the Company.
6
THE OFFERING
Securities Offered 1,200,000 Preferred Securities having a
Liquidation Amount of $10 per Preferred
Security. The Preferred Securities represent
preferred undivided beneficial interests in
the assets of the Trust, which will consist
solely of the Subordinated Debentures and
payments thereunder. The Trust has granted
the Underwriters an option, exercisable
within 30 days after the date of this
Prospectus, to purchase up to an additional
180,000 Preferred Securities at the initial
offering price, solely to cover
over-allotments, if any.
Distributions The Distributions payable on each Preferred
Security will be fixed at a rate per annum
of 9.76% of the Liquidation Amount of $10
per Preferred Security, will be cumulative,
will accrue from June 25, 1997, the date of
original issuance of the Preferred
Securities, and will be payable quarterly in
arrears, on March 31, June 30, September 30
and December 31 of each year, commencing
September 30, 1997. See "Description of the
Preferred Securities -- Distributions --
Payment of Distributions."
Option to Extend
Interest Payment
Period The Company has the right, at any time, so
long as no Debenture Event of Default has
occurred and is continuing, to defer
payments of interest on the Subordinated
Debentures for a period not exceeding 20
consecutive quarters; provided, that no
Extension Period may extend beyond the
Stated Maturity of the Subordinated
Debentures. As a consequence of the
extension by the Company of the interest
payment period, quarterly Distributions on
the Preferred Securities will be deferred
(though such Distributions will continue to
accrue with interest thereon compounded
quarterly, since interest will continue to
accrue and compound on the Subordinated
Debentures) during any such Extension
Period. During an Extension Period, the
Company will be prohibited, subject to
certain exceptions described herein, from
declaring or paying any cash distributions
with respect to its capital stock or debt
securities that rank pari passu with or
junior to the Subordinated Debentures. Upon
the termination of any Extension Period and
the payment of all amounts then due, the
Company may commence a new Extension Period,
subject to the foregoing requirements. See
"Description of the Preferred Securities --
Distributions -- Extension Period" and
"Description of the Subordinated Debentures
-- Option to Extend Interest Payment
Period." Should an Extension Period occur,
holders of Preferred Securities will be
required to include deferred interest income
in their gross income for United States
federal income tax purposes in advance of
receipt of the cash distributions with
respect to such deferred interest payments.
See "Certain Federal Income Tax Consequences
-- Potential Extension of Interest Payment
Period and Original Issue Discount."
Optional Redemption The Preferred Securities are subject to
mandatory redemption, in whole or in part,
upon repayment of the Subordinated
Debentures at maturity or their earlier
redemption. Subject to
7
Federal Reserve approval, if then required
under applicable capital guidelines or
policies of the Federal Reserve, the
Subordinated Debentures are redeemable prior
to maturity at the option of the Company (i)
on or after June 30, 2002, in whole at any
time or in part from time to time, or (ii)
at any time, in whole (but not in part),
within 180 days following the occurrence of
a Tax Event, a Capital Treatment Event or an
Investment Company Event, in each case at a
redemption price equal to 100% of the
principal amount of the Subordinated
Debentures, together with any accrued but
unpaid interest on the Subordinated
Debentures to the date fixed for redemption.
See "Description of the Subordinated
Debentures -- Redemption or Exchange."
Ranking The Preferred Securities will rank pari
passu, and payments thereon will be made pro
rata, with the Common Securities except as
described under "Description of Preferred
Securities -- Subordination of Common
Securities." The Subordinated Debentures
will rank pari passu with all other
Subordinated Debentures (if any) issued by
the Company (the "Other Debentures"), which
are issued and sold (if at all) to other
trusts established by the Company (if any),
in each case similar to the Trust ("Other
Trusts"), and will constitute unsecured
obligations of the Company and will rank
subordinate and junior in right of payment
to all Senior Indebtedness to the extent and
in the manner set forth in the Indenture.
See "Description of Subordinated
Debentures." The Guarantee will rank pari
passu with all other guarantees (if any)
issued by the Company with respect to
Preferred Securities (if any) issued by
Other Trusts ("Other Guarantees") and will
constitute an unsecured obligation of the
Company and will rank subordinate and junior
in right of payment to all Senior
Indebtedness to the extent and in the manner
set forth in the Guarantee Agreement. See
"Description of Guarantee." In addition,
because the Company is a holding company,
the Subordinated Debentures and the
Guarantee will be effectively subordinated
to all existing and future liabilities of
the Company's subsidiaries, including the
Bank's deposit liabilities. See "Description
of Subordinated Debentures --
Subordination."
Distribution of
Subordinated Debentures The Company has the right at any time to
dissolve Subordinated the Trust and, after
satisfaction of liabilities Debentures to
creditors of the Trust as required by
applicable law, cause the Subordinated
Debentures to be distributed to holders of
Preferred Securities in liquidation of the
Trust, subject to the Company having
received prior approval of the Federal
Reserve to do so if then required under
applicable capital guidelines or policies of
the Federal Reserve. See "Description of the
Preferred Securities -- Redemption or
Exchange" and "Description of the Preferred
Securities -- Liquidation Distribution Upon
Dissolution."
Guarantee The Company has guaranteed the payment of
Distributions and payments on liquidation or
redemption of the Preferred Securities, but
only in each case to the extent of funds
held by the Trust, as described herein. The
Company and the Trust
8
believe that, taken together, the
obligations of the Company under the
Guarantee, the Trust Agreement, the
Subordinated Debentures, the Indenture and
the Expense Agreement provide, in the
aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated
basis, of all of the obligations of the
Trust under the Preferred Securities. The
obligations of the Company under the
Guarantee and the Preferred Securities are
subordinate and junior in right of payment
to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the
Company. If the Company does not make
principal or interest payments on the
Subordinated Debentures, the Trust will not
have sufficient funds to make distributions
on the Preferred Securities. In such event,
the Guarantee will not apply to such
Distributions until the Trust has sufficient
funds available therefor. See "Description
of the Guarantee."
Voting Rights The holders of the Preferred Securities will
have no voting rights except in limited
circumstances. See "Description of the
Preferred Securities -- Voting Rights;
Amendment of Trust Agreement."
Use of Proceeds All of the proceeds from the sale of the
Trust Securities will be invested by the
Trust in the Subordinated Debentures. The
Company intends to use the net proceeds from
the sale of the Subordinated Debentures for
general corporate purposes, including the
repurchase of outstanding equity securities
of the Company, contributions to the Bank to
fund its operations and the financing of one
or more future acquisitions by the Company
if and when suitable opportunities arise.
Initially, the net proceeds may be used to
make investments in short average-life
securities. See "Use of Proceeds."
Nasdaq National Market Symbol The Preferred Securities have been approved
for quotation on The Nasdaq Stock Market's
National Market under the symbol "PBKBP."
9
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994 1993 1992
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 548,774 $ 533,134 $ 496,133 $324,440 $231,566 $ 190,661 $ 163,483
Investment securities 252,346 223,458 192,517 166,709 103,621 64,671 30,818
Loans, net 244,962 245,994 246,195 129,778 111,103 107,906 105,150
Deposits 328,331 322,261 336,238 174,583 134,345 137,602 146,814
Borrowed funds 184,358 153,337 123,920 126,245 77,580 35,000 --
Stockholders' equity 30,790 27,382 31,064 19,677 16,975 15,971 14,872
CONSOLIDATED OPERATING DATA:
Interest and dividend income $ 9,729 $ 6,609 $ 33,761 $ 19,729 $ 14,293 $ 12,057 $ 12,997
Interest expense 5,315 3,655 18,595 11,149 6,559 4,998 6,671
----- --- ----- ----- ----- ----- ------
Net interest income 4,414 2,954 15,166 8,580 7,734 7,059 6,326
Provision for loan losses -- 75 75 525 807 1,492 1,363
----- --- ----- ----- ----- ----- ------
Net interest income, after
provision for loan losses 4,414 2,879 15,091 8,055 6,927 5,567 4,963
Other income 1,282 895 4,031 1,755 1,033 1,368 1,154
Operating expenses 3,647 2,680 13,678 6,787 6,226 6,920 8,507
----- --- ----- ----- ----- ----- ------
Income (loss) before income taxes
and extraordinary item 2,049 1,094 5,444 3,023 1,734 15 (2,390)
Provision (benefit) for income taxes 741 407 1,885 829 (240) (1,038) (983)
----- --- ----- ----- ----- ----- ------
Income (loss) before extraordinary
item 1,308 687 3,559 2,194 1,974 1,053 (1,407)
----- --- ----- ----- ----- ----- ------
Extraordinary item -- -- -- -- -- -- 1,030
Net income (loss) $ 1,308 $ 687 $ 3,559 $ 2,194 $ 1,974 $ 1,053 $ (377)
======== ========= ========= ========= ========= ========= ========
Weighted average common shares outstanding --
primary (in thousands) 3,646 2,744 3,260 2,414 2,338 2,300 2,300
Weighted average common shares outstanding --
fully diluted (in thousands) 3,646 2,744 3,268 2,523 2,338 2,330 2,300
PER SHARE DATA:
Primary earnings (loss) per common share before
extraordinary item $ 0.36 $ 0.25 $ 1.09 $ 0.91 $ 0.84 $ 0.46 $ (0.61)
Primary earnings (loss) per common share 0.36 0.25 1.09 0.91 0.84 0.46 (0.16)
Fully diluted earnings (loss) per common share
before extraordinary item 0.36 0.25 1.09 0.87 0.84 0.46 (0.61)
Fully diluted earnings (loss) per common share 0.36 0.25 1.09 0.87 0.84 0.46 (0.16)
Cash dividends paid per common share 0.09 0.05 0.27 0.04 -- -- --
Book value per common share 8.57 8.20 8.72 8.47 7.38 6.94 6.47
SELECTED FINANCIAL DATA:
Return (loss) on average assets(1) 0.97% 0.75% 0.74% 0.81% 0.95% 0.62% (0.23)%
Return (loss) on average equity(1) 16.28 12.20 13.03 11.65 11.80 6.77 (2.62)
Weighted average interest rate spread 3.07 3.03 2.92 2.94 3.62 4.26 3.91
Dividend payout ratio 25.00 20.00 24.77 4.40 -- -- --
Allowance for loan losses to total loans(2) 1.65 1.93 1.71 2.75 2.79 3.18 3.30
Non-performing loans to total loans(2)(3) 1.36 2.05 1.40 3.44 1.97 3.26 5.33
Allowance for loan losses to non-performing
loans(4) 121.24 94.08 122.08 79.84 141.70 97.47 61.96
Non-performing assets to total assets 0.81 1.09 0.88 1.65 2.40 4.43 9.12
Efficiency ratio(5) 63.10 69.16 70.94 64.30 60.35 68.11 80.88
CAPITAL RATIOS
Average total stockholders' equity to average total
assets 5.97 6.11 5.70 6.92 8.09 9.23 8.82
Total risk-based capital ratio 13.95 10.81 13.56 12.17 15.40 14.81 13.30
Leverage Ratio 5.89 7.34 6.01 6.04 7.87 8.63 8.94
RATIO OF EARNINGS TO COMBINED FIXED CHARGES(6)
Including interest on deposits 1.38x 1.29x 1.29x 1.27x 1.26x 1.00x 0.65x
Excluding interest on deposits 1.80x 1.56x 1.64x 1.53x 1.63x 1.03x --
</TABLE>
- ------------
(1) Annualized for the three months ended March 31, 1997 and 1996.
(2) Total loans includes loans and loans held for sale.
(3) If prior periods had been restated to reflect the adoption of SFAS 114
the ratio would have been 4.04%, 5.55% and 8.58%, at December 31, 1994, 1993
and 1992, respectively.
(4) If prior periods had been restated to reflect the adoption of SFAS 114, the
ratio would have been 67.76%, 55.99% and 37.17% at December 31, 1994, 1993
and 1992, respectively.
(5) Equals operating expenses, exclusive of expenses associated with other real
estate owned, divided by the sum of net interest income and other income.
(6) For purposes of calculating the ratio of earnings to combined fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.
10
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors in evaluating the Company and its business and the Trust
before purchasing the Preferred Securities offered hereby. Prospective investors
should note, in particular, that this Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Act of 1934,
as amended (the "Exchange Act"), and that actual results could differ materially
from those contemplated by such statements. The considerations listed below
represent certain important factors the Company believes could cause such
results to differ. These considerations are not intended to represent a complete
list of the general or specific risks that may affect the Company and the Trust.
It should be recognized that other risks may be significant, presently or in the
future, and the risks set forth below may affect the Company and the Trust to a
greater extent than indicated.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS uNDER THE GUARANTEE AND THE SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued for the benefit of
the holders of Preferred Securities and under the Subordinated Debentures are
unsecured and rank subordinate and junior in right of payment to all Senior
Debt, Subordinated Debt and Additional Senior Obligations of the Company,
whether now existing or hereafter incurred. At May 31, 1997, the Company had no
outstanding Senior Debt, Subordinated Debt or Additional Senior Obligations.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of the Bank upon the Bank's
liquidation or reorganization or otherwise (and thus the ability of holders of
the Preferred Securities to benefit indirectly from such distribution) is
subject to the prior claims of creditors of the Bank, except to the extent that
the Company may itself be recognized as a creditor of the Bank. The Subordinated
Debentures, therefore, will be effectively subordinated to all existing and
future liabilities of the Bank and holders of Subordinated Debentures and
Preferred Securities should look only to the assets of the Company for payments
on the Subordinated Debentures. Neither the Indenture, the Guarantee nor the
Trust Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Debt, Subordinated Debt and Additional Senior
Obligations, that may be incurred by the Company. See "Description of the
Guarantee -- Status of the Guarantee" and "Description of the Subordinated
Debentures -- Subordination."
The ability of the Trust to pay amounts due on the Preferred Securities is
solely dependent upon the Company making payments on the Subordinated Debentures
as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture Event
of Default has occurred and is continuing, to defer the payment of interest on
the Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period;
provided that no Extension Period may extend beyond the Stated Maturity of the
Subordinated Debentures. As a consequence of any such deferral, quarterly
Distributions on the Preferred Securities by the Trust will be deferred (and the
amount of Distributions to which holders of the Preferred Securities are
entitled will accumulate additional Distributions thereon at the rate of 9.76%
per annum, compounded quarterly from the relevant payment date for such
Distributions) during any such Extension Period. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock, (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu with or junior in interest to the Subordinated
Debentures or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu with or junior in interest to the Subordinated
Debentures (other than payments under
11
the Guarantee), or (iii) redeem, purchase or acquire less than all of the
Subordinated Debentures or any of the Preferred Securities. Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest; provided, that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the 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 9.76% compounded quarterly, to the extent permitted by applicable law),
the Company may elect to begin a new Extension Period, subject to the above
requirements. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See "Description
of the Preferred Securities -- Distributions -- Extension Period" and
"Description of the Subordinated Debentures -- Option to Extend Interest Payment
Period."
Should an Extension Period occur, each holder of Preferred Securities will
be required to accrue and recognize income (in the form of original issue
discount ("OID")) in respect of its pro rata share of the interest accruing on
the Subordinated Debentures held by the Trust for United States federal income
tax purposes. A holder of Preferred Securities must, as a result, include such
income in gross income for United States federal income tax purposes in advance
of the receipt of cash, and will not receive the cash related to such income
from the Trust if the holder disposes of the Preferred Securities prior to the
record date for the payment of the related Distributions. See "Certain Federal
Income Tax Consequences -- Potential Extension of Interest Payment Period and
Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. Should the Company elect, however, to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities during
an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. As a
result of the existence of the Company's right to defer interest payments, the
market price of the Preferred Securities may be more volatile than the market
prices of other securities on which original issue discount accrues that are not
subject to such optional deferrals.
TAX EVENT, CAPITAL TREATMENT EVENT OR INVESTMENT COMPANY EVENT; REDEMPTION
The Company has the right to redeem the Subordinated Debentures in whole
(but not in part) within 180 days following the occurrence of a Tax Event, a
Capital Treatment Event or an Investment Company Event (whether occurring before
or after June 30, 2002), and, therefore, cause a mandatory redemption of the
Preferred Securities. The exercise of such right is subject to the Company
having received prior approval of the Federal Reserve to do so if then required
under applicable capital guidelines or policies of the Federal Reserve.
"Tax Event" means the receipt by the Trust 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 prospective change) in the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust 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 Subordinated Debentures, (ii) interest payable
by the Company on the Subordinated Debentures is not, or, within 90 days of such
opinion, will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is, or will be within 90
days of the date of the opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges. The Company must request and
receive an opinion with regard to such matters within a reasonable period of
time after it becomes aware of the possible occurrence of any of the events
described in clauses (i) through (iii) above. See "-- Risk Factors Relating to
the Preferred Securities -- Proposed Tax Legislation" for a discussion of
certain legislative proposals that, if adopted, could give rise to a Tax Event,
which may permit the Company to cause a redemption of the Preferred Securities
prior to June 30, 2002.
12
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to or any change (including any announced prospective change) in the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the Company's ability to treat the aggregate
Liquidation Amount of the Preferred Securities (or any substantial portion
thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then applicable to
the Company; provided, however, that the inability of the Company to treat all
or any portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred capital in excess
of the amount which may qualify for treatment as Tier 1 Capital under applicable
capital adequacy guidelines of the Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
becomes effective on or after the date of original issuance of the Preferred
Securities.
SHORTENING OR EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES
The Company has the right, at any time, to shorten the maturity of the
Subordinated Debentures to a date not earlier than June 30, 2002. The exercise
of such right is subject to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve. The Company also has the right to extend the maturity of
the Subordinated Debentures (whether or not the Trust is dissolved and the
Subordinated Debentures are distributed to holders of the Preferred Securities)
to a date no later than June 30, 2036, the 39th anniversary of the initial
issuance of the Preferred Securities. Such right may only be exercised, however,
if at the time such election is made and at the time of such extension (i) the
Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the
Company is not in default in the payment of any interest or principal on the
Subordinated Debentures, (iii) the Trust is not in arrears on payments of
Distributions on the Preferred Securities and no deferred Distributions are
accumulated, and (iv) the Company has a Senior Debt rating of investment grade.
See "Description of the Subordinated Debentures -- General."
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities, to the
extent not paid by the Trust, (i) any accrued and unpaid Distributions required
to be paid on the Preferred Securities, to the extent that the Trust has funds
available therefor at such time, (ii) the Redemption Price (as defined herein)
with respect to any Preferred Securities called for redemption, to the extent
that the Trust has funds available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of the Trust
(other than in connection with the distribution of Subordinated Debentures to
the holders of Preferred Securities or a redemption of all of the Preferred
Securities), the lesser of (a) the amount of the Liquidation Distribution (as
defined herein), to the extent the Trust has funds available therefor at such
time, and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Preferred Securities in liquidation of the Trust.
The holders of not less than a majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee
13
under the Guarantee. Any holder of the Preferred Securities may institute a
legal proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other Person (as defined in the Guarantee). If the
Company were to default on its obligation to pay amounts payable under the
Subordinated Debentures, the Trust would lack funds for the payment of
Distributions or amounts payable on redemption of the Preferred Securities or
otherwise, and, in such event, holders of Preferred Securities would not be able
to rely upon the Guarantee for such amounts. In the event, however, that a
Debenture Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest on or principal of
the Subordinated Debentures on the payment date on which such payment is due and
payable, then a holder of Preferred Securities may institute a legal proceeding
directly against the Company for enforcement of payment to such holder of the
principal of or interest on such Subordinated Debentures having a principal
amount equal to the aggregate Liquidation Amount of the Preferred Securities of
such holder (a "Direct Action"). The exercise by the Company of its right, as
described herein, to defer the payment of interest on the Subordinated
Debentures does not constitute a Debenture Event of Default. In connection with
such Direct Action, the Company will have a right of set-off under the Indenture
to the extent of any payment made by the Company to such holder of Preferred
Securities in the Direct Action. Except as described herein, holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Subordinated Debentures or assert directly any
other rights in respect of the Subordinated Debentures. See "Description of the
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Preferred
Securities," "Description of the Subordinated Debentures -- Debenture Events of
Default" and "Description of the Guarantee." The Trust Agreement provides that
each holder of Preferred Securities by acceptance thereof agrees to the
provisions of the Guarantee and the Indenture.
NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES
Holders of Preferred Securities will have no voting rights except in limited
circumstances relating only to the modification of the Preferred Securities and
the exercise of the rights of the Trust as holder of the Subordinated Debentures
and the Guarantee. Holders of Preferred Securities will not be entitled to vote
to appoint, remove or replace the Property Trustee or the Delaware Trustee, as
such voting rights are vested exclusively in the holder of the Common Securities
(except upon the occurrence of certain events described herein). The Property
Trustee, the Administrative Trustees and the Company may amend the Trust
Agreement without the consent of holders of Preferred Securities to ensure that
the Trust will be classified for United States federal income tax purposes as a
grantor trust even if such action adversely affects the interests of such
holders. See "Description of the Preferred Securities -- Voting Rights;
Amendment of Trust Agreement" and "Description of the Preferred Securities --
Removal of the Trust Trustees."
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes that
would, among other things, generally deny corporate issuers a deduction for
interest in respect of certain debt obligations issued on or after December 7,
1995 (the "1996 Proposed Legislation") if such debt obligations have a maximum
term in excess of 20 years and are not shown as indebtedness on the issuer's
applicable consolidated balance sheet. On March 29, 1996, Senate Finance
Committee Chairman William V. Roth, Jr. and House Ways and Means Committee
Chairman Bill Archer issued a joint statement (the "Joint Statement") indicating
their intent that certain legislative proposals initiated by the Clinton
administration, including the 1996 Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action." In
addition, subsequent to the publication of the Joint Statement, Senator Daniel
Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote
letters to Treasury Department officials concurring with the views expressed in
the Joint Statement. Neither the 1996 Proposed Legislation nor similar
legislation was enacted during the 104th Congress. On February 6, 1997,
President Clinton proposed in the administration's fiscal year 1998 budget
certain tax law changes (the "Administration's 1997 Tax Proposals") that would,
among other things, generally deny corporate issuers a deduction for interest or
OID in respect of certain debt obligations if such debt obligations have a
maximum term in excess of 15 years and are not shown as indebtedness on the
issuer's applicable consolidated balance sheet. The Administration's 1997 Tax
Proposals also contain a provision that
14
would deny a deduction to corporate issuers for interest or OID with respect to
debt instruments that have a maximum term of more than 40 years (including
rights to extend, renew or relend), or are payable in stock of the issuer or a
related party. The U.S. Treasury Department's summary of the Administration's
1997 Tax Proposals states that the above provisions regarding the deduction of
interest would generally be effective for instruments issued on or after the
date of first Congressional committee action with respect to the 1997 proposed
legislation. On June 9, 1997, Chairman Bill Archer released his proposed budget
revenue reconciliation provisions (the "Chairman's Mark"), which proposals did
not include the above provisions from the Administration's 1997 Tax Proposals,
other than a denial of a deduction for interest or OID that is payable in stock
of the issuer or a related party. The House Ways and Means Committee began a
markup of the proposed budget revenue reconciliation provisions on June 11, 1997
(the "June Hearings"). There can be no assurance that the Chairman's Mark will
be adopted or that the effective date guidance in the Administration's 1997 Tax
Proposals will be adopted if the administration's proposed changes to the tax
law are enacted, or that the June Hearings will or will not be considered the
"first Congressional committee action." Nor can there be any assurance that
other legislation enacted after the date hereof will not otherwise adversely
affect the ability of the Company to deduct the interest payable on the
Subordinated Debentures. Consequently, there can be no assurance that a Tax
Event will not occur. A Tax Event would permit the Company, upon approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve, to cause a redemption of the Preferred Securities
before, as well as after, June 30, 2002. See "Description of the Subordinated
Debentures -- Redemption or Exchange" and "Description of the Preferred
Securities -- Redemption or Exchange -- Tax Event Redemption, Capital Treatment
Event Redemption or Investment Company Event Redemption" and "Certain Federal
Income Tax Consequences -- Effect of Proposed Changes in Tax Laws."
REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES
The Company has the right at any time to dissolve the Trust and cause the
Subordinated Debentures, after satisfaction of liabilities to creditors of the
Trust, to be distributed to the holders of the Preferred Securities in exchange
therefor in liquidation of the Trust. The exercise of such right is subject to
the Company having received prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve.
The Company will have the right, in certain circumstances, to redeem the
Subordinated Debentures in whole or in part, in lieu of a distribution of the
Subordinated Debentures by the Trust, in which event the Trust will redeem the
Trust Securities on a pro rata basis to the same extent as the Subordinated
Debentures are redeemed by the Company. Any such distribution or redemption
prior to the Stated Maturity will be subject to prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies of the
Federal Reserve. See "Description of the Preferred Securities -- Redemption or
Exchange -- Tax Event Redemption, Capital Treatment Event Redemption or
Investment Company Event Redemption."
Under current United States federal income tax law, a distribution of
Subordinated Debentures upon the dissolution of the Trust would not be a taxable
event to holders of the Preferred Securities. If, however, the Trust is
characterized as an association taxable as a corporation at the time of the
dissolution of the Trust, the distribution of the Subordinated Debentures may
constitute a taxable event to holders of Preferred Securities. Moreover, upon
occurrence of a Tax Event, a dissolution of the Trust in which holders of the
Preferred Securities receive cash may be a taxable event to such holders. See
"Certain Federal Income Tax Consequences -- Receipt of Subordinated Debentures
or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities upon a dissolution or liquidation of the Trust. The
Preferred Securities or the Subordinated Debentures may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Subordinated
Debentures, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Subordinated Debentures and should
carefully review all the information regarding the Subordinated Debentures
contained herein.
If the Subordinated Debentures are distributed to the holders of Preferred
Securities upon the liquidation of the Trust, the Company will use its best
efforts to list the Subordinated Debentures on The Nasdaq Stock Market's
National Market or such stock exchanges, if any, on which the Preferred
Securities are then listed.
15
TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID if the Subordinated
Debentures are treated as having been issued, or reissued, with OID) with
respect to the underlying Subordinated Debentures. A holder who disposes of his
Preferred Securities will be required to include in ordinary income (i) any
portion of the amount realized that is attributable to such accrued but unpaid
interest to the extent not previously included in income, or (ii) any amount of
OID, in either case, that has accrued on his pro rata share of the underlying
Subordinated Debentures during the taxable year of sale through the date of
disposition. Any such income inclusion will increase the holder's adjusted tax
basis in his Preferred Securities disposed of. To the extent that the amount
realized in the sale is less than the holder's adjusted tax basis, a 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. See "Certain Federal Income Tax Consequences -- Disposition of
Preferred Securities."
There is no current public market for the Preferred Securities. Although the
Preferred Securities have been approved for quotation on The Nasdaq Stock
Market's National Market, there can be no assurance that an active public market
will develop for the Preferred Securities or that, if such market develops, the
market price will equal or exceed the public offering price set forth on the
cover page of this Prospectus. The public offering price for the Preferred
Securities has been determined through negotiations between the Company and the
Underwriters. Prices for the Preferred Securities will be determined in the
marketplace and may be influenced by many factors, including prevailing interest
rates, the liquidity of the market for the Preferred Securities, investor
perceptions of the Company and general industry and economic conditions.
PREFERRED SECURITIES ARE NOT INSURED
The Preferred Securities are not insured by the Bank Insurance Fund (the
"BIF") or the Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (the "FDIC") or by any other governmental agency.
RISK FACTORS RELATING TO THE COMPANY
CONTINUED WEAKNESS IN LOCAL ECONOMY
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
The New England region of the United States, including southeastern
Massachusetts (the Bank's primary market area) experienced a significant
economic decline beginning in 1988. This decline adversely affected employment,
the real estate markets and the banking industry in the Bank's market area.
Although economic conditions in New England have since stabilized, the local
economy in the Bank's market area continues to display evidence of weakness. Any
deterioration of economic conditions or real estate markets in the Bank's market
area could adversely affect the financial condition and results of operations of
the Bank in the future.
LENDING RISKS -- CREDIT QUALITY
A central focus of the Company's and the Bank's strategy is the continued
development and growth of a diversified loan portfolio, with emphasis on
commercial, consumer and real estate loans made to borrowers within the Bank's
market areas. Certain risks are inherent in the lending function, including a
borrower's inability to pay, insufficient collateral coverage and changes in
interest rates. Repayment risk on commercial loans is significantly affected by
changing economic conditions in a particular geographical area, business or
industry which could impair future operating performance. Risks associated with
real estate loans and general business loans include changes in general economic
conditions which may affect the borrower's ability to repay as well as
underlying collateral values.
16
Installment and other consumer loans are subject to repayment risk, which the
Company believes is mitigated by the diverse portfolio of such loans and the
relatively low average balances outstanding on individual extensions of credit.
Multi-family residential and commercial real estate loans are generally
viewed in the banking community as exposing the lender to greater credit risk
than 1-4 family residential real estate loans and typically involve higher loan
principal amounts. At March 31, 1997, the Bank's multi-family residential and
commercial real estate portfolios totaled $56.1 million, or 21.1% of total loans
and loans held for sale. Of this amount, $11.3 million, or 20.2% consisted of
multi-family residential real estate loans and $44.8 million, or 79.8%,
consisted of commercial real estate loans.
The Bank currently originates loans secured by commercial real estate
properties. The Bank attempts to offset the risks associated with commercial
real estate lending by primarily lending to individuals who have proven
management experience and who will be actively involved in the management of the
property, and by making such loans with lower loan-to-value ratios than 1-4
family residential real estate loans. Economic events and government
regulations, which are outside the control of the borrower or lender, could
affect the value of the security for such loans or the future cash flow of the
affected properties.
At March 31, 1997, the Bank had $592,000 in non-performing commercial real
estate loans and $1.6 million in non-performing multi-family residential real
estate loans. For the three months ended March 31, 1997, the Bank experienced
charge-offs of $9,000 and $133,000 on commercial real estate loans and
multi-family residential real estate loans, respectively.
At March 31, 1997, 69% of the Bank's total loans and loans held for sale
were secured by 1-4 family residential mortgages, of which 64% were adjustable
rate mortgages ("ARMs"). Generally, ARMs pose credit risks different from the
risks inherent in fixed-rate loans because when interest rates rise the
borrower's payments rise, thereby increasing the potential for default. However,
long-term fixed-rate loans expose the Bank to higher interest-rate risk.
ECONOMIC CONDITIONS AND MONETARY POLICIES
Conditions beyond the Company's control may have a significant impact on
changes in net interest income from one period to another. Examples of such
conditions could include: (i) the strength of credit demands by customers; (ii)
fiscal and debt management policies of the federal government, including changes
in tax laws; (iii) the Federal Reserve's monetary policy, including the
percentage of deposits that must be held in the form of non-earning cash
reserves; (iv) the introduction and growth of new investment instruments and
transaction accounts by non-bank financial competitors; and (v) changes in rules
and regulations governing the payment of interest on deposit accounts.
SENSITIVITY TO FLUCTUATIONS IN INTEREST RATES
The Company's profitability, like that of most similarly situated financial
institutions, is dependent to a large extent upon the Bank's net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans and investments, and its interest expense on
interest-bearing liabilities, such as deposits and borrowings. Accordingly, the
Company's results of operations and financial condition are largely dependent on
movements in market interest rates and its ability to manage its assets in
response to such movements. The difference between the amount of the total
interest-earning assets and interest-bearing liabilities which reprice within a
given time period could have a negative effect on the Bank's net interest income
depending on whether such difference was positive or negative and the direction
of movement of interest rates.
Increases in interest rates may reduce demand for loans and, thus, the
amount of loan and commitment fees. In addition, fluctuations in interest rates
may also result in disintermediation, which is the flow of funds away from
depository institutions into direct investments which pay a higher rate of
return, and may affect the value of the Company's investment securities and
other interest earning assets. Given that the Bank's assets consist of a
substantial number of loans with interest rates which change in accordance with
changes in prevailing market rates, if interest rates rise
17
sharply, many of the Bank's borrowers would be required to make higher interest
payments on their loans. Thus, increases in interest rates may cause the Bank to
experience an increase in delinquent loans and defaults to the extent that
borrowers are unable to meet their increased debt servicing obligations.
Interest rate changes may also affect the profitability of the Company's
mortgage banking operations by dampening loan demand. The Company may experience
adverse results in a rising interest rate environment as its mortgage banking
operations generally perform worse as interest rates increase and demand for new
loans correspondingly declines. However, the Company mitigates interest rate
risk by selling all mortgage loan origination production "servicing released,"
thus avoiding writedown of mortgage servicing assets that may occur as a
by-product of changes in the interest rate environment. Additionally, the
Company commits all mortgage loan originations for sale prior to funding, thus
avoiding mark to market writedowns on held for sale loan portfolios. Finally,
the Company endeavors to manage its asset/liability position at the Bank to
support profitability in a rising interest rate environment, which partially
offsets the mortgage subsidiary's tendency to perform better in a declining
interest rate environment. While the Company has taken measures intended to
manage the risks of operating in a changing interest rate environment, there can
be no assurance that such measures will be effective in avoiding undue interest
rate risk.
ALLOWANCE FOR LOAN LOSSES
The Bank has established an allowance for loan losses in accordance with
generally accepted accounting principles. The Company believes that such
allowance is adequate, however, future additions to the allowance in the form of
the provision for loan losses may be necessary due to changes in economic
conditions and growth of the Bank's loan portfolio. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. An increase in the
Bank's provision for loan losses would negatively affect the Company's earnings.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
The financial institutions industry is subject to significant regulation
which has materially affected the financial institutions industry in the past
and will do so in the future. Such regulations, which affect the Company on a
daily basis, may be changed at any time, and the interpretation of the relevant
law and regulations are also subject to change by the authorities who examine
the Company and the Bank and interpret those laws and regulations. There can be
no assurance that any present or future changes in the laws or regulations or in
their interpretation will not adversely and materially affect the Company.
POTENTIAL LIABILITY FOR UNDERCAPITALIZED SUBSIDIARY BANK
Under federal law, a bank holding company may be required to guarantee a
capital plan filed by an undercapitalized bank or thrift subsidiary with its
primary regulator. If the subsidiary defaults under the plan, the holding
company may be required to contribute to the capital of the subsidiary bank an
amount equal to the lesser of 5% of the bank's assets at the time it became
undercapitalized or the amount necessary to bring the bank into compliance with
applicable capital standards. It is, therefore, possible that the Company would
be required to contribute capital to the Bank or any other bank it may acquire
in the event that the Bank or such other bank becomes undercapitalized.
COMPETITION
The Bank faces significant competition both in generating loans and in
attracting deposits. The southeastern Massachusetts area is a highly competitive
market. The Bank faces direct competition from a significant number of financial
institutions operating in its market area, many with a state-wide or regional
presence and, in some cases, a national presence. Many of these financial
institutions are significantly larger and have greater financial resources than
the Bank. The Bank's competition for loans comes principally from commercial
banks, savings banks, mortgage banking companies, credit unions and insurance
companies. Its most direct competition for deposits has historically come from
credit unions located in the Bank's market area, which have been able to offer
higher deposit rates due to their lack of federal and state taxation. The Bank
also faces competition for deposits from savings and commercial banks. In
addition, the Bank faces increasing competition for deposits from non-bank
institutions such as brokerage firms and insurance companies in such instruments
as short-term money market funds, corporate and government securities funds,
mutual funds and annuities. Competition may also increase as a result of the
lifting of restrictions on the interstate operations of financial institutions.
18
PEOPLE'S BANCSHARES, INC.
People's Bancshares, Inc. (the "Company") is a one-bank holding company
headquarted in New Bedford, Massachusetts providing commercial and consumer
banking services through its bank subsidiary, People's Savings Bank of Brockton
(the "Bank"). The Bank is engaged principally in the business of attracting
deposits from individuals, business and industry, and investing those funds in
residential and commercial mortgages, consumer, commercial and construction
loans and investments, primarily mortgage-backed securities.
The Company has recently expanded its market presence in Southeastern
Massachusetts through acquisitions of branches of other financial institutions.
In March 1995, the Bank purchased the assets of Minuteman Funding Company, a
mortgage broker located in Andover, Massachusetts, and transferred the acquired
assets to People's Mortgage Corporation, a subsidiary of the Bank. In May 1995,
the Bank merged with the Bank of Taunton, A Co-operative Bank, with the Bank as
the surviving entity. In the Bank of Taunton acquisition, the Bank acquired
total deposits of approximately $17.0 million at the time of the acquisition and
two branch offices of the Bank of Taunton located in Taunton and East Taunton,
Massachusetts. In July 1995, the Bank assumed approximately $9.7 million in
deposits from Haymarket Co-operative Bank and reallocated the deposits to one of
the Bank's existing branches in Brockton. In September 1995, the Bank acquired
certain assets and assumed approximately $13.0 million of deposits of the
Mansfield, Massachusetts branch of Bank of Boston.
In March 1996, the Bank completed the purchase of certain loans and other
assets and the assumption of certain deposit and other liabilities of one branch
of Fleet Bank of Massachusetts, National Association ("Fleet") and four branches
of Shawmut Bank, National Association ("Shawmut," and collectively with Fleet,
"Fleet/Shawmut"). At the closing of the Fleet/Shawmut acquisitions, the Bank
assumed deposits totaling $144.7 million and acquired certain loans of
Fleet/Shawmut with an aggregate face value of approximately $113.7 million. The
Bank also acquired the real property owned or leased by Fleet and Shawmut in
connection with the operation of the branches and related automated teller
machines, furniture, equipment, and other fixed operating assets, for a total
purchase price of approximately $1.8 million.
The Bank has seven wholly owned subsidiaries. People's Mortgage Corporation,
which was organized in March 1995, acts as the mortgage brokerage subsidiary of
the Bank. PSB Security Corporation I, II, and III, each organized in March 1996,
are "security corporations" for Massachusetts tax purposes and enjoy a more
favorable tax rate than the Bank on income derived from securities they hold.
Currently, only PSB Security Corporation I is active. The remaining subsidiaries
of the Bank are primarily engaged in the management and sale of foreclosed real
estate.
The principal executive office of the Company is located at 545 Pleasant
Street, New Bedford, Massachusetts 02740, and its telephone
number is (508) 991-2601.
PEOPLE'S BANCSHARES CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement, dated as of June 6, 1997, executed by the Company, as
depositor, and the trustees of the Trust (together with the Property Trustee,
the "Trustees"), and (ii) a certificate of trust filed with the Secretary of
State of the State of Delaware on June 6, 1997. The initial trust agreement will
be amended and restated in its entirety (as so amended and restated, the "Trust
Agreement") substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Trust Agreement will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). Upon issuance of the Preferred Securities, the
purchasers thereof will own all of the Preferred Securities. The Company will
acquire all of the Common Securities, which will represent an aggregate
liquidation amount equal to at least 3% of the total capital of the Trust. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Preferred Securities, except that upon the occurrence and during
the continuance of an Event of Default (as defined herein) under the Trust
Agreement resulting from a Debenture Event of Default, the rights of the
Company, as holder of the
19
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 Preferred Securities. See "Description of the Preferred
Securities -- Subordination of Common Securities." The Trust exists for the
exclusive purposes of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Subordinated Debentures issued by the
Company, and (iii) engaging in only those other activities necessary, advisable,
or incidental thereto. The Subordinated Debentures and payments thereunder will
be the only assets of the Trust and payments under the Subordinated Debentures
will be the only revenue of the Trust. The Trust has a term of 55 years, but may
dissolve earlier as provided in the Trust Agreement. The principal executive
office of the Trust is c/o People's Bancshares, Inc., 545 Pleasant Street, New
Bedford, Massachusetts 02740, and its telephone number is (508) 991-2601.
The number of Trustees will, pursuant to the Trust Agreement, initially be
five. Three of the Trustees (the "Administrative Trustees") will be persons who
are employees or officers of, or who are affiliated with, the Company. The
fourth trustee will be a financial institution that is unaffiliated with the
Company, which trustee will serve as institutional trustee under the Trust
Agreement and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act (the "Property Trustee"). State Street
Bank and Trust Company, a state chartered trust company organized under the laws
of the Commonwealth of Massachusetts, will be the Property Trustee until removed
or replaced by the holder of the Common Securities. For purposes of compliance
with the provisions of the Trust Indenture Act, State Street Bank and Trust
Company will also act as trustee (the "Guarantee Trustee") under the Guarantee
and as Debenture Trustee (as defined herein) under the Indenture. The fifth
trustee will be an entity that maintains its principal place of business in the
State of Delaware (the "Delaware Trustee"). Wilmington Trust Company, a Delaware
chartered trust company, will act as Delaware Trustee.
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the holders of the Trust Securities and in such capacity will have
the power to exercise all rights, powers and privileges under the Indenture. The
Property Trustee will also maintain exclusive control of a segregated
non-interest-bearing bank account (the "Property Account") to hold all payments
made in respect of the Subordinated Debentures for the benefit of the holders of
the Trust Securities. The Property Trustee will make payments of Distributions
and payments on liquidation, redemption and otherwise to the holders of the
Trust Securities out of funds from the Property Account. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the holder of all the Common Securities, will have
the right to appoint, remove or replace any Trustee and to increase or decrease
the number of Trustees. The Company will pay all fees and expenses related to
the Trust and the offering of the Trust Securities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
20
USE OF PROCEEDS
The Trust will use the gross proceeds from the sale of the Preferred
Securities to purchase Subordinated Debentures of the Company. The Company
intends to use the net proceeds of the sale of the Subordinated Debentures for
general corporate purposes, including the repurchase of outstanding equity
securities of the Company, contributions to the Bank to fund its operations and
the financing of one or more future acquisitions by the Company if and when
suitable opportunities arise. Initially, the net proceeds may be used to make
investments in short-term investment securities pending its use for the purposes
described above.
On October 21, 1996, the Federal Reserve approved, subject to certain
limitations as to amount, the use of certain cumulative preferred stock
instruments such as the Preferred Securities as Tier 1 capital for bank holding
companies such as the Company. The Company has elected to issue the Preferred
Securities because the Company expects the Preferred Securities to qualify as
Tier 1 capital and the Distributions payable on the Preferred Securities to be a
tax deductible expense of the Company. The Company expects that, upon completion
of the sale of the Preferred Securities offered hereby, Preferred Securities
having an aggregate Liquidation Amount of approximately $10.6 million will be
eligible to qualify as Tier 1 capital under the capital guidelines of the
Federal Reserve. Preferred Securities representing an aggregate Liquidation
Amount in excess of that amount are expected to be treated as Tier 2 capital
until all or some of that excess is eligible to qualify as Tier 1 capital under
the capital guidelines of the Federal Reserve.
MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities have been approved for quotation on The Nasdaq
Stock Market's National Market under the symbol PBKBP. Although the Underwriters
have informed the Company that they presently intend to make a market in the
Preferred Securities, there can be no assurance that an active and liquid
trading market will develop, or, if developed, that such a market will continue.
The offering price and distribution rate have been determined by negotiations
among representatives of the Company and the Underwriters, and the offering
price of the Preferred Securities may not be indicative of the market price
following the offering. See "Underwriting."
ACCOUNTING TREATMENT
The Trust will be treated, for financial reporting purposes, as a subsidiary
of the Company and, accordingly, the accounts of the Trust will be included in
the consolidated financial statements of the Company. The Preferred Securities
will be presented as a separate category of long-term debt in the consolidated
balance sheet of the Company under the caption "Guaranteed Preferred Beneficial
Interests in the Company's Subordinated Debentures," and appropriate disclosures
about the Preferred Securities, the Guarantee and the Subordinated Debentures
will be included in the notes to consolidated financial statements. The Company
will record Distributions payable on the Preferred Securities as an expense in
the consolidated statements of income for financial reporting purposes.
All future reports of the Company filed under the Exchange Act will (a)
present the Trust Securities issued by the Trust on the balance sheet as a
separate category of long-term debt item entitled "Guaranteed preferred
beneficial interests in the Company's subordinated debentures," (b) include in a
footnote to the financial statements disclosure that the sole assets of the
Trust are the Subordinated Debentures (including the outstanding principal
amount, interest rate and maturity date of such Subordinated Debentures), and
(c) include in an audited footnote to the financial statements disclosure that
the Company owns all of the Common Securities of the Trust, that the sole assets
of the Trust are the Subordinated Debentures, and that the back-up obligations,
in the aggregate, constitute a full and unconditional guarantee by the Company
of the obligations of the Trust under the Preferred Securities.
21
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at March 31, 1997 and (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Preferred Securities hereby offered
by the Trust and receipt by the Company of the net proceeds from the
corresponding sale of the Subordinated Debentures to the Trust, as if the sale
of the Preferred Securities had been consummated on March 31, 1997 and assuming
the Underwriters' over-allotment option was not exercised.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
AS
ACTUAL ADJUSTED
------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures $ -- $12,000(1)
STOCKHOLDERS' EQUITY:
Serial preferred stock, par value $.10 per share; 10,000,000 shares
authorized, no shares issued and outstanding, actual and as adjusted -- --
Common stock, par value $.10 per share; shares 20,000,000 authorized;
3,592,170 shares issued and outstanding, actual and as adjusted 359 359
Additional paid-in capital 23,119 23,119
Retained earnings 9,547 9,547
Net unrealized loss on securities available for sale, after tax effects (2,235) (2,235)
------ ------
Total stockholders' equity 30,790 30,790
------ ------
Total capitalization $ 30,790 $ 42,790
======== ========
CAPITAL RATIOS:
Stockholders' equity to total assets 5.61% 5.49%
Leverage ratio(2)(3)(4) 5.89% 7.68%
Risk-based capital ratios(3)(4):
Tier 1 capital to risk-weighted assets 12.70% 16.93%
Total risk-based capital to risk-weighted assets 13.95% 18.76%
</TABLE>
- -----------
(1) In connection with the issuance of the guaranteed preferred beneficial
interests in the Company's Subordinated Debentures, the Company estimates
it will incur expenses of $900,000 (including Underwriters'
compensation of $600,000). The Subordinated Debentures will mature on June
30, 2027, which date may be, if certain conditions are met, (a) shortened
to a date not earlier than June 30, 2002, or (b) extended to a date not
later than June 30, 2036. [001b)
(2) The leverage ratio is Tier 1 capital divided by average quarterly assets,
after deducting intangible assets and net deferred tax assets in excess of
regulatory maximum limits.
(3) The capital ratios, as adjusted, are computed including the total estimated
net proceeds from the sale of the Preferred Securities, in a manner
consistent with Federal Reserve guidelines.
(4) Federal Reserve guidelines for calculation of Tier 1 capital to
risk-weighted assets limit the amount of cumulative preferred stock and
securities similar to the Preferred Securities which can be included in
Tier 1 capital to 25% of other Tier 1 capital.
22
DESCRIPTION OF PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, State Street Bank and Trust Company, will
act as indenture trustee for the Preferred Securities under the Trust Agreement
for purposes of complying with the provisions of the Trust Indenture Act. The
terms of the Preferred Securities will include those stated in the Trust
Agreement and those made part of the Trust Agreement by the Trust Indenture Act.
The following summary of the material terms and provisions of the Preferred
Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Agreement and the Trust Indenture Act. Wherever particular defined terms of the
Trust Agreement are referred to, but not defined herein, such defined terms are
incorporated herein by reference. The form of the Trust Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of the
Trust, will issue the Trust Securities. All of the Common Securities will be
owned by the Company. The Preferred Securities will represent preferred
undivided beneficial interests in the assets of the Trust and the holders
thereof will be entitled to a preference over the Common Securities in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation, as well as other benefits as described in the Trust Agreement. The
Trust Agreement does not permit the issuance by the Trust of any securities
other than the Trust Securities or the incurrence of any indebtedness by the
Trust.
The Preferred Securities will rank pari passu, and payments will be made
thereon pro rata with the Common Securities, except as described under " --
Subordination of Common Securities." Legal title to the Subordinated Debentures
will be held by the Property Trustee in trust for the benefit of the holders of
the Trust Securities. The Guarantee executed by the Company for the benefit of
the holders of the Preferred Securities will be a guarantee on a subordinated
basis with respect to the Preferred Securities, but will not guarantee payment
of Distributions or amounts payable on redemption or liquidation of such
Preferred Securities when the Trust does not have funds on hand available to
make such payments. State Street Bank and Trust Company, as Guarantee Trustee,
will hold the Guarantee for the benefit of the holders of the Preferred
Securities. See "Description of the Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on each Preferred Security will be
payable at the annual rate of 9.76% of the stated Liquidation Amount of $10,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, to the holders of the Preferred Securities on the relevant record
dates (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). The record date will be the 15th day of the
month in which the relevant Distribution Date occurs. Distributions will
accumulate from June 25, 1997, the date of original issuance. The first
Distribution Date for the Preferred Securities will be September 30, 1997. The
amount of Distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months. In the event that any date on which
Distributions are payable on the Preferred Securities is not a Business Day,
then payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any additional Distributions,
interest or other payment in respect of any such delay) with the same force and
effect as if made on the date such payment was originally due and payable.
"Business Day" means any day other than a Saturday or a Sunday, a day on which
banking institutions in the City of New York are authorized or required by law
or executive order to remain closed or a day on which the corporate trust office
of the Property Trustee or the Debenture Trustee is closed for business.
Extension Period. The Company has the right under the Indenture, so long as
no Debenture Event of Default has occurred and is continuing, to defer the
payment of interest on the Subordinated Debentures at any time, or from time to
time (each, an "Extension Period"), which, if exercised, would defer quarterly
23
Distributions on the Preferred Securities during any such Extension Period.
Distributions to which holders of the Preferred Securities are entitled will
accumulate additional Distributions thereon at the rate per annum of 9.76%
thereof, compounded quarterly from the relevant Distribution Date.
"Distributions," as used herein, includes any such additional Distributions. The
right to defer the payment of interest on the Subordinated Debentures is
limited, however, to a period, in each instance, not exceeding 20 consecutive
quarters and no Extension Period may extend beyond the Stated Maturity of the
Subordinated Debentures. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock, (ii) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
pari passu with or junior in interest to the Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Subordinated Debentures (other than payments
under the Guarantee), or (iii) redeem, purchase or acquire less than all of the
Subordinated Debentures or any of the Preferred Securities. Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest; provided, that such Extension Period may not exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due, the Company may elect to begin a new Extension Period,
subject to the above requirements. Subject to the foregoing, there is no
limitation on the number of times that the Company may elect to begin an
Extension Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
Source of Distributions. The funds of the Trust available for distribution
to holders of its Preferred Securities will be limited to payments under the
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of its Trust Securities. See "Description of the Subordinated
Debentures." Distributions will be paid through the Property Trustee who will
hold amounts received in respect of the Subordinated Debentures in the Property
Account for the benefit of the holders of the Trust Securities. If the Company
does not make interest payments on the Subordinated Debentures, the Property
Trustee will not have funds available to pay Distributions on the Preferred
Securities. The payment of Distributions (if and to the extent the Trust has
funds legally available for the payment of such Distributions and cash
sufficient to make such payments) is guaranteed by the Company. See "Description
of the Guarantee."
REDEMPTION OR EXCHANGE
General. The Subordinated Debentures will mature on June 30, 2027. The
Company will have the right to redeem the Subordinated Debentures (i) on or
after June 30, 2002, in whole at any time or in part from time to time, or (ii)
at any time, in whole (but not in part), within 180 days following the
occurrence of a Tax Event, a Capital Treatment Event or an Investment Company
Event, in each case subject to receipt of prior approval by the Federal Reserve
if then required under applicable capital guidelines or policies of the Federal
Reserve. The Company will not have the right to purchase the Subordinated
Debentures, in whole or in part, from the Trust until after June 30, 2002. See
"Description of the Subordinated Debentures -- General."
Mandatory Redemption. Upon the repayment or redemption, in whole or in part,
of any Subordinated Debentures, whether at Stated Maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption will be applied by the Property Trustee to redeem a Like Amount (as
defined herein) of the Trust Securities, upon not less than 30 nor more than 60
days notice, at a redemption price (the "Redemption Price") equal to the
aggregate Liquidation Amount of such Trust Securities plus accrued but unpaid
Distributions thereon to the date of redemption (the "Redemption Date"). See
"Description of the Subordinated Debentures -- Redemption or Exchange." If less
than all of the Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption will be
allocated to the redemption of the Trust Securities pro rata.
24
Distribution of Subordinated Debentures. Subject to the Company having
received prior approval of the Federal Reserve if so required under applicable
capital guidelines or policies of the Federal Reserve, the Company will have the
right at any time to dissolve the Trust and, after satisfaction of the
liabilities of creditors of the Trust as provided by applicable law, cause the
Subordinated Debentures to be distributed to the holders of Trust Securities in
liquidation of the Trust. See "-- Liquidation Distribution Upon Dissolution."
Tax Event Redemption, Capital Treatment Event Redemption or Investment
Company Event Redemption. If a Tax Event, a Capital Treatment Event or an
Investment Company Event in respect of the Trust Securities occurs and is
continuing, the Company has the right to redeem the Subordinated Debentures in
whole (but not in part) and thereby cause a mandatory redemption of such Trust
Securities in whole (but not in part) at the Redemption Price within 180 days
following the occurrence of such Tax Event, Capital Treatment Event or
Investment Company Event. In the event a Tax Event, a Capital Treatment Event or
an Investment Company Event in respect of the Trust Securities has occurred and
the Company does not elect to redeem the Subordinated Debentures and thereby
cause a mandatory redemption of such Trust Securities or to liquidate the Trust
and cause the Subordinated Debentures to be distributed to holders of such Trust
Securities in liquidation of the Trust as described below under "-- Liquidation
Distribution Upon Dissolution," such Preferred Securities will remain
outstanding and Additional Interest (as defined herein) may be payable on the
Subordinated Debentures. "Additional Interest" means the additional amounts as
may be necessary in order that the amount of Distributions then due and payable
by the Trust on the outstanding Trust Securities will not be reduced as a result
of any additional taxes, duties and other governmental charges to which the
Trust has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture, which will be used to pay the Redemption Price of
such Trust Securities, and (ii) with respect to a distribution of Subordinated
Debentures to holders of Trust Securities in connection with a dissolution or
liquidation of the Trust, Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Trust Securities of the holder to whom
such Subordinated Debentures are distributed. Each Subordinated Debenture
distributed pursuant to clause (ii) above will carry with it accumulated
interest in an amount equal to the accumulated and unpaid interest then due on
such Subordinated Debenture.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
After the liquidation date fixed for any distribution of Subordinated
Debentures for Preferred Securities (i) such Preferred Securities will no longer
be deemed to be outstanding, and (ii) any certificates representing Preferred
Securities will be deemed to represent the Subordinated Debentures having a
principal amount equal to the Liquidation Amount of such Preferred Securities,
and bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid Distributions on the Preferred Securities until such certificates are
presented to the Administrative Trustees or their agent for transfer or
reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution and liquidation of the Trust were to
occur. The Preferred Securities that an investor may purchase, or the
Subordinated Debentures that an investor may receive on dissolution and
liquidation of the Trust, may, therefore, trade at a discount to the price that
the investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
Redemption Date only to the extent that the Trust has funds on hand available
for the payment of such Redemption Price. See "-- Subordination of Common
Securities."
25
If the Trust gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, New York time, on the Redemption Date, to the
extent funds are available, the Property Trustee will irrevocably deposit with
the paying agent for the Preferred Securities funds sufficient to pay the
aggregate Redemption Price and will give the paying agent for the Preferred
Securities irrevocable instructions and authority to pay the Redemption Price to
the holders thereof upon surrender of their certificates evidencing such
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
will be payable to the holders of such Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption will
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. In
the event that any date fixed for redemption of Preferred 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
additional Distribution, interest or other payment in respect of any such delay)
with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of Preferred Securities called for
redemption is improperly withheld or refused and not paid either by the Trust,
or by the Company pursuant to the Guarantee, Distributions on such Preferred
Securities will continue to accrue at the then applicable rate, from the
Redemption Date originally established by the Trust for such Preferred
Securities to the date such Redemption Price is actually paid, in which case the
actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price. See "Description of the
Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), and, further provided that the Company does not and is
not continuing to exercise its right to defer interest payments on the
Subordinated Debentures, the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Subordinated Debentures to holders of Preferred Securities will
be made to the applicable record holders thereof as they appear on the register
for the Preferred Securities on the relevant record date, which date will be the
date 15 days prior to the Redemption Date or liquidation date, as applicable.
If less than all of the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Liquidation Amount of such Trust Securities to be
redeemed will be allocated pro rata to the Trust Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed will be selected by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, by such
method as the Property Trustee deems fair and appropriate and which may provide
for the selection for redemption of portions (equal to $10 or an integral
multiple of $10 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $10. The Property Trustee will promptly
notify the registrar for the Preferred Securities in writing of the Preferred
Securities selected for redemption and, in the case of any Preferred Securities
selected for partial redemption, the Liquidation Amount thereof to be redeemed.
For all purposes of the Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Preferred Securities will relate to
the portion of the aggregate Liquidation Amount of Preferred 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 Company defaults in payment of
the redemption price on the Subordinated Debentures, on and after the Redemption
Date interest will cease to accrue on such Subordinated Debentures or portions
thereof (and Distributions will cease to accrue on the related Preferred
Securities or portions thereof) called for redemption.
26
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, will be made pro rata based on
the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default has occurred and is continuing, no payment of any
Distribution on, or Redemption Price of, any of the Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition of
such Common Securities, will be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Preferred
Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all of the outstanding Preferred Securities then called for redemption,
will have been made or provided for, and all funds available to the Property
Trustee will first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Preferred Securities then due and
payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company as holder of the Common Securities will be deemed to have
waived any right to act with respect to any such Event of Default under the
Trust Agreement until the effect of all such Events of Default with respect to
the Preferred Securities have been cured, waived or otherwise eliminated. Until
any such Events of Default under the Trust Agreement with respect to the
Preferred Securities has been so cured, waived or otherwise eliminated, the
Property Trustee will act solely on behalf of the holders of the Preferred
Securities and not on behalf of the Company, as holder of the Common Securities,
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The Company will have the right at any time to dissolve the Trust and cause
the Subordinated Debentures, after satisfaction of liabilities to creditors of
the Trust, to be distributed to the holders of the Preferred Securities. Such
right is subject, however, to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve.
Pursuant to the Trust Agreement, the Trust will automatically dissolve upon
expiration of its term and will dissolve earlier on the first to occur of (i)
certain events of bankruptcy, dissolution or liquidation of the Company, (ii)
the Company, as depositor, giving written direction to the Property Trustee to
dissolve the Trust (which direction is optional and wholly within the discretion
of the Company, as depositor), (iii) redemption of all of the Preferred
Securities as described under "Description of the Preferred Securities --
Redemption or Exchange -- Mandatory Redemption," or (iv) the entry of an order
for the dissolution of the Trust by a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv) of
the preceding paragraph, the Trust will be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, to the holders of such Trust Securities a Like Amount of the Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practical, in which event such holders will be entitled to receive out of
the assets of the Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to, in the case of holders of Preferred Securities, the
aggregate of the Liquidation Amount plus accrued but unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Preferred Securities will be paid on a pro rata basis. The Company, as the
holder of the Common Securities, will be entitled to receive distributions upon
any such liquidation pro rata with the holders of the Preferred Securities,
except that, if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a priority over the Common Securities. See "--
Subordination of Common Securities."
27
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Trust is treated as a grantor trust, a
distribution of the Subordinated Debentures should not be a taxable event to
holders of the Preferred Securities. Should there be a change in law, a change
in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Certain Federal Income Tax Consequences -- Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust." If the Company elects neither
to redeem the Subordinated Debentures prior to maturity nor to liquidate the
Trust and distribute the Subordinated Debentures to holders of the Preferred
Securities, the Preferred Securities will remain outstanding until the repayment
of the Subordinated Debentures.
If the Company elects to dissolve the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company will continue to have the right to
shorten or extend the maturity of such Subordinated Debentures, subject to
certain conditions. See "Description of the Subordinated Debentures -- General."
LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Preferred
Securities in the event of any liquidation of the Trust is $10 per Preferred
Security plus accrued but unpaid Distributions thereon to the date of payment,
which may be in the form of a distribution of such amount in Subordinated
Debentures, subject to certain exceptions. See "-- Liquidation Distribution Upon
Dissolution."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
(whatever the reason for such Event of Default and whether voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
the Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(iii) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clauses (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 Trustee(s) by the holders of at
least 25% in aggregate Liquidation Amount of the outstanding Preferred
Securities, a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default has been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
28
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
dissolution of the Trust. See "-- Liquidation Distribution Upon Dissolution."
The existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
REMOVAL OF THE TRUST TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any
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 Preferred Securities. In no
event, however, will the holders of the Preferred Securities have the right to
vote to appoint, remove or replace the Administrative Trustees, which voting
rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee will be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE.
Unless an Event of Default has occurred and is continuing, at any time or
times, 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 (as defined
in the Trust Agreement) may at the time be located, the Company, as the holder
of the Common Securities, will have power to appoint one or more Persons (as
defined in the Trust Agreement) 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 Trust Property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
Persons in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. In case a Debenture
Event of Default has occurred and is continuing, the Property Trustee alone will
have power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee is a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except as described below. The Trust
may, at the request of the Company, with the consent of the Administrative
Trustees and without the consent of the holders of the Preferred Securities, the
Property Trustee or the Delaware Trustee, merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to a trust organized as such under the laws
of any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Trust with respect to the Preferred
Securities, or (b) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Preferred
Securities rank in priority with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee in its capacity as the holder of the 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 Preferred
29
Securities are then listed (including, if applicable, The Nasdaq Stock Market's
National Market), if any, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (v) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an opinion from independent counsel 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 Preferred Securities (including any Successor Securities) in any
material respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such successor
entity will be required to register as an "investment company" under the
Investment Company Act, and (vi) the Company 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 Indenture, the Subordinated Debentures, the Trust Agreement and the Expense
Agreement. Notwithstanding the foregoing, the Trust will not, except with the
consent of holders of 100% in Liquidation Amount of the Preferred 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 Person or permit any other Person to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity to
be classified as other than a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the Guarantee --
Amendments and Assignment" and as otherwise required by the Trust Act and the
Trust Agreement, the holders of the Preferred Securities will have no voting
rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) with respect to acceptance of
appointment by a successor trustee, (ii) 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 the Trust Agreement (provided such amendment is not
inconsistent with the other provisions of the Trust Agreement), or (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as is necessary to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that the Trust will not be required to
register as an "investment company" under the Investment Company Act; provided,
however, that in the case of clause (ii), such action may not adversely affect
in any material respect the interests of any holder of Trust Securities, and any
amendments of such Trust Agreement will become effective when notice thereof is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the Trustees and the Company with (i) the consent of holders representing not
less than a majority in the aggregate Liquidation Amount of the outstanding
Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment will not affect the Trust's status as
a grantor trust for United States federal income tax purposes or the Trust's
exemption from status as an "investment company" under the Investment Company
Act. Notwithstanding anything in this paragraph to the contrary, without the
consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (a) 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 (b)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
The Trustees will not, so long as any Subordinated Debentures are held by
the Property Trustee, (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Property Trustee with respect to the
Subordinated Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii)
30
exercise any right to rescind or annul a declaration that the principal of all
the Subordinated Debentures will be due and payable, or (iv) consent to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, where such consent is required, without, in each case, obtaining the
prior approval of the holders of a majority in aggregate Liquidation Amount of
all outstanding Preferred Securities; provided, however, that where a consent
under the Indenture requires the consent of each holder of Subordinated
Debentures affected thereby, no such consent will be given by the Property
Trustee without the prior consent of each holder of the Preferred Securities.
The Trustees may not revoke any action previously authorized or approved by a
vote of the holders of the Preferred Securities except by subsequent vote of the
holders of the Preferred Securities. The Property Trustee will notify each
holder of Preferred Securities of any notice of default with respect to the
Subordinated Debentures. In addition to obtaining the foregoing approvals of the
holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Trustees must obtain an opinion of counsel experienced in such
matters to the effect that the Trust will not be classified as an association
taxable as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred 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 Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel its Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made by check mailed
to the address of the holder entitled thereto as such address will appear on the
register of holders of the Preferred Securities. The paying agent for the
Preferred Securities will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrative
Trustees and the Company. The paying agent for the Preferred Securities may
resign as paying agent upon 30 days' written notice to the Property Trustee and
the Company. In the event that the Property Trustee no longer is the paying
agent for the Preferred Securities, the Administrative Trustees will appoint a
successor (which must be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as paying agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities will
be effected without charge by or on behalf of the Trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Trust will not be required to register or cause to be
registered the transfer of Preferred Securities after such Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, upon the occurrence and
during the continuance of an Event of Default, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Trust Agreement at
the request of any holder of Preferred Securities unless it is
31
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative causes of
action, construe ambiguous provisions in the Trust Agreement or is unsure of the
application of any provision of the Trust Agreement, and the matter is not one
on which holders of Preferred Securities are entitled under the Trust Agreement
to vote, then the Property Trustee will take such action as is directed by the
Company and if not so directed, will take such action as it deems advisable and
in the best interests of the holders of the Trust Securities and will have no
liability except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. The Company and the Administrative Trustees are
authorized, in this connection, to take any action, not inconsistent with
applicable law, the certificate of trust of the Trust or the Trust Agreement,
that the Company and the Administrative Trustees determine in their discretion
to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Concurrently with the issuance of the Preferred Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by the Company
for the Common Securities, in the Subordinated Debentures issued by the Company.
The Subordinated Debentures will be issued as unsecured debt under the
Indenture, to be dated as of June 25, 1997 (the "Indenture"), between the
Company and State Street Bank and Trust Company, as trustee (the "Debenture
Trustee"). The Indenture will be qualified as an indenture under the Trust
Indenture Act. The following summary of the material terms and provisions of the
Subordinated Debentures and the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Indenture and
to the Trust Indenture Act. Wherever particular defined terms of the Indenture
are referred to, but not defined herein, such defined terms are incorporated
herein by reference. The form of the Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
GENERAL
The Subordinated Debentures will be limited in aggregate principal amount to
approximately $12,371,500 (or $14,227,000 if the option described under the
heading "Underwriting" is exercised by the Underwriters), such amount being the
sum of the aggregate stated Liquidation Amount of the Trust Securities. The
Subordinated Debentures will bear interest at the annual rate of 9.76% of the
principal amount thereof, payable quarterly in arrears on March 31, June 30,
September 30, and December 31 of each year (each, an "Interest Payment Date")
beginning September 30, 1997, to the Person (as defined in the Indenture) in
whose name each Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the fifteenth day of the last month of
the calendar quarter. It is anticipated that, until the liquidation of the
Trust, the Subordinated Debentures will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Preferred 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 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), with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of 9.76% thereof,
compounded quarterly. The term "interest," as used herein, includes quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable Interest Payment Date and Additional Interest, as applicable.
The Subordinated Debentures will mature on June 30, 2027 (such date, as it
may be shortened or extended as hereinafter described, the "Stated Maturity").
Such date may be shortened at any time by the Company to any date not earlier
than June 30, 2002, subject to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve. Such date may also be extended at any time at the
election of the Company but in no event to a date later than June 30, 2036,
provided that at the time such election is made and at the time of extension (i)
the Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii)
the Company is not in default in the payment of any interest or principal on the
Subordinated Debentures, (iii) the Trust is not in arrears on payments of
Distributions on the Preferred Securities and no deferred Distributions are
accumulated, and (iv) the Company has a Senior Debt rating of investment grade.
In the event that the Company elects to shorten or extend the Stated Maturity of
the Subordinated Debentures, it will give notice thereof to the Debenture
Trustee, the Trust and to the holders of the Subordinated Debentures no more
than 180 days and no less than 90 days prior to the effectiveness thereof. The
Company will not have the right to purchase the Subordinated Debentures, in
whole or in part, from the Trust until after June 30, 2002, except if a Tax
Event, a Capital Treatment Event or an Investment Company Event has occurred and
is continuing.
The Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of the Bank, upon the Bank's liquidation or reorganization or otherwise (and
thus the ability of holders of the Subordinated Debentures to benefit indirectly
from such distribution), is subject to the prior claims of
33
creditors of the Bank, except to the extent that the Company may itself be
recognized as a creditor of the Bank. The Subordinated Debentures will,
therefore, be effectively subordinated to all existing and future liabilities of
the Bank, and holders of Subordinated Debentures should look only to the assets
of the Company for payments on the Subordinated Debentures. The Indenture does
not limit the incurrence or issuance of other secured or unsecured debt of the
Company, including Senior Debt, Subordinated Debt and Additional Senior
Obligations, whether under the Indenture or any existing indenture or other
indenture that the Company may enter into in the future or otherwise. See "--
Subordination."
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture at any time during the term of
the Subordinated Debentures, so long as no Debenture Event of Default has
occurred and is continuing, to defer the payment of interest at any time, or
from time to time (each, an "Extension Period"). The right to defer the payment
of interest on the Subordinated Debentures is limited, however, to a period, in
each instance, not exceeding 20 consecutive quarters and no Extension Period may
extend beyond the Stated Maturity of the Subordinated Debentures. At the end of
each Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of 9.76%, compounded
quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Subordinated Debentures
(or the holders of Preferred Securities if such securities are then outstanding)
will be required to accrue and recognize income for United States federal income
tax purposes. See "Certain Federal Income Tax Consequences -- Potential
Extension of Interest Payment Period and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock, (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks pari passu or junior in
interest to the Subordinated Debentures (other than payments under the
Guarantee), or (iii) redeem, purchase or acquire less than all of the
Subordinated Debentures or any of the Preferred Securities. Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest; provided, that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due on any Interest Payment Date, the Company may elect to
begin a new Extension Period subject to the above requirements. No interest will
be due and payable during an Extension Period, except at the end thereof. The
Company has no present intention of exercising its rights to defer payments of
interest on the Subordinated Debentures. The Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of such Extension Period at least two Business Days prior to the
earlier of (i) the next succeeding date on which Distributions on the Trust
Securities would have been payable except for the election to begin such
Extension Period, or (ii) the date the Trust is required to give notice of the
record date, or the date such Distributions are payable, to The Nasdaq Stock
Market's National Market (or other applicable self-regulatory organization) or
to holders of the Preferred Securities, but in any event at least one Business
Day before such record date. Subject to the foregoing, there is no limitation on
the number of times that the Company may elect to begin an Extension Period.
ADDITIONAL SUMS
If the Trust or the Property Trustee is required to pay any additional
taxes, duties or other governmental charges as a result of the occurrence of a
Tax Event, the Company will pay as additional amounts (referred to herein as
"Additional Interest") on the Subordinated Debentures such additional amounts as
may be required so that the net amounts received and retained by the Trust after
paying any such additional taxes, duties or other governmental charges will not
be less than the amounts the Trust would have received had such additional
taxes, duties or other governmental charges not been imposed.
34
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Subordinated Debentures prior
to maturity (i) on or after June 30, 2002, in whole at any time or in part from
time to time, or (ii) at any time in whole (but not in part), within 180 days
following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event, in each case at a redemption price equal to the
accrued and unpaid interest on the Subordinated Debentures so redeemed to the
date fixed for redemption, plus 100% of the principal amount thereof. Any such
redemption prior to the Stated Maturity will be subject to prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve.
"Tax Event" means the receipt by the Trust 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 prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) interest payable by the Company on the Subordinated
Debentures is not, or within 90 days of the date of such opinion will not be,
deductible by the Company, in whole or in part, for United States federal income
tax purposes, (ii) the Trust is, or will be within 90 days after the date of
such opinion of counsel, subject to United States federal income tax with
respect to income received or accrued on the Subordinated Debentures, or (iii)
the Trust is, or will be within 90 days after the date of such opinion of
counsel, subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges. The Company must request and receive
an opinion with regard to such matters within a reasonable period of time after
it becomes aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to or any change (including any announced prospective change) in the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the Company's ability to treat the aggregate
Liquidation Amount of the Preferred Securities (or any substantial portion
thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then applicable to
the Company; provided, however, that the inability of the Company to treat all
or any portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred capital in excess
of the amount which may qualify for treatment as Tier 1 Capital under applicable
capital adequacy guidelines of the Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
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 Subordinated Debentures to be
redeemed at its registered address. Unless the Company defaults in payment of
the redemption price for the Subordinated Debentures, on and after the
redemption date interest ceases to accrue on such Subordinated Debentures or
portions thereof called for redemption.
The Subordinated Debentures will not be subject to any sinking fund.
35
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution," under certain circumstances involving the
dissolution of the Trust, the Subordinated Debentures may be distributed to the
holders of the Preferred Securities in liquidation of the Trust after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law. Any such distribution will be subject to receipt of prior approval by the
Federal Reserve if then required under applicable policies or guidelines of the
Federal Reserve. If the Subordinated Debentures are distributed to the holders
of Preferred Securities upon the dissolution of the Trust, the Company will use
its best efforts to list the Subordinated Debentures on The Nasdaq Stock
Market's National Market or such stock exchanges, if any, on which the Preferred
Securities are then listed. There can be no assurance as to the market price of
any Subordinated Debentures that may be distributed to the holders of Preferred
Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there has occurred a Debenture Event of Default, (ii) the
Company is in default with respect to its obligations under the Guarantee or
(iii) the Company has given notice of its election of an Extension Period as
provided in the Indenture with respect to the Subordinated Debentures and has
not rescinded such notice, or such Extension Period, or any extension thereof,
is continuing, the Company will not (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, (2) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu or junior in interest to the
Subordinated Debentures (other than payments under the Guarantee), or (3)
redeem, purchase or acquire less than all of the Subordinated Debentures or any
of the Preferred Securities.
SUBORDINATION
The Indenture provides that the Subordinated Debentures issued thereunder
are subordinated and junior in right of payment to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshaling of
assets or any bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceedings of the Company, the
holders of Senior Debt, Subordinated Debt and Additional Senior Obligations of
the Company will first be entitled to receive payment in full of principal of
(and premium, if any) and interest, if any, on such Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company before the holders of
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Subordinated Debentures.
In the event of the acceleration of the maturity of any Subordinated
Debentures, the holders of all Senior Debt, Subordinated Debt and Additional
Senior Obligations of the Company outstanding at the time of such acceleration
will first be entitled to receive payment in full of all amounts due thereon
(including any amounts due upon acceleration) before the holders of the
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Subordinated Debentures.
No payments on account of principal or interest in respect of the
Subordinated Debentures may be made if there has occurred and is continuing a
default in any payment with respect to Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company or an event of default with respect
to any Senior Debt,
Subordinated Debt or Additional Senior Obligations of the Company resulting
in the acceleration of the maturity thereof, or if any judicial proceeding is
pending with respect to any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
36
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such Person, and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior Debt" means, with respect to the Company, the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Subordinated Debentures
or to other Debt which is pari passu with, or subordinated to, the Subordinated
Debentures; provided, however, that Senior Debt will not be deemed to include
(i) any Debt of the Company which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (ii) any Debt of the Company to
any of its subsidiaries, (iii) any Debt to any employee of the Company, (iv) any
Debt which by its terms is subordinated to trade accounts payable or accrued
liabilities arising in the ordinary course of business to the extent that
payments made to the holders of such Debt by the holders of the Subordinated
Debentures as a result of the subordination provisions of the Indenture would be
greater than they otherwise would have been as a result of any obligation of
such holders to pay amounts over to the obligees on such trade accounts payable
or accrued liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject, and (v) Debt which
constitutes Subordinated Debt.
"Subordinated Debt" means, with respect to the Company, the principal of
(and premium, if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating to
the Company whether or not such claim for post-petition interest is allowed in
such proceeding), on Debt, whether incurred on or prior to the date of the
Indenture or thereafter incurred, which is by its terms expressly provided to be
junior and subordinate to other Debt of the Company (other than the Subordinated
Debentures).
"Additional Senior Obligations" means, with respect to the Company, all
indebtedness, whether incurred on or prior to the date of the Indenture or
thereafter incurred, for claims in respect of derivative products such as
interest and foreign exchange rate contracts, commodity contracts and similar
arrangements; provided, however, that Additional Senior Obligations do not
include claims in respect of Senior Debt or Subordinated Debt or obligations
which, by their terms, are expressly stated to be not superior in right of
payment to the Subordinated Debentures or to rank pari passu in right of payment
with the Subordinated Debentures. "Claim," as used herein, has the meaning
assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978,
as amended.
The Indenture places no limitation on the amount of additional Senior Debt,
Subordinated Debt or Additional Senior Obligations that may be incurred by the
Company. The Company expects from time to time to incur additional indebtedness
constituting Senior Debt, Subordinated Debt and Additional Senior Obligations.
As of May 31, 1997, the Company had no outstanding Senior Debt, Subordinated
Debt or Additional Senior Obligations. Because the Company is a holding company,
the Subordinated Debentures are effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, including obligations to
depositors of the Bank.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Subordinated Debentures will
be made at the office of the Debenture Trustee in New York, New York, except
that, at the option of the Company, payment of any interest may be made (i) by
check mailed to the address of the Person entitled
37
thereto as such address appears in the register of holders of the Subordinated
Debentures, or (ii) by transfer to an account maintained by the Person entitled
thereto as specified in the register of holders of the Subordinated Debentures,
provided that proper transfer instructions have been received by the regular
record date. Payment of any interest on Subordinated Debentures will be made to
the Person in whose name such Subordinated Debenture is registered at the close
of business on the regular record date for such interest, except in the case of
defaulted interest. The Company may at any time designate additional paying
agents for the Subordinated Debentures or rescind the designation of any paying
agent for the Subordinated Debentures; however, the Company will at all times be
required to maintain a paying agent in New York, New York and each place of
payment for the Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent for the
Subordinated Debentures, or then held by the Company in trust, for the payment
of the principal of or interest on the Subordinated Debentures and remaining
unclaimed for two years after such principal or interest has become due and
payable will be repaid to the Company on May 31 of each year or (if then held in
trust by the Company) will be discharged from such trust and the holder of such
Subordinated Debenture will thereafter look, as a general unsecured creditor,
only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee will act as the registrar and the transfer agent for
the Subordinated Debentures. Subordinated Debentures may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), in New York, New
York or at the office of the registrar in Boston, Massachusetts. The Company may
at any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts; provided that
the Company maintains a transfer agent in New York, New York. The Company may at
any time designate additional transfer agents with respect to the Subordinated
Debentures. In the event of any redemption, neither the Company nor the
Debenture Trustee will be required to (i) issue, register the transfer of or
exchange Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption, or (ii) transfer or exchange any Subordinated
Debentures so selected for redemption, except, in the case of any Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
MODIFICATION OF INDENTURE
The Company and the Debenture Trustee may, from time to time without the consent
of the holders of the Subordinated Debentures, amend, waive or supplement the
Indenture for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies and qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
outstanding Subordinated Debentures, to modify the Indenture; provided, that no
such modification may, without the consent of the holder of each outstanding
Subordinated Debenture affected by such proposed modification, (i) extend the
fixed maturity of the Subordinated Debentures, 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 Subordinated Debentures,
the holders of which are required to consent to any such modification of the
Indenture; provided that so long as any of the Preferred Securities remain
outstanding, no such modification may be made that requires the consent of the
holders of the Subordinated Debentures, and no termination of the Indenture may
occur, and no waiver of any Debenture Event of Default may be effective, without
the prior consent of the holders of at least a majority of the aggregate
Liquidation Amount of the Preferred Securities and that if the consent of the
holder of each Subordinated Debenture is required, such modification will not be
effective until each holder of Trust Securities has consented thereto.
38
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures that has occurred and is
continuing constitutes an event of default (each, a "Debenture Event of
Default") with respect to the Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Subordinated
Debentures, when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal on the Subordinated Debentures when due
whether at maturity, upon redemption by declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee. The
Debenture Trustee, or the holders of not less than 25% in aggregate outstanding
principal amount of the Subordinated Debentures, may declare the principal due
and payable immediately upon a Debenture Event of Default. The holders of a
majority in aggregate outstanding principal amount of the Subordinated
Debentures may annul such declaration and waive the default if the default
(other than the non-payment of the principal of the Subordinated Debentures
which has become due solely by such acceleration) has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Should the holders of the Subordinated Debentures fail to annul such declaration
and waive such default, the holders of a majority in aggregate Liquidation
Amount of the Preferred Securities will have such right.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default has occurred and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on such
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 Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest on or
principal of the Subordinated Debentures on the payment date on which such
payment is due and payable, then a holder of Preferred Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder (a "Direct Action"). In connection with such
Direct Action, the Company will have a right of set-off under the Indenture to
the extent of any payment made by the Company to such holder of Preferred
Securities in the Direct Action. The Company may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the prior written
consent of the holders of all of the Preferred Securities. If the right to bring
a Direct Action is removed, the Trust may become subject to the reporting
obligations under the Exchange Act.
The holders of the Preferred 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 Subordinated Debentures unless there has been an
Event of Default under the Trust Agreement. See "Description of the Preferred
Securities -- Events of Default; Notice."
39
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Company may not consolidate with or merge into any other Person or
convey or transfer its properties and assets substantially as an entirety to any
Person, and no Person may consolidate with or merge into the Company or sell,
convey, transfer or otherwise dispose of its properties and assets substantially
as an entirety to the Company, unless (i) in the event the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially as an entirety to any Person, the successor Person is
organized under the laws of the United States or any State or the District of
Columbia, and such successor Person expressly assumes by supplemental indenture
the Company obligations on the Subordinated Debentures issued under the
Indenture, (ii) immediately after giving effect thereto, no Debenture Event of
Default, and no event which, after notice or lapse of time or both, would become
a Debenture Event of Default, has occurred and is continuing, and (iii) certain
other conditions prescribed in the Indenture are met.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to the Company's
obligations to pay certain sums due pursuant to the Indenture and to provide
certain officers' certificates and opinions of counsel described therein) and
the Company will be deemed to have satisfied and discharged the Indenture when,
among other things, all 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 or are to be
called for redemption within one year, and the Company deposits or causes to be
deposited with the Debenture Trustee funds, in trust, for the purpose and in an
amount sufficient to pay and discharge the entire indebtedness on the
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal and interest to the date of the deposit or to
the Stated Maturity or redemption date, as the case may be.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Delaware.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee has and is 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 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.
MISCELLANEOUS
The Company has agreed, pursuant to the Indenture, for so long as Trust
Securities remain outstanding, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of the Trust (provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities), (ii) not to voluntarily dissolve
the Trust, except upon prior approval of the Federal Reserve if then so required
under applicable capital guidelines or policies of the Federal Reserve, and (a)
in connection with a distribution of Subordinated Debentures to the holders of
the Preferred Securities in liquidation of the Trust, or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement, and (iii) to use its reasonable efforts, consistent with the terms
and provisions of the Trust Agreement, to cause the Trust to remain classified
as a grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes.
40
DESCRIPTION OF THE GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred Securities.
The Guarantee will be qualified as an indenture under the Trust Indenture Act.
The Guarantee Trustee will act as indenture trustee under the Guarantee for
purposes of complying with the provisions of the Trust Indenture Act. The
Guarantee Trustee, State Street Bank and Trust Company, will hold the Guarantee
for the benefit of the holders of the Preferred Securities. The following
summary of the material terms and provisions of the Guarantee does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Guarantee and the Trust Indenture Act. Wherever
particular defined terms of the Guarantee are referred to, but not defined
herein, such defined terms are incorporated herein by reference. The form of the
Guarantee has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
The Company will, pursuant to the Guarantee, irrevocably agree to pay in
full on a subordinated basis, to the extent set forth therein, the Guarantee
Payments (as defined below) to the holders of the Preferred Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that the
Trust may have or assert other than the defense of payment. The following
payments with respect to the Preferred Securities, to the extent not paid by or
on behalf of the Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accrued and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Trust has funds available therefor
at such time, (ii) the Redemption Price with respect to any Preferred Securities
called for redemption to the extent that the Trust has funds available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding up
or liquidation of the Trust (other than in connection with the distribution of
Subordinated Debentures to the holders of Preferred Securities or a redemption
of all of the Preferred Securities), the lesser of (a) the amount of the
Liquidation Distribution, to the extent the Trust has funds available therefor
at such time, and (b) the amount of assets of the Trust remaining available for
distribution to holders of Preferred Securities in liquidation of the Trust. The
obligation of the Company to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of the Preferred
Securities or by causing the Trust to pay such amounts to such holders.
The Guarantee will not apply to any payment of Distributions except to the
extent the Trust has funds available therefor. If the Company does not make
interest payments on the Subordinated Debentures held by the Trust, the Trust
will not pay Distributions on the Preferred Securities and will not have funds
legally available therefor.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company in the same
manner as the Subordinated Debentures. The Guarantee does not place a limitation
on the amount of additional Senior Debt, Subordinated Debt or Additional Senior
Obligations that may be incurred by the Company. The Company expects from time
to time to incur additional indebtedness constituting Senior Debt, Subordinated
Debt and Additional Senior Obligations.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against any other Person). The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent not
paid by the Trust or upon distribution of the Subordinated Debentures to the
holders of the Preferred Securities. Because the Company is a holding company,
the right of the Company to participate in any distribution of assets
41
of the Bank upon the Bank's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of the Bank, except to the extent the
Company may itself be recognized as a creditor of the Bank. The Company's
obligations under the Guarantee, therefore, will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and claimants
should look only to the assets of the Company for payments thereunder.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. See "Description of the Preferred Securities
- -- Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee will bind the successors, assigns, receivers,
trustees and representatives of the Company and will inure to the benefit of the
holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other Person.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Preferred Securities, unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (a)
full payment of the Redemption Price of the Preferred Securities, (b) full
payment of the amounts payable upon liquidation of the Trust, or (c)
distribution of the Subordinated Debentures to the holders of the Preferred
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Preferred Securities must
restore payment of any sums paid under such Preferred Securities or the
Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Delaware.
42
EXPENSE AGREEMENT
The Company will, pursuant to the Agreement as to Expenses and Liabilities
entered into by it under the Trust Agreement (the "Expense Agreement"),
irrevocably and unconditionally guarantee to each person or entity to whom the
Trust becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Trust, other than obligations of the Trust to pay to the
holders of the Preferred Securities or other similar interests in the Trust of
the amounts due such holders pursuant to the terms of the Preferred Securities
or such other similar interests, as the case may be. Third party creditors of
the Trust may proceed directly against the Company under the Expense Agreement,
regardless of whether such creditors had notice of the Expense Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities (to
the extent the Trust has funds available for the payment of such Distributions)
are irrevocably guaranteed by the Company as and to the extent set forth under
"Description of the Guarantee." The Company and the Trust believe that, taken
together, the obligations of the Company under the Subordinated Debentures, the
Indenture, the Trust Agreement, the Expense Agreement, and the Guarantee
provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a
subordinated basis, of payment of Distributions and other amounts due on the
Preferred 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
obligations of the Trust under the Preferred Securities. If and to the extent
that the Company does not make payments on the Subordinated Debentures, the
Trust will not pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the Trust
does not have sufficient funds to pay such Distributions. In such event, the
remedy of a holder of Preferred Securities is to institute a legal proceeding
directly against the Company for enforcement of payment of such Distributions to
such holder. The obligations of the Company under the Guarantee are subordinate
and junior in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover Distributions
and other payments due on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Subordinated Debentures will be equal to the
sum of the aggregate stated Liquidation Amount of the Trust Securities, (ii) the
interest rate and interest and other payment dates on the Subordinated
Debentures will match the Distribution rate and Distribution and other payment
dates for the Preferred Securities, (iii) the Company will pay for all and any
costs, expenses and liabilities of the Trust (except the obligations of the
Trust to holders of the Preferred Securities), and (iv) the Trust Agreement
further provides that the Trust will not engage in any activity that is not
consistent with the limited purposes of the Trust.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other Person. A default or event of default under any Senior Debt, Subordinated
Debt or Additional Senior Obligations of the Company would not constitute a
default or Event of Default. In the event, however, of payment defaults under,
or acceleration of, Senior Debt, Subordinated Debt or Additional Senior
Obligations of the Company, the subordination provisions of
43
the Indenture provide that no payments may be made in respect of the
Subordinated Debentures until such Senior Debt, Subordinated Debt or Additional
Senior Obligations has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on the Subordinated
Debentures would constitute an Event of Default.
LIMITED PURPOSE OF THE TRUST
The Preferred Securities evidence a preferred undivided beneficial interest
in the assets of the Trust. The Trust exists for the exclusive purposes of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Subordinated Debentures issued by the Company, and (iii) engaging in only
those other activities necessary, advisable, or incidental thereto. A principal
difference between the rights of a holder of a Preferred Security and the rights
of a holder of a Subordinated Debenture is that a holder of a Subordinated
Debenture is entitled to receive from the Company the principal amount of and
interest accrued on Subordinated Debentures held, while a holder of Preferred
Securities is entitled to receive Distributions from the Trust (or from the
Company under the Guarantee) if and to the extent the Trust has funds available
for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Trust involving the
liquidation of the Subordinated Debentures, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Trust, the
Liquidation Distribution in cash. See "Description of the Preferred Securities
- -- Liquidation Distribution Upon Dissolution." Upon any voluntary or involuntary
liquidation or bankruptcy of the Company, the Property Trustee, as holder of the
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company (as set forth in the Indenture),
but entitled to receive payment in full of principal and interest before any
shareholders of the Company receive payments or distributions. Since the Company
is the guarantor under the Guarantee and has agreed to pay for all costs,
expenses and liabilities of the Trust (other than the obligations of the Trust
to the holders of its Preferred Securities), the positions of a holder of the
Preferred Securities and a holder of the Subordinated Debentures relative to
other creditors and to shareholders of the Company in the event of liquidation
or bankruptcy of the Company are expected to be substantially the same.
44
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income tax
considerations that may be relevant to the purchasers of Preferred Securities
which has been passed upon by Goodwin, Procter & Hoar LLP, counsel to the
Company and the Trust insofar as it relates to matters of law and legal
conclusions. The conclusions expressed herein are based upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change at any time, with possible retroactive effect. Subsequent
changes may cause tax consequences to vary substantially from the consequences
described below. Furthermore, the authorities on which the following summary is
based are subject to various interpretations, and it is therefore possible that
the United States federal income tax treatment of the purchase, ownership, and
disposition of Preferred Securities may differ from the treatment described
below.
No attempt has been made in the following discussion to comment on all United
States federal income tax matters affecting purchasers of Preferred Securities.
Moreover, the discussion generally focuses on holders of Preferred Securities
who are individual citizens or residents of the United States and who acquire
Preferred Securities on their original issue at their offering price and hold
Preferred Securities as capital assets. The discussion has only limited
application to dealers in securities, corporations, estates, trusts or
nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors, or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. The following summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Preferred
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Preferred Securities.
Accordingly, each prospective investor should consult, and should rely
exclusively on, such investor's own tax advisors in analyzing the federal,
state, local and foreign tax consequences of the purchase, ownership or
disposition of Preferred Securities.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
The Company intends to take the position that the Subordinated Debentures
will be classified for United States federal income tax purposes as indebtedness
of the Company under current law, and, by acceptance of a Preferred Security,
each holder covenants to treat the Subordinated Debentures as indebtedness and
the Preferred Securities as evidence of an indirect beneficial ownership
interest in the Subordinated Debentures. No assurance can be given, however,
that such position of the Company will not be challenged by the Internal Revenue
Service or, if challenged, that such a challenge will not be successful. The
remainder of this discussion assumes that the Subordinated Debentures will be
classified for United States federal income tax purposes as indebtedness of the
Company.
CLASSIFICATION OF THE TRUST
Under current law and assuming full compliance with the terms of the Trust
Agreement and Indenture (and certain other documents described herein), the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each holder of Preferred
Securities generally will be treated as owning an undivided beneficial interest
in the Subordinated Debentures, and upon the occurrence of an Extension Period
each holder will be required to include in his gross income any original issue
discount ("OID") accrued with respect to his allocable share of the Subordinated
Debentures whether or not cash is actually distributed to such holder.
45
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations"), a debt
instrument will be deemed to be issued with OID if there is more than a "remote"
contingency that periodic stated interest payments due on the instrument will
not be timely paid. Because the exercise by the Company of its option to defer
the payment of stated interest on the Subordinated Debentures would prevent the
Company from declaring dividends on any class of equity, the Company believes
that the likelihood of its exercising the option is "remote" within the meaning
of the Regulations. As a result, the Company intends to take the position that
the Subordinated Debentures will not be deemed to be issued with OID.
Accordingly, based on this position, stated interest payments on the
Subordinated Debentures will be includible in the ordinary income of a holder at
the time that such payments are paid or accrued in accordance with the holder's
regular method of accounting. Because the Regulations have not yet been
addressed in any published rulings or other published interpretations issued by
the Internal Revenue Service, it is possible that the Internal Revenue Service
could take a position contrary to the position taken by the Company.
If the Company were to exercise its option to defer the payment of stated
interest on the Subordinated Debentures, the Subordinated Debentures would be
treated, solely for purpose of the OID rules, as being "reissued" at such time
with OID. Under these rules, a holder of the Subordinated Debentures would be
required to include OID in ordinary income, on a current basis, over the period
that the instrument is held even though the Company would not be making any
actual cash payments during the extended interest payment period. The amount of
interest income includible in the taxable income of a holder of the Subordinated
Debentures would be determined on the basis of a constant yield method over the
remaining term of the instrument and the actual receipt of future payments of
stated interest on the Subordinated Debentures would no longer be separately
reported as taxable income. The amount of OID that would accrue, in the
aggregate, during the extended interest payment period would be approximately
equal to the amount of the cash payment due at the end of such period. Any OID
included in income would increase the holder's adjusted tax basis in the
Subordinated Debentures and the holder's actual receipt of interest payments
would reduce such basis.
Because income on the Preferred Securities will constitute interest income
for United States federal income tax purposes, corporate holders of Preferred
Securities will not be entitled to claim a dividends received deduction in
respect of such income.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interests in the Subordinated Debentures with "market discount"
or "acquisition premium" as such phrases are defined for United States federal
income tax purposes. Such holders are advised to consult their tax advisors as
to the income tax consequences of the acquisition, ownership and disposition of
the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under "Description of the
Preferred Securities -- Redemption or Exchange" and " -- Liquidation
Distribution Upon Dissolution," the Subordinated Debentures may be distributed
to holders of Preferred Securities upon a liquidation of the Trust. Under
current United States federal income tax law, such a distribution would be
treated as a nontaxable event to each such holder and would result in such
holder having an adjusted tax basis in the Subordinated Debentures received in
the liquidation equal to such holder's adjusted tax basis in the Preferred
Securities immediately before the distribution. A holder's holding period in the
Subordinated Debentures so received in liquidation of the Trust would include
the period for which such holder held the Preferred Securities.
If, however, a Tax Event occurs which results in the Trust being treated as
an association taxable as a corporation, the distribution would likely
constitute a taxable event to holders of the Preferred Securities. Under certain
circumstances described herein, the Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their
46
Preferred Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Preferred Securities, and a holder would recognize gain or loss as if
the holder sold such Preferred Securities for cash. See "Description of the
Preferred Securities -- Redemption or Exchange" and "-- Liquidation Distribution
Upon Dissolution."
DISPOSITION OF PREFERRED SECURITIES
Upon the sale of the Preferred Securities, a holder will recognize gain or
loss in an amount equal to the difference between his adjusted tax basis in the
Preferred Securities and the amount realized in the sale (except to the extent
of any amount received in respect of accrued but unpaid interest not previously
included in income). A holder's adjusted tax basis in the Preferred Securities
generally will be his initial purchase price increased by OID (if any)
previously includible in the holder's gross income to the date of disposition
and decreased by payments (if any) received on the Preferred Securities in
respect of OID (if any) to the date of disposition. Such gain or loss generally
will be a capital gain or loss and will be a long-term capital gain or loss if
the Preferred Securities have been held for more than one year at the time of
the sale.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID if the Subordinated
Debentures are treated as having been issued, or reissued, with OID) with
respect to the underlying Subordinated Debentures. A holder who disposes of his
Preferred Securities will be required to include in ordinary income (i) any
portion of the amount realized that is attributable to such accrued but unpaid
interest to the extent not previously included in income, or (ii) any amount of
OID, in either case, that has accrued on his pro rata share of the underlying
Subordinated Debentures during the taxable year of sale through the date of
disposition. Any such income inclusion will increase the holder's adjusted tax
basis in his Preferred Securities disposed of. To the extent that the amount
realized in the sale is less than the holder's adjusted tax basis, a 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.
EFFECT OF PROPOSED CHANGES IN TAX LAWS
On March 19, 1996, President Clinton proposed certain tax law changes that
would, among other things, generally deny corporate issuers a deduction for
interest in respect of certain debt obligations issued on or after December 7,
1995 (the "1996 Proposed Legislation") if such debt obligations have a maximum
term in excess of 20 years and are not shown as indebtedness on the issuer's
applicable consolidated balance sheet. On March 29, 1996, Senate Finance
Committee Chairman William V. Roth, Jr. and House Ways and Means Committee
Chairman Bill Archer issued a joint statement (the "Joint Statement") indicating
their intent that certain legislative proposals initiated by the Clinton
administration, including the 1996 Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress would have an effective date
that is no earlier than the date of "appropriate Congressional action." In
addition, subsequent to the publication of the Joint Statement, Senator Daniel
Patrick Moynihan and Representatives Sam. M. Gibbons and Charles B. Rangel wrote
letters to Treasury Department officials concurring with the views expressed in
the Joint Statement. Neither the 1996 Proposed Legislation nor similar
legislation was enacted during the 104th Congress. On February 6, 1997,
President Clinton proposed in the administration's fiscal year 1998 budget
certain tax law changes (the "Administration's 1997 Tax Proposals") that would,
among other things, generally deny corporate issuers a deduction for interest or
OID in respect of certain debt obligations if such debt obligations have a
maximum term in excess of 15 years and are not shown as indebtedness on the
issuer's applicable consolidated balance sheet. The Administration's 1997 Tax
Proposals also contain a provision that would deny a deduction to corporate
issuers for interest or OID with respect to debt instruments that have a maximum
term of more than 40 years (including rights to extend, renew or relend), or are
payable in stock of the issuer or a related party. The U.S. Treasury
Department's summary of the Administration's 1997 Tax Proposals states that the
above provisions regarding the deduction of interest would generally be
effective for instruments issued on or after the date of first Congressional
committee action with respect to the 1997 proposed legislation. On June 9, 1997,
Chairman
47
Bill Archer released his proposed budget revenue reconciliation provisions (the
"Chairman's Mark"), which proposals did not include the above provisions from
the Administration's 1997 Tax Proposals, other than a denial of a deduction for
interest or OID that is payable in stock of the issuer or a related party. The
House Ways and Means Committee began a markup of the proposed budget revenue
reconciliation provisions on June 11, 1997 (the "June Hearings"). There can be
no assurance that the Chairman's Mark will be adopted or that the effective date
guidance in the Administration's 1997 Tax Proposals will be adopted if the
administration's proposed changes to the tax law are enacted, or that the June
Hearings will or will not be considered the "first Congressional committee
action." Nor can there be any assurance that other legislation enacted after the
date hereof will not otherwise adversely affect the ability of the Company to
deduct the interest payable on the Subordinated Debentures. Consequently, there
can be no assurance that a Tax Event will not occur. A Tax Event would permit
the Company, upon approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve, to cause a
redemption of the Preferred Securities before, as well as after, June 30, 2002.
See "Description of the Subordinated Debentures -- Redemption or Exchange" and
"Description of the Preferred Securities -- Redemption or Exchange -- Tax Event
Redemption, Capital Treatment Event Redemption or Investment Company Event
Redemption."
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of OID accrued on the Preferred Securities held of record by
individual citizens or residents of the United States, or certain trusts,
estates, and partnerships, will be reported to the Internal Revenue Service on
Forms 1099, which forms should be mailed to such holders of Preferred Securities
by January 31 following each calendar year. Payments made on, and proceeds from
the sale of, the Preferred Securities may be subject to a "backup" withholding
tax (currently at 31%) unless the holder complies with certain identification
and other requirements. Any amounts withheld under the backup withholding rules
will be allowed as a credit against the holder's United States federal income
tax liability, provided the required information is provided to the Internal
Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans"), generally may purchase Preferred Securities, subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
In any case, the Company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of ERISA) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to certain plans
(generally, Plans maintained or sponsored by, or contributed to by, any such
persons with respect to which the Company or an affiliate is a fiduciary or
Plans for which the Company or an affiliate provides services). The acquisition
and ownership of Preferred Securities by a Plan (or by an individual retirement
arrangement or other Plans described in Section 4975(e)(1) of the Code) with
respect to which the Company or any of its affiliates is considered a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable exemption. Any other Plans or other
entities whose assets include Plan assets subject to ERISA or Section 4975 of
the Code proposing to acquire Preferred Securities should consult with their own
counsel.
48
UNDERWRITING
The Underwriters named below, represented by Sandler O'Neill & Partners,
L.P. and Stifel, Nicolaus & Company, Incorporated (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, to purchase from
the Trust the number of Preferred Securities set forth opposite their respective
names below. The several Underwriters have agreed in the Underwriting Agreement,
subject to the terms and conditions set forth therein, to purchase all the
Preferred Securities offered hereby if any of the Preferred Securities are
purchased. In the event of default by an Underwriter, the Underwriting Agreement
provides that, in certain circumstances, purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
NUMBER OF
UNDERWRITER PREFERRED SECURITIES
----------- --------------------
Sandler O'Neill & Partners, L.P. ........................... 600,000
Stifel, Nicolaus & Company, Incorporated ................... 600,000
---------
Total ................................................... 1,200,000
=========
The Representatives have advised the Trust that they propose initially to
offer the Preferred Securities to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $0.20 per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $0.05 per Preferred Security to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the Company,
the Underwriting Agreement provides that the Company will pay as compensation to
the Underwriters arranging the investment therein of such proceeds, an amount in
immediately available funds of $0.50 per Preferred Security (or $600,000 in the
aggregate) for the accounts of the several Underwriters.
The Trust has granted the Underwriters an option to purchase up to an
additional 180,000 Preferred Securities at the public offering price. Such
option, which expires 30 days from the date of this Prospectus, may be exercised
solely to cover over-allotments. To the extent that the Underwriters exercise
such option, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage of the
additional Preferred Securities that the number of Preferred Securities to be
purchased initially by the Underwriter is of the 1,200,000 Preferred Securities
initially purchased by the Underwriters.
To the extent that the Underwriters exercise their option to purchase
additional Preferred Securities, the Trust will issue and sell to the Company
additional Common Securities in such aggregate Liquidation Amount as is required
for the Company to continue to hold Common Securities in an aggregate
Liquidation Amount equal to at least 3% of the total capital of the Trust and
the Company will issue and sell to the Trust Subordinated Debentures in an
aggregate principal amount equal to the total aggregate Liquidation Amount of
the additional Preferred Securities being purchased pursuant to the option and
the additional Common Securities.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over- allotment transactions in which the Underwriters
create a short position for their own account by selling more Preferred
Securities than they are committed to purchase from the Trust. In such case, to
cover all or part of the short position, the Underwriters may exercise the
over-allotment option described
49
above or may purchase Preferred Securities in the open market following
completion of the initial offering of the Preferred Securities. The Underwriters
also may engage in stabilizing transactions in which they bid for, and purchase,
shares of the Preferred Securities at a level above that which might otherwise
prevail in the open market for the purpose of preventing or retarding a decline
in the market price of the Preferred Securities. The Underwriters also may
reclaim any selling concessions allowed to an Underwriter or dealer if the
Underwriters repurchase shares distributed by that Underwriter or dealer. Any of
the foregoing transactions may result in the maintenance of a price for the
Preferred Securities at a level above that which might otherwise prevail in the
open market. Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Preferred
Securities. The Underwriters are not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at any
time without notice.
During a period of 180 days from the date of this Prospectus, neither the
Trust nor the Company will, subject to certain exceptions, without the prior
written consent of the Representatives, directly or indirectly, sell, offer to
sell, grant any option for sale of, or otherwise dispose of, any Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Preferred Securities or Subordinated Debentures or any debt securities
substantially similar to the Subordinated Debentures or equity securities
substantially similar to the Preferred Securities (except for Subordinated
Debentures and the Preferred Securities offered hereby).
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
The Preferred Securities are a new issue of securities with no established
trading market. The Preferred Securities have been approved for quotation on The
Nasdaq Stock Market's National Market. The Representatives have advised the
Trust that they presently intend to make a market in the Preferred Securities
after the commencement of trading on The Nasdaq Stock Market's National Market,
but no assurances can be made as to the liquidity of such Preferred Securities
or that an active and liquid trading market will develop or, if developed, that
it will continue. The offering price and distribution rate have been determined
by negotiations among representatives of the Company and the Underwriters, and
the offering price of the Preferred Securities may not be indicative of the
market price following the Offering. The Representatives will have no obligation
to make a market in the Preferred Securities, however, and may cease
market-making activities, if commenced, at any time.
The Trust and the Company have agreed to indemnify the Underwriters against,
or contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities Act.
Sandler O'Neill & Partners, L.P. engages in transactions with, and, from
time to time, has performed services for, the Company and its subsidiaries in
the ordinary course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of the
Trust and the validity of the Guarantee and the Subordinated Debentures, will be
passed upon by Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware, special
Delaware counsel to the Company and the Trust. Certain legal matters for the
Company and the Trust, including matters relating to United States federal
income tax considerations will be passed upon for the Company and the Trust by
Goodwin, Procter & Hoar LLP, Boston, Massachusetts, counsel to the Company and
the Trust. Certain legal matters will be passed upon for the Underwriters by
Bryan Cave LLP, St. Louis, Missouri. Goodwin, Procter & Hoar LLP will rely on
the opinion of Morris, Nichols, Arsht & Tunnell as to matters of Delaware law.
50
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996, appearing in the 1996 Annual Report of the Company to its shareholders and
incorporated by reference in the Annual Report on Form 10-K for the year ended
December 31, 1996, have been incorporated by reference in this Prospectus and in
the Registration Statement of which this Prospectus forms a part, in reliance
upon the report of Wolf & Company, P.C., independent public accountants,
incorporated by reference herein, whose report thereon appears therein, and upon
the authority of said firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996; and
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 (attached hereto as Appendix B).
In addition, the following portions of the Company's 1996 Annual Report to
Shareholders (attached hereto as Appendix A) are incorporated herein by
reference:
1. Management's Discussion and Analysis of Financial Condition and
Results of Operations; and
2. Selected Consolidated Financial Data, Consolidated Balance Sheets,
Consolidated Statements of Income, Consolidated Statements of Changes
in Stockholders' Equity, Consolidated Statements of Cash Flows, and
Notes to Consolidated Financial Statements.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY REFERENCE HEREIN (OTHER
THAN EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
IN SUCH DOCUMENTS). REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO: PEOPLE'S
BANCSHARES, INC., 545 PLEASANT STREET, NEW BEDFORD, MASSACHUSETTS 02740, ATTN:
CHIEF FINANCIAL OFFICER (TELEPHONE (508) 991-2601).
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
51
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material may also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. If available, such information
also may be accessed through the Commission's electronic data gathering,
analysis and retrieval system ("EDGAR") via electronic means, including the
Commission's home page on the Internet (http://www.sec.gov). The Company's
common stock is traded on the Nasdaq National Market. Such reports, proxy
statements and other information concerning the Company also may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-2 (the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules relating thereto as
permitted by the rules and regulations of the Commission. For further
information pertaining to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto. Items
of information omitted from this Prospectus, but contained in the Registration
Statement, may be obtained at prescribed rates or inspected without charge at
the offices of the Commission set forth above. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
No separate financial statements of the Trust have been included herein. The
Company does not consider that such financial statements would be material to
holders of the Preferred Securities because (i) all of the voting securities of
the Trust will be owned by the Company, a reporting company under the Exchange
Act, (ii) the Trust has no independent operations but exists for the sole
purpose of issuing securities representing undivided beneficial interest in the
assets of the Trust and investing the proceeds thereof in the Subordinated
Debentures issued by the Company, and (iii) the obligations of the Company
described herein to provide certain indemnities in respect of and be responsible
for certain costs, expenses, debts and liabilities of the Trust under the
Indenture and pursuant to the Trust Agreement, the guarantee issued by the
Company with respect to the Preferred Securities, and the Subordinated
Debentures purchased by the Trust and the related Indenture, taken together,
constitute, in the belief of the Company and the Trust, a full and unconditional
guarantee of payments due on the Preferred Securities. See "Description of the
Subordinated Debentures" and "Description of the Guarantee."
The Trust is not currently subject to the information reporting requirements
of the Exchange Act. The Trust will become subject to such requirements upon the
effectiveness of the Registration Statement, although it intends to seek and
expects to receive an exemption therefrom.
52
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Summary 5
Summary Consolidated Financial Data 10
Risk Factors 11
People's Bancshares, Inc. 19
People's Bancshares Capital Trust 19
Use of Proceeds 21
Market for the Preferred Securities 21
Accounting Treatment 21
Capitalization 22
Description of Preferred Securities 23
Description of the Subordinated Debentures 33
Description of the Guarantee 41
Expense Agreement 43
Relationship Among the Preferred Securities,
the Subordinated Debentures and the
Guarantee 43
Certain Federal Income Tax Consequences 45
ERISA Considerations 48
Underwriting 49
Legal Matters 50
Experts 51
Incorporation of Certain Documents by
Reference 51
Available Information 52
Appendix A -- 1996 Annual Report to
Shareholders
Appendix B -- Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1997
----------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR BY THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
- --------------------------------------------------------------------------------
1,200,000 PREFERRED SECURITIES
PEOPLE'S BANCSHARES
CAPITAL TRUST
9.76% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
[Logo)
PEOPLE'S BANCSHARES, INC.
$12,000,000
9.76% SUBORDINATED DEBENTURES
OF
PEOPLE'S BANCSHARES, INC.
---------------
PROSPECTUS
June 19, 1997
---------------
SANDLER O'NEILL & PARTNERS, L.P.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
- --------------------------------------------------------------------------------
